U.S. Air Force firings raise questions about contracts

WASHINGTON (Reuters) - The departure of the U.S. Air Force's two top leaders gives ammunition to critics of recent Air Force acquisition decisions and could slow progress on two big programs that have already been delayed by years.

U.S. officials said Defense Secretary Robert Gates requested the resignations of Air Force Secretary Michael Wynne and Chief of Staff Gen. Michael Moseley on Thursday after a series of incidents raised questions about nuclear security.

"Inevitably this will create confusion as to the fate of programs like the trans-Atlantic tanker deal and the next search and rescue helicopter," said Loren Thompson of the Virginia-based Lexington Institute.

In the absence of Wynne and Moseley, Pentagon chief arms buyer John Young and Congress are expected to take an even keener interest in Air Force acquisitions.

"The timing is terrible," said one defense industry executive, who spoke on condition of anonymity due to the sensitivity of the matter. "This is another distraction for the Air Force, which has had its share of problems of late."

Those problems include Boeing Co's (BA.N) high-profile challenge of a $35 billion refueling aircraft program. The Air Force awarded the deal in February to rival Northrop Grumman Corp (NOC.N) and its European partner, EADS Corp (EAD.PA).

The nonpartisan U.S. Government Accountability Office is due to rule by June 19 on Boeing's protest.

The Air Force is also wrapping up a $15 billion competition for new search-and-rescue helicopters. It was forced to redo the contest after the GAO twice upheld protests by Lockheed Martin Corp (LMT.N) and Sikorsky Aircraft (UTX.N) against the initial award to Boeing in November 2006. A contract award is expected in October.

ADDITIONAL OVERSIGHT

Jim McAleese, a Virginia-based defense consultant, said the resignations would undoubtedly result in additional oversight by Young.

The chief arms buyer and the Pentagon's Defense Acquisition Board sign off on the structure of major programs, but acquisition decisions are generally made by the services.

Young has already made moves to step up oversight of all big weapons programs, many led by the Air Force which was struggling to rebuild its reputation after a massive procurement scandal in 2004.

For instance, he created a task force to shadow the Air Force as it made its decision on the tanker contract, and has a similar group watching the process for the helicopter bids.

McAleese said the departures could also have a sort of "paralyzing effect" on the tanker contract, particularly if government auditors upheld all or part of the Boeing protest.

"For the first time, it raises the possibility that any reworking of the competition might have to wait until the next administration," he said.

That, he added, could delay a tanker contract for a full year until new Air Force leaders were appointed by the new White House administration.

RED FLAGS?

Young has stood by the Air Force's decision in the tanker competition, and told reporters on Thursday the GAO should not uphold the Boeing protest for minor problems with the process.

But Sen. Patty Murray, a Washington Democrat and Boeing supporter, said the resignations "raise new red flags about procurement and oversight."

"For months the Air Force has stonewalled Congress and the American people in answering basic questions about the tanker decision," Murray said in a statement. "Now, on the eve of a GAO ruling, the administration itself has expressed a lack of confidence in the decision making and leadership of the Air Force's top officials."

Murray and some other U.S. lawmakers have criticized the Air Force's award of the 179-tanker project to Northrop and EADS, the parent of Airbus, saying it would take jobs from Americans and "outsource" key gear for the U.S. military.

Northrop has said it will build the tankers in Mobile, Alabama.

Rob Stallard, defense analyst at Macquarie Capital in New York, said finalizing big weapons programs was always tough in an election year, but this would make it even more difficult.

"If anything, this just kind of slows the process down," Stallard said.

The resignations mark the latest in a series of leadership crises for the Air Force.

Air Force Secretary James Roche and his acquisition chief, Marvin Sambur, resigned in November 2004 amid the Pentagon's biggest procurement scandal since the 1980s.

Both were forced out after the No. 2 Air Force acquisition official, Darleen Druyun, and a former Boeing chief financial officer were each sentenced to federal prison for violating federal conflict of interest laws. Druyun negotiated a job with Boeing while still overseeing an earlier aerial tanker deal.

After the Druyun scandal, Wynne -- who was then the acting chief arms buyer for the Pentagon -- assumed control over all major Air Force acquisition programs. Most eventually returned to Air Force control, but the Pentagon still retains the ultimate control over key space programs.

Air Force spokeswoman Lt. Col. Karen Platt said the service would operate seamlessly despite Thursday's news. "These resignations are not going to have any impact on our acquisition initiatives," she said.

(Additional reporting by Kevin Drawbaugh; Editing by Tim Dobbyn)