Boeing mulling protest in tanker contest

By Andrea Shalal-Esa - Analysis

WASHINGTON (Reuters) - Unless the Pentagon reverses course and changes its new draft guidelines for a $35 billion competition for refueling aircraft, Boeing Co (BA.N) may well file a protest against terms it considers unfair.

"The final decision to lodge a protest rests with Boeing's chairman, but the dominant view in the company is that they must protest because the revised solicitation is unfair and they can't win on these terms," said defense analyst Loren Thompson of the Virginia-based Lexington Institute.

Several other sources who are closely watching the process agreed, noting that Boeing had already invested too much time and money in the competition to overlook what it considers an unreasonable deadline to prepare a new bid based on a tanker larger than the 767 aircraft they proposed initially.

But Thompson said there was also a faction within Boeing that favored withdrawing from the competition completely.

Boeing spokesman Dan Beck said the company was still evaluating its options. "We have not made any decisions but all options are certainly on the table," Beck said.

Northrop Grumman (NOC.N) and its European subcontractor EADS (EAD.PA) beat out Boeing to win the lucrative contract in February, but the Pentagon relaunched the competition after the Government Accountability Office found significant errors in the selection process and upheld a Boeing protest.

At issue is a change in the wording of the Pentagon's new draft request for proposals, which now says bidders will get credit for delivering more fuel than required.

The final request is now expected next week, featuring an aggressive schedule aimed at selecting a winner by the end of the year and putting an emphasis on fuel offload.

Boeing supporters say the new wording favors Northrop's larger tanker based on the Airbus A330, and the current timetable is too brief for Boeing to prepare a bid based on a bigger aircraft.

Northrop says it was clear all along that the government wanted the most capability it could get at the best price.

Mandating a tight schedule would make the competition look "fixed," which could prove embarrassing to Pentagon leaders after a string of other procurement problems, said George Behan, a spokesman for Rep. Norm Dicks, a Democrat from Washington state.

Pentagon leaders insist they have only clarified their intent, not changed the requirements for the tanker, and that means the companies should be able to respond quickly.

Northrop and EADS are ready to respond and have urged a quick resolution of the issues.

If Boeing protests, the Pentagon could still require the companies to submit bids according to the prescribed schedule to keep the competition running, said one source familiar with the protest process.

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