Boeing-Northrop tanker war rages in media and Congress

WASHINGTON (Reuters) - Northrop Grumman Corp and Boeing Co escalated their war of words on Wednesday over a $35 billion contract for 179 U.S. Air Force refueling aircraft that Boeing argues it should have won -- not Northrop and Europe's EADS.

The two sides have been fighting for the contract for years, but last month's decision by the Air Force to award the deal to Northrop and EADS, the parent of Europe's Airbus, did anything but end the debate. Airbus is Boeing's chief rival in the commercial sector.

Instead, it has sparked a whole new battle that is being waged in the hallways of Congress and the media.

Northrop issued a press release on Wednesday accusing Mark McGraw, head of tanker programs for Boeing, of making "a number of false assertions" in a letter to the editor of the New York Times and said it wanted to set the record straight.

It said the Air Force preferred the size and capability of the A330-based tanker it offered and stressed that its plane had been built, flown and tested. In contrast, Northrop said, the 767 variant offered by Boeing involved parts of various other 767 models and has not yet been built.

McGraw's letter accused the Air Force of changing the terms of the process in midstream to favor Northrop and its Airbus A330-based tanker, and not informing Boeing.

A day earlier, the Wall Street Journal published an editorial citing what it called "misguided calls on Capitol Hill for 'patriotism' in defense procurement."

Rep. Todd Tiahrt, a Kansas Republican, has proposed banning manufacturers from countries whose governments fail to spend at least two percent of gross domestic product on their own defense, from U.S. military contracts.

Tiahrt represents Wichita, where Boeing has a large plants that would have done work on the Air force tanker.

The Journal said any such legislation would bar companies from most of Europe and was certain to invite retaliation that could harm Boeing and other defense contractors, who have huge overseas sales. Other lawmakers have threatened to block funding for the Northrop contract.

"What's really going on is a familiar scrum for federal cash, with politicians from Washington and Kansas using nationalism as cover for their pork-barreling," the Journal wrote in its editorial.

Air Force acquisition chief Sue Payton said the process was "incredibly open and transparent and rigorous" and that both bidders had "a lot of opportunity to communicate with us."

For now, the Air Force has stepped back from the limelight to allow the Government Accountability Office, the arm of Congress that hears contract disputes, to review whether the service followed the rules when it made its tanker decision.

The GAO has until June 19 to announce a ruling.

JOB CREATION

Lawmakers are arguing over which of the two bids would have created more jobs, but the Pentagon says employment is simply not part of the acquisition decision under current laws.