Boeing, Northrop gird for next round of "tanker hell"

By Andrea Shalal-Esa

WASHINGTON (Reuters) - Within weeks, the U.S. Air Force will launch a third attempt in eight years to replace its aging fleet of KC-135 aerial tankers and the new competition promises to be even more contentious than the last.

Both Northrop Grumman Corp (NOC.N) and Boeing Co (BA.N) have teams of lawyers and acquisition experts standing by, ready to scrutinize every word of the draft request for proposals (RFP) and pounce on any sign that the terms are biased toward one of the two competitors.

That could result in protests being filed by either side, even before a contract award is made early next year.

The terms of the competition have not yet been disclosed, but U.S. lawmakers are already publishing columns and making speeches about tankers, as are their counterparts in Europe.

Everyone agrees the United States must act soon to replace its aging fleet of 415 KC-135 refueling aircraft, which are nearly 50 years old on average. The airplanes are used as flying gas stations to help get fighter aircraft and other warplanes to faraway battlefields without needing to land.

But after eight years of wrangling, contract protests and even federal prosecutions for conflicts of interest, the competition remains highly politicized and charged.

Last year T-shirts emblazoned with the words "Tanker hell" were making the rounds in Washington. The question now, says one industry executive, is "What's lower than hell?"

"There's so much that's happened and it's become so politicized that it's not the contract that will be torpedoed, but the very draft request for proposals itself," said analyst Richard Aboulafia of the Virginia-based Teal Group.

He said the entire tanker competition was now characterized by a "hideous mixture of scar matter and bad blood."

"TEARING IT UP QUITE HARD"

Top Pentagon officials insist they are committed to a fair and open competition and learned key lessons from Boeing's successful protest of the $35 billion contract awarded to Northrop and Europe's EADS (EAD.PA) in February 2008

But analysts and industry executives say it will be extremely difficult for the service to avoid slanting the terms of the competition toward one or the other airplane offering, given the big difference in size and carrying capacity.

Paul Nisbet, analyst with JSA Research, said he remained skeptical that the Air Force would be able to construct a request for proposals that kept all sides happy.

He said Northrop and Boeing -- and their supporters in Congress -- would carefully review the draft request and then probably request changes, which could delay the process.

"They'll both be tearing it up quite hard. Whether they can put it back together and make a good RFP, I'm dubious," he said. "I think it's going to be more contentious than the previous attempts, and it'll end up in protest again."