March 10, 2010 / 12:10 AM / 9 years ago

UPDATE 3-Pentagon may speed U.S. air tanker award

* Pentagon says has ample pricing data on tanker planes

* Boeing says next move up to Pentagon

* Sen. McCain says Air Force process appears “legitimate”

* Congressional intervention appears unlikely (Adds Rep. Skelton, analyst comment, lifts McCain quotes higher)

By Andrea Shalal-Esa

WASHINGTON, March 9 (Reuters) - The Pentagon may speed up awarding a multibillion-dollar aerial tanker contract after Northrop Grumman Corp (NOC.N) and Europe’s EADS EAD.PA pulled out of the contest, leaving Boeing Co (BA.N) the sole bidder.

The current plan calls for companies to submit their bids by mid-May, with a contract award expected in September; but Pentagon spokesman Bryan Whitman said defense officials are looking at accelerating the current timeline for the program.

“We may be in a position where we will be able to take a look at reducing some of those milestones,” he said on Tuesday, referring to the 75-day deadline for bids, and plans for the U.S. Air Force to award a contract 120 days later.

Senator John McCain, whose probe of an earlier $23.5 billion lease-then-buy tanker deal with Boeing eventually scuttled that contract, declined to fault the latest contest.

McCain told reporters on Tuesday the Air Force’s handling of the competition appeared to be “legitimate,” which made it difficult for lawmakers to intervene, even if they would have preferred to see a competitive process.

“I don’t see how we can, unless we find some flaw in it, and we haven’t found any flaws so far,” McCain said.

Defense analyst Jim McAleese said McCain’s endorsement of the Air Force process, however tepid, made it unlikely that Congress would intervene to avert a sole-source bid by Boeing.

“No one else has the conviction or credibility to generate an intervention,” McAleese said.

House Armed Services Committee Chairman Ike Skelton chimed in late on Tuesday, saying he was disappointed that there would be no competition, but said it was important to start replacing the aging current KC-135 fleet “without any further delay.”

Whitman said the Pentagon was confident it could negotiate a reasonable price for the tankers even if Boeing were the only bidder. EADS on Tuesday ruled out a solo bid for the work.

“There is baseline cost data that is associated with these air frames,” he said. “There are also measures the department can take to make sure we are controlling the costs.”

He declined to specify what measures were in mind, but federal acquisition rules require sole-source providers to certify their pricing data is accurate, timely and complete.

The government could also buy less than the 179 airplanes expected in this competition if it believed Boeing’s prices were too far off the mark, McAleese said.

Unlike the new radar-evading fighter being developed by Lockheed Martin Corp (LMT.N), aerial tanker planes already exist today, Whitman said.

He said officials also have ample cost data from the last competition, which Northrop and EADS won in February 2008 but later lost after government auditors upheld a Boeing protest.

Boeing last week said it would offer an updated 767-based tanker this time around, including a new digital flight deck from its 787 Dreamliner and a new fly-by-wire refueling boom.


Jim Albaugh, head of commercial airplanes for Boeing, told a JPMorgan investor conference on Tuesday that the next move is up to the Pentagon.

“I’ve been working this program for nine years. It’s the longest-running soap opera since ‘Days of our Lives.’ I’m not sure that we’ve seen the last episode,” said Albaugh, who ran Boeing’s defense business through August 2009.

“We’ll see what happens. It’s really in the hands of the customer right now, how they want to proceed.”

The European Commission on Tuesday said it regretted Northrop’s decision and would be “extremely concerned” if it became clear that the terms of the competition were written to inhibit competition from Northrop and its European partner.

It also noted that the United States traditionally sold more defense goods to Europe than vice versa. In 2008, the United States exported $5 billion, and imported only $2.2 billion of defense material from the European Union.

This week’s developments signaled a possible end to the long-standing saga, which began as a congressional drive to help Boeing just after the Sept. 11, 2001, hijacking attacks and has spawned major reforms of how the Pentagon buys arms.

The investigation by McCain revealed too-cozy ties between lawmakers, Boeing and the Air Force, as well as ethics violations that later sent a former top Air Force official and Boeing’s former finance chief to federal prison.

Congress killed that first Air Force plan, saving taxpayers some $5 billion in unnecessary lease costs.

But now the Air Force is essentially back to square one — a sole-source deal with Boeing, one industry source observed.

Northrop said it was disappointed that the rules favored Boeing’s smaller tanker, but said it would not protest to avoid further delays in the Air Force getting new planes that are used to refuel fighter jets and other planes in mid-flight. (Reporting by Susan Cornwell, Jim Wolf, Bill Rigby and Andrea Shalal-Esa; Editing by Tim Dobbyn and Gerald E. McCormick)

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