Tough tanker decision looms for Bush administration

WASHINGTON (Reuters) - The U.S. Defense Department said Friday it was still aiming to award a long-delayed $35 billion aerial-refueling plane deal before the Bush administration leaves office, even as it delayed yet again a final request for bids.

"We've not pulled away from our goal at this point," Bryan Whitman, a Pentagon spokesman, told Reuters. "And of course, that goal is the end of December."

Sticking to that original timetable would be a big blow to Chicago-based Boeing Co, which is battling in a third major effort to land the contract.

Whitman did not make clear when the final bid specifications would be released. The original mid-August target for this already has slipped three weeks. He said the Pentagon wanted to be "thorough and complete."

President Bush leaves office on January 20, opening up a whole new series of questions that could affect the outcome of the competition if it is not decided by then.

Boeing is again vying against a transatlantic team made up of Northrop Grumman Co and Airbus parent EADS to build an initial 179 refueling tankers for the U.S. Air Force.

In February, Northrop and EADS beat Boeing for the deal, a potential beachhead in the lucrative U.S. military market for EADS and Airbus, Boeing's archrival in commercial airliner markets worldwide.

The Defense Department opted to rerun the competition after a U.S. congressional umpire found the Air Force had made "significant errors" in evaluating rival bids.

The Pentagon then took on the job and set about revising its specifications in line with recommendations from the Government Accountability Office, which had upheld key parts of Boeing's protest on procedural grounds. Tankers are used to refuel other planes in mid-air.

The Pentagon has said bidders likely would have 45 to 60 days to complete their bids from the date of the final request for proposals. Depending on how these dates play out, that could leave the Bush administration as little as about two months to make a decision that has implications for decades to come.

By contrast, the Air Force spent 10 months weighing bids during the previous round, yet was faulted by the accountability office for botching the process. The new competition, however, is meant to involve changes only in eight or so areas faulted by the GAO, a less complex task than the initial one.

Based on its analysis of draft revisions to the tender, Boeing has argued it needs six months to meet what it says is the Pentagon's request for a bigger plane than the 767-200ER model it initially proposed.

Northrop won the earlier contest with an Airbus A330 derivative that can carry more fuel than the 767.

Two top Boeing executives -- chief executive Jim McNerney and Jim Albaugh, who heads Boeing's defense business -- asked Deputy Defense Secretary Gordon England at a Pentagon meeting on August 21 to give them four months beyond the projected two to craft a competitive proposal.

Failing this, Boeing, the Air Force's sole tanker supplier for 50 years, has said it may not bid. Extending the competition four months, as Boeing requests, would push it into the next administration

.

"Boeing would certainly like to be part of a fair competition for the next Air Force tanker," said Dan Beck, a company spokesman. "We just want to be sure that we have sufficient time to put together a meaningful and competitive proposal."

Asked whether Boeing was hoping to delay the matter until it would fall to the next administration, Beck said: "All Boeing cares about is the acquisition calendar, not the political calendar."

The politics of any delayed contract award could be significant. Republican presidential nominee John McCain, decrying what he called a taxpayer "ripoff," led a drive in 2003 to kill an ill-fated $23.5 billion Air Force plan to lease and then buy 100 modified Boeing 767s as tankers.

That deal collapsed amid a scandal that sent two Boeing executives, including the Air Force's one-time No. 2 arms buyer, to prison on conflict-of-interest charges.

Barack Obama, the Democratic nominee, is from Boeing's home state of Illinois.

Representatives of McCain and Obama did not respond to requests for comment on Boeing's request for additional time to bid.

A Northrop spokesman, Randy Belote, said his company had received "every indication that the government wants to move quickly" through a new competition.

For competitive reasons, he said, Northrop would not divulge the content of any specific discussions it had held with government officials.

(Additional reporting by David Morgan; Editing by Gary Hill)