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Analyst sees Boeing winning tanker deal

(For other news from the Reuters Aerospace and Defense Summit, clickhere)

(Adds comment on partisan atmosphere and detail on long-term contract value, paragraphs 12 and 14) WASHINGTON, Dec 3 (Reuters) - Boeing Co BA.N has the best odds to win a $40 billion contract to build new aerial refueling tankers for the U.S. military, a top aerospace analyst said on Monday.

Richard Aboulafia, vice president of the Virginia-based Teal Group, predicted that Boeing has a 55-percent chance to win the competition, compared with 15 percent for competitor Northrop Grumman Corp NOC.N, which is teamed with Europe's EADS EAD.PA.

He told the Reuters Aerospace and Defense Summit in Washington there is a 30-percent chance that the U.S. Air Force could still decide to split the tanker contract between the two rivals, should it be able to convince Congress to provide additional funding for the program.

“I still give the Boeing product the majority chance,” Aboulafia said. He noted that Boeing has strong support from Democratic lawmakers and that could prove critical, given that the Democrats control Congress and could strengthen their hold in 2008, possibly winning the White House.

Air Force Secretary Michael Wynne, who will address the Reuters Summit on Tuesday, has appealed to the White House and U.S. lawmakers for an additional $20 billion in funding.

If he were successful in that drive, and obtained enough to boost the planned buy to 18 to 20 tankers each year from current plans for 12 to 14, then the Air Force could possibly split the purchase between the two rivals, Aboulafia said.

“If they can find the cash to make it a reasonable production volume, then they can make that scenario unfold,” Aboulafia said.

The U.S. Air Force has said it plans a winner-take-all contract award, arguing that splitting the purchase between two manufacturers would boost operation and maintenance costs.

Air Force acquisition chief Sue Payton told reporters last month that she would prefer to fund continued development of the competing tankers to the prototype stage and then make a final decision, but there was not enough money in the budget to pay for such a move.

Pentagon acquisition chief John Young has ordered all major weapons programs to develop prototypes before contract awards, but the tanker program is not affected since it predates his directive. The Air Force had no immediate comment on the possibility of a split buy.

The Air Force is due in February to award an initial contract valued at up to $40 billion for about 179 aircraft to start phasing out aging KC-135 tankers. A follow-on competition could bring the value of the new fleet to around $100 billion.

Aboulafia said the losing bidder was likely to protest the contract award to the Government Accountability Office.

“It’s an overheated, very partisan atmosphere,” he said, noting Boeing was largely building the 767 tanker in states with Democratic lawmakers, while Northrop would assemble its tanker in Alabama, which has two Republican senators.

Northrop Grumman Chief Executive Ron Sugar told the summit on Monday his company was in the competition to win and would submit a final pricing offer before the end of the year.

He said the Air Force had made a very deliberate effort to communicate with both bidding teams, including meetings last week. “The process is open and deliberate,” he said, although he declined to give any details of last week’s meeting.

He said Northrop came close to not partnering with EADS, but decided to pursue the deal because the competition was on “a level playing field” and, he said, the proposed KC-30 tanker was the best airplane for the Air Force.

(Reporting by Andrea Shalal-Esa, editing by Gerald E. McCormick and Tim Dobbyn)

((andrea.shalal-esa@reuters.com@reuters.net, e-mail: andrea.shalal-esa@reuters.com +1 202 354 5807))

(For summit blog: summitnotebook.reuters.com/) Keywords: AERO ARMS SUMMIT/TANKER

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