U.S. Air Force firings raise questions about contracts

By Andrea Shalal-Esa - Analysis

WASHINGTON (Reuters) - The departure of the U.S. Air Force's two top leaders gives ammunition to critics of recent Air Force acquisition decisions and could slow progress on two big programs that have already been delayed by years.

U.S. officials said Defense Secretary Robert Gates requested the resignations of Air Force Secretary Michael Wynne and Chief of Staff Gen. Michael Moseley on Thursday after a series of incidents raised questions about nuclear security.

"Inevitably this will create confusion as to the fate of programs like the trans-Atlantic tanker deal and the next search and rescue helicopter," said Loren Thompson of the Virginia-based Lexington Institute.

In the absence of Wynne and Moseley, Pentagon chief arms buyer John Young and Congress are expected to take an even keener interest in Air Force acquisitions.

"The timing is terrible," said one defense industry executive, who spoke on condition of anonymity due to the sensitivity of the matter. "This is another distraction for the Air Force, which has had its share of problems of late."

Those problems include Boeing Co's (BA.N) high-profile challenge of a $35 billion refueling aircraft program. The Air Force awarded the deal in February to rival Northrop Grumman Corp (NOC.N) and its European partner, EADS Corp (EAD.PA).

The nonpartisan U.S. Government Accountability Office is due to rule by June 19 on Boeing's protest.

The Air Force is also wrapping up a $15 billion competition for new search-and-rescue helicopters. It was forced to redo the contest after the GAO twice upheld protests by Lockheed Martin Corp (LMT.N) and Sikorsky Aircraft (UTX.N) against the initial award to Boeing in November 2006. A contract award is expected in October.

ADDITIONAL OVERSIGHT

Jim McAleese, a Virginia-based defense consultant, said the resignations would undoubtedly result in additional oversight by Young.

The chief arms buyer and the Pentagon's Defense Acquisition Board sign off on the structure of major programs, but acquisition decisions are generally made by the services.

Young has already made moves to step up oversight of all big weapons programs, many led by the Air Force which was struggling to rebuild its reputation after a massive procurement scandal in 2004.

For instance, he created a task force to shadow the Air Force as it made its decision on the tanker contract, and has a similar group watching the process for the helicopter bids.

McAleese said the departures could also have a sort of "paralyzing effect" on the tanker contract, particularly if government auditors upheld all or part of the Boeing protest.

"For the first time, it raises the possibility that any reworking of the competition might have to wait until the next administration," he said.