May 5, 2008 / 8:06 PM / 9 years ago

US GAO begins hearing on Northrop/EADS tanker deal

WASHINGTON, May 5 (Reuters) - The U.S. Government Accountability Office (GAO) on Monday kicked off a hearing on Boeing Co's (BA.N) protest of a $35 billion U.S. Air Force refueling aircraft contract won by Northrop Grumman Corp (NOC.N) and its European subcontractor EADS EAD.PA.

A GAO spokesman confirmed the start of the hearing, but gave no details. The congressional agency, which reviews contract disputes, is due to rule on the case by June 19.

The hearing includes lawyers from Boeing, Northrop, and the Air Force, with three GAO officials hearing the various arguments, according to three sources familiar with the case, who said it could last all week.

"This hearing will go on for days and days," said one of the sources, who asked not to be named. "Each side will put on what they think is the support for their key arguments."

Boeing, which was widely expected to win the competition for the new aerial refueling tankers, protested the Air Force decision vigorously in legal filings with the GAO and in newspaper advertisements. It argues the Air Force was inconsistent in the way it assessed the bids.

A Boeing spokesman declined comment on the GAO hearing. Northrop and the Air Force had no immediate comment.

The Air Force's acquisition chief, Sue Payton, is not expected to testify at the hearing, but other officials who headed assessments of specific aspects of the bids will be called, said two of the sources, who asked not to be named.

Loren Thompson, defense analyst with the private Lexington Institute, said the Air Force believed the GAO would find only minor problems with its handling of the competition, but no major issues that could lead it to sustain Boeing's protest.

"The Air Force's working assumption is that the GAO will find some problems, but they will be minor and not the sort of thing that would result in a recommendation to recompete the contract," said Thompson, who has close ties to the Air Force.

Thompson said much of Boeing's protest was aimed at justifying the efforts of its backers on Capitol Hill, some of whom have vowed to reverse the Air Force's decision, even if the GAO upholds the contract award.

The Senate Armed Services Committee last week approved $893.4 million in research and development funding for the Northrop tanker, which the Air Force has dubbed the KC-45A.

Chairman Sen. Carl Levin, a Michigan Democrat, said he would not support action to halt the program before the GAO rules on the Boeing appeal.

Rep. John Murtha, the Pennsylvania Democrat who heads the House Appropriations defense subcommittee, said he would recommend blocking funding for the deal if the GAO recommended the competition be reopened.

Col. Thomas Doyne, a senior Air Force official who works on space programs and policy for the Pentagon, warned against any delay in the tanker program, given that the current fleet of KC-135 refueling tankers were 47 years old, on average.

"A delay will simply make the thing more expensive in terms of the money, but also in terms of getting it fielded," Doyne said after a conference sponsored by the Atlantic Council.

Terry Pudas, a former top Pentagon official who now works at the National Defense University, told the conference that Northrop and EADS would face "enormous scrutiny" of their performance if the contract was allowed to stand. (Reporting by Andrea Shalal-Esa; editing by Jeffrey Benkoe)

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