U.S. auditors bash Air Force over refueling tanker

By Jim Wolf

WASHINGTON (Reuters) - U.S. auditors urged the Air Force Wednesday to rerun its competition for a $35 billion refueling-aircraft order, upholding a protest by losing bidder Boeing Co and breathing life into a Pentagon fiasco.

The Government Accountability Office found the Air Force made "a number of significant errors that could have affected the outcome of what was a close competition."

The contract was awarded on February 29 to a team made up of Northrop Grumman Corp and Europe's EADS, corporate parent of Boeing's passenger-jet maker rival Airbus.

GAO, a nonpartisan arm of Congress that reviews federal contract bidding disputes, faulted the Air Force for seven specific reasons, including "misleading and unequal discussions with Boeing."

The GAO's ruling is a recommendation to the Air Force, which has 60 days to respond. It was an uncommonly harsh rebuke to the service, which lists the tanker as its top acquisition priority.

Sue Payton, the Air Force's top weapons buyer, said the service was reviewing the decision and would spell out its response as soon as possible.

"The Air Force will do everything we can to rapidly move forward so America receives this urgently needed capability," she said in a statement. "The Air Force will select the best value tanker for our nation's defense, while being good stewards of the taxpayer dollar."

The GAO criticism may give Boeing another chance at what is likely to be one of the biggest contracts in Pentagon history, potentially swelling to $100 billion with follow-on orders.

The $35 billion deal was to build 179 midair refuelers over the next 15 years to replace its current fleet of Boeing KC-135 tankers, which average 47 years old.

The issue could become a hot potato for Sen. John McCain, the presumptive Republican presidential nominee who helped shape the competition.

As a member of the Senate Armed Services Committee, McCain led an effort to kill what turned out to have been a corrupt Air Force plan to lease and then buy 100 modified Boeing 767s as tankers without the benefit of competition.

"I'm still proud that the first time around I saved the taxpayers $6.2 billion," McCain of Arizona said on a campaign swing through Springfield, Missouri. In a written statement after the GAO ruling, he added: "My paramount concern on the tanker replacement program has always been that the Air Force buy the most capable aerial refueling tankers at the most reasonable cost."

McCain's drive to preserve competition "put pressure on the Air Force to keep Northrop engaged," said Loren Thompson of the Lexington Institute, an Arlington, Virginia-based research group.

"The resulting concessions apparently skewed the selection process against Boeing," said Thompson, a defense industry consultant with close ties to the Pentagon.

"Much of the way that this contract was decided was heavily influenced by McCain," added Richard Aboulafia of Fairfax, Virginia-based Teal Group, an aerospace consultancy.