Air Force concedes errors in tanker estimates: Boeing

By Andrea Shalal-Esa

WASHINGTON (Reuters) - The U.S. Air Force has conceded that Boeing Co's proposed KC-767 aerial refueling tanker would cost less over time than the winning plane offered by Northrop Grumman Corp and its European subcontractor EADS, Boeing told auditors reviewing its protest against the Air Force decision.

News of Air Force errors in calculating the life cycle costs of the competing bids, which were also confirmed by Northrop, comes as the Government Accountability Office (GAO) prepares to rule by June 19 on the Boeing protest.

In a 191-page document dated April 25 that was filed with the GAO, Boeing said mistakes in calculating the life cycle costs of the airplanes raised questions about the thoroughness and credibility of the Air Force's overall evaluation.

A copy of the redacted version of the document was obtained by Reuters on Thursday.

"With respect to the cost/price evaluation, as an initial matter, the Air Force now concedes that Boeing's most probable life cycle cost is lower than NG/EADS," Boeing wrote.

"This renders even more troubling the (Source Selection Authority's) initial public assertions that NG/EADS 'offered great advantage to the government in cost/price'," it wrote.

Boeing also said that the Air Force's acknowledgment addressed only a "miniscule fraction of the errors in the cost/price evaluations confirmed in the agency report."

But Northrop downplayed the impact of the Air Force error, saying life cycle costs were just one part of the Air Force evaluation. The final decision was based on the capabilities of its KC-30 tanker, not cost alone, Northrop officials said.

The Air Force declined comment. A spokeswoman said federal law barred the release of any proprietary information contained in the bids, such as design concepts, cost or pricing data.

$34 MILLION DIFFERENCE

Air Force documents initially put Northrop's life cycle cost at $108.01 billion versus $108.44 billion for the Boeing plane, a difference of $34 million or 3/100 of a percent.

In that calculation, Northrop's lower development and acquisition costs were balanced out by slightly lower operating costs of Boeing's 767, a Northrop spokesman said.

Neither Northrop nor Boeing disclosed what the costs would be for each bid, once adjusted for the calculation errors.

Boeing has argued in its protest and in a high-profile advertising blitz that the Air Force misled Boeing on the terms of the competition and skewed the results to favor Northrop.

Northrop, which was the underdog in the competition, is fighting to keep the contract valued at $35 billion.