US Air Force expects Boeing to lose appeal-analyst

By Andrea Shalal-Esa

WASHINGTON, April 28 (Reuters) - The U.S. Air Force has concluded that congressional auditors are unlikely to uphold any of the 200 issues raised by Boeing Co (BA.N) in its protest of a huge Northrop Grumman Corp (NOC.N) contract, analyst Loren Thompson of the Lexington Institute said on Monday.

Thompson, a defense consultant with close ties to the Air Force and the defense industry, said a large group of Air Force acquisition experts came to that conclusion after a marathon session at the Pentagon two weeks ago.

Boeing filed a formal protest with the Government Accountability Office in March after the Air Force awarded a $35 billion contract to Northrop and its European subcontractor EADS (EAD.PA) on Feb. 29.

The GAO is due to rule on the case by June 19. It is likely to hold a hearing on the issue in early May, possibly as early as next week, according to two sources familiar with the case.

Air Force experts also concluded that "whatever minor problems the accountability office might uncover would be far from sufficient to overturn a competitive outcome the service says was not close," Thompson wrote in a report.

He said officials did find one incident in which facts about the two planes were inadvertently switched, but it had little impact on the overall outcome.

Thompson cited growing consternation about the battle between Boeing and the Air Force over the tanker deal, and urged both sides to "catch their breath, tone down their rhetoric, and realize that they both still need each other to succeed."

Air Force Vice Chief of Staff Gen. Duncan McNabb met with the chief executives of Boeing and Northrop earlier this month to express concern about the "vitriolic" tone of the debate.

A few days later, Boeing ran another large advertisement in the Washington Post decrying what it described as "many inconsistencies" in the way the Air Force evaluated the bids. A Boeing consultant, retired Air Force Gen. Ron Fogleman, also briefed congressional aides about Boeing's 767 tanker on Monday.

Several Boeing backers in the U.S. House of Representatives, including Rep. Norm Dicks, a Washington Democrat, have vowed to block funding for the Northrop deal even if the GAO rules denies the Boeing protest.

Dicks and others may be able to convince enough House lawmakers to block funding as part of the defense appropriations process, but the Senate is unlikely to back such a move, analysts agree.

The Pentagon's chief arms buyer, John Young, has warned against congressional moves to reverse the Northrop deal, saying it would set a bad precedent.

Jacques Gansler, who held that job under former President Bill Clinton, told a Jane's defense conference last week that such a move was unprecedented and would set the United States back by 100 years.

A potential backlash by European countries would hurt the ability of U.S. defense companies to sell their products overseas, both Gansler and Young have said. (Reporting by Andrea Shalal-Esa; editing by Carol Bishopric)