UPDATE 1-U.S. senators drop hold on Pentagon nominee Carter

* Sessions, Shelby drop holds after Gates meeting

* Pentagon committed to fair tanker competition

* Full Senate may vote soon

By Andrea Shalal-Esa

WASHINGTON, April 23 (Reuters) - Two U.S. senators on Thursday said they were dropping their holds on the nomination of a new Pentagon chief arms buyer after Defense Secretary Robert Gates reaffirmed his commitment to a fair, open and transparent competition for new aerial refueling planes.

The move should pave the way for a vote by the full Senate in coming days on the nomination of Ashton Carter, a Harvard professor, to succeed John Young as defense undersecretary for acquisitions, technology and logistics.

Pentagon spokesman Bryan Whitman welcomed the move and said he hoped the full Senate would move quickly to confirm Carter. "The department has always been committed to a fair and open competition for the tanker replacement aircraft," he said.

Senator Richard Shelby said in a statement that he recognized the need for Gates to have a confirmed arms chief to move forward with the long-delayed competition between Boeing Co (BA.N) and Northrop Grumman Corp (NOC.N).

The two companies are competing for an order valued at more than $35 billion to begin replacing the Air Force's aging fleet of KC-135 tankers, which are nearly 50 years old.

But Shelby said he would keep a close eye on the process to see that Gates carried out his assurances made during a 30-minute meeting with Shelby and his fellow Alabama senator, Jeff Sessions, on Thursday.

Shelby met with Carter on Monday, who he said told him that he wanted to buy the best value tanker and cost would not be the only criteria in the revamped competition.

"Simply awarding a contract to the lowest bidder, with little or no weight given to the capabilities of the aircraft, is not in the best interest of the warfighter or the taxpayer," Shelby said in his statement on Thursday.

Shelby and Sessions had worried that a new competition for an aerial refueling tanker could result in a price "shoot out" that would work against the larger A330-based plane proposed by Northrop. The current Pentagon arms chief, Young, had said that a price-based competition was a proposal weighed at one point.

Northrop and its European partner EADS (EAD.PA) won a $35 billion tanker contract in February 2008, and planned to build their plane in Alabama, but Gates canceled the deal after government auditors upheld a protest by losing bidder Boeing.

Northrop officials have said an Air Force debriefing given to Boeing after the contract award may have included pricing data that could give it an advantage in the new competition.

It was not immediately clear if Gates spelled out what other criteria would be used in the competition.

Northrop wants to ensure that the new competition includes a mechanism to weigh the greater capability offered by its larger tanker versus that of the smaller 767-based airplane from Boeing.

Gates told reporters last week the Pentagon would let lawmakers review the new criteria for the tanker competition and get their input before proceeding with any contract award.

The Senate Armed Services Committee approved Carter's nomination earlier this month, but it could not be voted on by the full Senate given the holds placed by Shelby and Sessions.

The Pentagon plans to launch a new tanker competition this summer, and hopes to award a contract next year.

It will be the Air Force's third bid to replace its aging fleet of KC-135 refueling planes. The Air Force's first plan to lease and buy 100 Boeing 767s died in 2004 amid a major procurement scandal.

(Reporting by Andrea Shalal-Esa; Editing by Phil Berlowitz)