Pentagon signals minor changes to tanker rules

Thu Dec 17, 2009 6:44pm EST

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WASHINGTON, Dec 17 Reuters - Deputy Defense Secretary William Lynn on Thursday told lawmakers the Pentagon was likely to make only minor changes to the proposed terms of a multibillion dollar refueling aircraft competition, Representative Todd Tiahrt, a Kansas Republican, said.

Lynn met with Boeing Co supporters Tiahrt and Representative Norm Dicks, a Washington Democrat, a day after meeting with Alabama lawmakers supporting a bid by Northrop Grumman Corp and its European partner EADS, the parent of Boeing's commercial archrival Airbus. Northrop and EADS planned to build their tankers in Alabama.

"The changes are not going to be huge," Tiahrt told Reuters after the meeting. Boeing plans to build its aircraft in Washington state and do military modifications in Kansas.

He said Lynn suggested the Pentagon could adjust the projected fuel cost assumptions in the draft request for proposals, and may extend to 40 years the period covered under life cycle costs from 20 years in the draft.

Lynn told Reuters on Wednesday that the Pentagon was evaluating proposals made by the companies and lawmakers before issuing a revised request for proposals next month.

Tiahrt said he and Dicks were continuing to press the Pentagon to take account of a draft World Trade Organization ruling that found Airbus benefited from some illegal subsidies in developing the A330 aircraft at the heart of the Northrop-EADS tanker proposal.

Northrop and EADS won a projected $35 billion tanker contract in February 2008, but the Pentagon canceled it after government auditors upheld a Boeing protest. Officials say this next competition could be valued at $50 billion.

Northrop told the Pentagon this month that it believed the draft rules for the follow-on competition favored the smaller 767 tanker built by Boeing, and said it would not bid unless the Air Force made significant changes to the terms of the competition.

Tiahrt said Lynn told the lawmakers the department was sticking to its plans to buy a medium-sized tanker, and was pleased with the overall structure of the draft request for proposals, although they "did find some minor details that they need to adjust."

As currently structured, the competition would require bidders to meet 373 requirements. If the bids were within one percent of each other, additional nonmandatory requirements would be evaluated as a sort of tie-breaker.

Tiahrt said he did not get the sense that the Pentagon planned to widen that aperture to beyond one percent.

He said the Pentagon also appeared likely to stick to its requirement for a fixed price development contract, although it could incorporate some incentives to encourage the companies to beat the schedule, he said.

Northrop and Boeing had both raised concerns about the fixed price terms of the contract, although officials at EADS and Boeing told the Reuters Aerospace and Defense Summit this week that an accommodation could probably be found.

Top Pentagon leaders told Alabama lawmakers on Wednesday they would evaluate concerns raised by companies seeking to build the next generation refueling tanker for the Air Force and revise terms of the competition as appropriate, a U.S. senator said on Wednesday.

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

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Comments (1)
CarlW wrote:
All this has the vague scent of protectionism and if left unchanged can easily be the beginning of international retaliation in which U.S. companies are denied access to European aerospace opportunities. If there is any market segment that is unquestionably international, it is aerospace, and making it impossible for international providers to bid on U.S. procurements will almost certainly lead to very serious consequences down the road. With the flattening and indeed reduction of military procurement in the U.S., international markets are necessary to take up the slack. Protectionism such as this could deny those markets to U.S. companies and with that, many good paying jobs will be lost

Dec 18, 2009 1:02pm EST  --  Report as abuse
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