July 30, 2008 / 6:21 PM / 12 years ago

UPDATE 2-US lawmakers urge broader Pentagon tanker review

(Recasts first paragraph, adds Boeing comment, details from bill)

By Jim Wolf

WASHINGTON, July 30 (Reuters) - A measure that appears to favor Boeing Co (BA.N) in a transatlantic battle to build new aerial tankers for the U.S. Air Force was put forward on Wednesday by a U.S. House of Representatives subcommittee that funds the Pentagon.

If the provision requiring consideration of the U.S. “industrial base” were enacted into law, it could be a blow to Northrop Grumman Corp (NOC.N) and its European partner EADS EAD.PA.

They are battling Chicago-based Boeing to hang on to the $35 billion program to supply 179 mid-air refueling tankers that they won in February, before Boeing successfully challenged the award on procedural grounds.

The concerns at issue in the House panel’s bill involve U.S. industry’s ability to meet Pentagon weapons needs with minimal reliance on foreign suppliers.

The recommendation by the House Appropriations subcommittee on defense was part of a $487.7 billion fiscal 2009 military spending bill. The legislation is subject to review by the full Appropriations Committee and would need to be reconciled with the Senate’s version.

The Government Accountability Office, a congressional umpire, found “significant errors” in the Air Force’s tanker selection process, Defense Secretary Robert Gates announced July 9 he would seek new bids in an expedited recompetition.

Gates said the Pentagon’s chief weapons buyer, rather than the Air Force, would oversee the selection this time. He said the goal was to pick a winner by the end of December, a target that now looks likely to slip into the new year and to a new administration.

Speaking at the July 9 briefing, John Young, the top weapons buyer, said federal procurement law barred consideration of the potential impact on the U.S. defense-industrial base.

But the House panel, in a summary of its defense appropriations bill, said it would direct “that industrial base concerns be included in the evaluation of the tanker contract award.”

A spokesman for subcommittee chairman John Murtha, a Pennsylvania Democrat, said the provision referred to 10 USC 2440, a law that says: “The Secretary of Defense shall prescribe regulations requiring consideration of the national technology and industrial base in the development of acquisition plans for each major defense acquisition program.”

It was not immediately clear how that law squares with procurement rules that require the Pentagon to treat arms made in certain allied countries no differently than U.S. rivals’.

Boeing, in a statement, said its successful challenge to the tanker contract was about “delivering the most capable tanker to the warfighter at the best value for the American taxpayer.” It made no mention of industrial base issues.

A spokesman for Los Angeles-based Northrop Grumman did not immediately return a telephone call seeking comment.

Boeing, the biggest U.S. exporter, has supplied aerial refueling tankers to the Air Force for 50 years.

In its first phase, the program would provide 179 tankers to replace an aging fleet strained by wars in Iraq and Afghanistan. Boeing has offered a derivative of its 767 airliner.

Northrop Grumman says its proposed tanker, based on the EADS’ Airbus A330, would be assembled in Mobile, Alabama, with the support of 230 suppliers in 49 U.S. states. It says it would employ 48,000 Americans on the project.

Boeing’s backers in Congress, many from states where the company does manufacturing, argue it would be a big mistake to buy Airbus planes — currently assembled in Toulouse, France, using French, German, British and Spanish parts — at a time when the U.S. economy is struggling.

The call for weighing wider implications of the transatlantic battle could prolong the selection process, which has dragged on since U.S. lawmakers killed a no-bid Air Force plan to lease and then buy tankers from Boeing four years ago.

In another part of the bill with transatlantic implications, the House panel rejected the Pentagon’s third try in as many years to cancel an alternate engine for Lockheed Martin Corp’s (LMT.N) F-35 Joint Strike Fighter.

Instead, it would provide $430 million more for an interchangeable engine being built by a team of General Electric Co (GE.N) and Britain’s Rolls-Royce Group Plc (RR.L). The alternate engine would compete against one built by Hartford, Connecticut-based United Technologies Corp’s (UTX.N) Pratt & Whitney unit. (Reporting by Jim Wolf, editing by Tim Dobbyn)

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