November 20, 2010 / 1:27 AM / 9 years ago

UPDATE 1-US Air Force delays tanker pick, mixes up documents

* Says delay to next year not linked to data mixup

* Says effort to pick between Boeing and EADS continues

* Analysts say data disclosure invites contract protests (New throughout with analyst comments, quotes)

By Jim Wolf

WASHINGTON, Nov 19 (Reuters) - The U.S. Air Force delayed the award of a long-awaited refueling plane contract until early next year and disclosed a document mixup that could fundamentally change the potential $50 billion rematch.

It said it had earlier this month inadvertently sent rival bidders Boeing Co (BA.N) and Europe’s EADS EAD.PA a limited amount of identical information about each other’s offer.

The contract award was to have been made by Dec. 20, after two bungled efforts to replace Boeing KC-135 tankers, which are on average 50 years old. The Air Force has called the refueling plane its highest acquisition priority for nearly a decade.

The selection was being postponed because certain aspects of the competition were taking longer than originally expected, Colonel Les Kodlick, the Air Force director of public affairs, told Reuters on Friday.

He said the delay was unrelated to the “clerical error” that improperly disclosed the confidential information.

But the mistake could open the way to purchasing aircraft from both bidders as a way to avoid a protest by the loser. Defense Secretary Robert Gates has opposed a split buy, partly because of the added expense of using two aircraft types.

EADS, headquartered in Paris and Munich, is battling for an important beachhead in the United States, the world’s most lucrative arms market.

The tanker aircraft are used to refuel fighters and other planes in flight, a key to projecting U.S. power worldwide.

Chicago-based Boeing, the Pentagon’s No. 2 supplier after Lockheed Martin Corp (LMT.N), has argued that its tanker is an “all-American” choice compared with the rival Airbus A330 offered by EADS, Airbus’s corporate parent.

COMPANIES NOTIFIED AIR FORCE

Kodlick said both companies immediately recognized the clerical error and contacted the Air Force.

“The Air Force has analyzed the information that was inadvertently disclosed and has taken steps to ensure that both competitors have had equal access to the same information,” he said.

The effort to pick a winner will continue, Kodlick added. “Currently, we expect the award to occur early next year,” he said. He declined to be drawn on which month was now the target date.

Boeing and EADS declined to comment. The document error was first reported by Defense News, a trade publication.

Richard Aboulafia of the Teal Group aerospace consultancy in Fairfax, Virginia said the data mixup removes any doubt that there would be formal protests by whichever company loses.

“It may have been an honest mistake, but partisans on both sides have used whatever means are at their disposal to claim that they were at a disadvantage,” he said.

“Even if this didn’t happen, it would still be very difficult to successfully and conclusively award a contract to one side,” Aboulafia said. “More than ever, it looks like a dual source buy may be the only way forward.”

Scott Hamilton, managing director of Leeham Co LLC, an aerospace consultancy in Issaquah, Washington, said: “This could force yet a fourth round to remove any question of possible impropriety.”

The current competition is in many ways a rerun of 2008, when the Air Force awarded a 179-plane deal to EADS’ North American unit teamed with Northrop Grumman Corp (NOC.N), only to have it overturned on appeal from Boeing.

The U.S. Government Accountability Office found the Air Force had made enough mistakes in judging the rival bids to have changed the outcome, a finding that led to the rematch.

An initial effort to lease and then buy 100 modified Boeing 767 tankers collapsed in 2004 amid a scandal that sent the Air Force’s former second-ranking arms buyer and Boeing’s ex-chief financial officer to prison for corruption.

Former Air Force Secretary Michael Wynne suggested this week buying tankers from both teams to rigorously test them and maintain competitive pressure “to bring their very best product to test.” (Reporting by Jim Wolf; Editing by Tim Dobbyn)

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