UPDATE 6-Pentagon tries again on aerial tanker contest

* Pentagon aims for June 2010 contract award

* Follows two botched efforts to buy tankers

* Seeks to make requirements clear, unbiased

* Some lawmakers say WTO trade dispute should be a factor (Recasts first paragraph; adds quotes from Pentagon, Air Force officials)

By Jim Wolf and Andrea Shalal-Esa

WASHINGTON, Sept 24 (Reuters) - The Pentagon spelled out on Thursday how it would judge a politically sensitive, $35-billion competition for new refueling planes after two failed attempts to award a contract.

Boeing Co (BA.N), the Pentagon's No. 2 supplier by sales, is vying for the deal against a team made up of Northrop Grumman (NOC.N) and Europe's EADS (EAD.PA), parent of Airbus.

The contract would be for an initial 179 tankers, the first of three batches to be bought over coming decades at a projected cost of $100 billion or more.

The Pentagon said it would release draft bidding rules on Friday and give the companies 60 days to comment on them before final specifications are released.

It plans to award a contract by June for the first new planes to be delivered in 2015 and operational in 2017.

This is the Pentagon's third attempt in eight years to start replacing its KC-135 tankers, which average more than 50 years old.

A year ago, it scrapped a contract awarded to Northrop and EADS after the Government Accountability Office, the audit arm of Congress, upheld a protest by Boeing. GAO found the Air Force had not followed its own rules in evaluating the bids.

"This time we will be crystal clear about what we want and what the bidders need to do to win," Deputy Defense Secretary William Lynn said in a series of briefings, first to lawmakers, then to reporters.

"We have crafted this approach to favor no one except the warfighter and taxpayer," he said. The competition would involve price, long-term ownership costs and aircraft performance. [ID:nN24469923]

TRADE FIGHT EXCLUDED

The Pentagon exempted from the evaluation a Boeing-Airbus fight at the World Trade Organization over what each claimed was the others' illegal aircraft subsidies.

Lynn said the trade disputes would take years to resolve and belonged in the World Trade Organization process, not a Pentagon purchase.

The new acquisition strategy was generally welcomed in Congress.

Among lawmakers, the competition pits Boeing backers from Washington state and Kansas, where the company would do much of its tanker work, against lawmakers from Alabama, where the Northrop-EADS team would do final assembly of its planes.

Senator John McCain, of Arizona, said the rules appeared viable but added, "the devil is in the details." He led the opposition to an initial $23.5 billion sole-source plan to buy modified Boeing 767s as tankers. That plan collapsed in a conflict-of-interest scandal in 2004.

Representative Todd Tiahrt of Kansas faulted the decision to leave out an interim, confidential WTO ruling that he said had confirmed Airbus received illegal subsidies from European governments.

"For years we have been saying the French tanker has an unfair advantage through illegal subsidies," he said. "Consideration should be given in the RFP (request for proposal) to rectify this injustice."

REQUIREMENTS TRIMMED

Ashton Carter, the Pentagon's chief weapons buyer, told reporters the new evaluation process would avoid much of the "subjectivity" that he said had left the rival bidders unsure the last time of what they had to do to win.

Air Force Secretary Michael Donley, who joined in the briefings, said the Air Force expected to acquire the 179 tankers over 15 years, after which it would decide on possible changes for the next planned competition.

The new rules call for fixed-price bids from the companies and require them to meet just 373 mandatory requirements, instead of the more than 800 requirements included last time.

Companies could enhance their bids by meeting 93 additional non-mandatory requirements, and their score in that category could decide the competition, if the evaluated bids were within one percent of each on price.

John Murtha, chairman of the defense subcommittee of the House Appropriations Committee, called for the Pentagon to buy 36 airplanes per year, instead of the 15 planned under the new rules, saying it would save billions in maintenance and repair costs and get new tankers into the fleet sooner.

The rules call for the bids to be adjusted according to a complex model used to judge how well different sized aircraft perform in various wartime scenarios, a move that could benefit the larger Northrop A330-based tanker.

But the bids will also be adjusted to reward lower rates of fuel burn and less need for bigger hangars and ramps, which could benefit Boeing's smaller 767, said analyst Jim McAleese.

He said the company with the lowest adjusted price offer would win the competition, unless the bids were tied.

"This approach should drive both offerers to focus exclusively on meeting the 373 mandatory system requirements, while cutting price in every conceivable area," he said.

The first U.S. attempt to award a tanker contract collapsed in 2004 amid a scandal that sent a former top Air Force weapons buyer and Boeing's former chief financial officer to prison.

Boeing shares closed down 1.1 percent in regular trading Thursday at $51.79 amid broad losses on the stock market, while Northrop shares fell 1 percent to $51.03. (Reporting by Jim Wolf and Andrea Shalal-Esa; Additional reporting by Adam Entous; Editing by Lisa Von Ahn, Dave Zimmerman, Tim Dobbyn)