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Pentagon tanker deal boosts industry

by Staff Writers
Washington (UPI) Feb 24, 2011
As one of the most coveted military contracts in U.S. history comes to a close, the U.S. defense industry stands to profit, experts suggest.

The contract concerns a $35 billion deal to replace the U.S. Air Force's aging aerial tankers with a new fleet of at least 179 planes. The contest has pitted Boeing and its European rival EADS for nearly a decade.

The Pentagon was expected to render its decision in November but the announcement has slid to February. Military and industry officials have long anticipated that the U.S. aerospace giant will clinch the multibillion-dollar deal.

Northrop Grumman Corp. and EADS, the parent company of Airbus, beat Boeing in a similar race three years ago. Their winning bid, however, was annulled after government auditors found that the Air Force had skewed its judgment rules.

The annulment sparked a diplomatic row, with senior European officials berating the United States for what they billed as an act of protectionism. Since then, EADS was allowed to return to the bidding process, resubmitting an 8,000-page bid to replace the Air Force's fleet of Eisenhower-era airborne refuelers.

"This decision by (the Defense Department) is unlikely to be the end of the story," said Bernstein Research analyst Douglas Harned, in a note to clients this week, Marketwatch reported.

Should EADS win, Harned wrote, "the negative reaction out of Congress will be strong, with states that are home to Boeing manufacturing facilities outnumbering EADS supporters."

Regardless of the outcome however it will be an economic boon for Southern California's space industry.

"Millions of payrolls dollars are expected to pour in to help build the 179 flying fuel-carrying behemoths, even though the planes ultimately would be assembled elsewhere," the Los Angeles Times reported.

Chicago's Boeing Co. has said that its selection would spell 4,500 jobs and $233 million for California. Likewise, EADS said its pick would mean more than 5,000 jobs for about 40 industry-related companies in the state.

Boeing's 767-based NewGen Tanker is competing against EADS North America's larger Airbus A330-based KC-45 tanker for the contract. The companies have spent millions in trying to influence perceptions in Congress and to advance their companies' interests within the public domain.

The military depends heavily on the tankers all over the world because they afford in-flight refueling of bombers, fighters and cargo planes beyond U.S. frontiers. Despite the importance of the project, the Pentagon has been mired in massive controversy over the handling of the contract.

Experts suggest Thursday's anticipated announcement may not end the 10-year saga.

Last fall, Pentagon officials accidentally mixed up addresses and inadvertently offered the competing companies confidential information on each other's bid. That may spark an appeal from the losing bid.

Said aviation analyst Richard Aboulafia of Teal Group Corp., "It's the most politicized nightmare ever to hit the defense budget. … It's hard to imagine we are nearing the end."

earlier related report
Boeing, Airbus brace for US tanker decision
Washington (AFP) Feb 24, 2011 - Boeing and Airbus braced Thursday for the Pentagon's decision on their long and tortuous battle for a $35 billion Air Force aerial refueling tanker contract.

Several analysts have tipped the European Aeronautic Defence and Space Company, parent of France-based Airbus, to win the politically charged contest, one of the biggest procurement contracts in US history.

But some analysts also say an Airbus victory could spark a new challenge to the process by Boeing, extending the nearly 10-year-old battle which pits the world's two largest aerospace companies.

The Defense Department scheduled a news conference to announce the KC-X tanker award at 5:10 pm (2210 GMT).

Unveiling the winner will be William Lynn, deputy defense secretary; Ashton Carter, defense under secretary for acquisitions; Air Force Secretary Michael Donley; and Air Force Chief of Staff General Norton Schwartz.

The US Air Force has been trying for nearly a decade to begin to replace its aging aerial refueling tanker fleet of Boeing-built KC-135s that date back to the 1950s.

At stake is a contract, estimated at $35 billion, for an initial 179 tankers.

EADS is looking like the favorite to land the deal, said Loren Thompson, a defense industry analyst at the Lexington Institute.

"Judging from the frequency with which Pentagon acquisition chief Ashton Carter has been talking up the notion of a 'globalized' defense market recently, European aerospace giant EADS is the winner," Thompson said Wednesday in an online blog.

The first time the contract was awarded, it went to Boeing, but it was subsequently canceled amid a Pentagon procurement scandal.

EADS and US partner Northrop Grumman won the contract in 2008, but that decision was withdrawn after the Government Accountability Office upheld Boeing's objections that the process was flawed.

In the third attempt, EADS is competing without a main partner, but with support from a number of US equipment makers.

EADS North America chairman Ralph Crosby said last week the firm had lowered its final bid to a "very competitive price proposal."

Boeing's chief executive Jim McNerney earlier described their bid as an "aggressive" attempt to beat its "subsidized" European rival.

The contest has been marked by fierce lobbying from lawmakers seeking jobs for their states -- for Boeing, in Washington and Kansas, and for Airbus, in Alabama.

A separate dimension has been a long-running trade dispute between the United States and the European Union at the World Trade Organization over public subsidies for Boeing and Airbus.

The Defense Department insists the winner will be decided on the merits of its bid.

Key lawmakers petitioned President Barack Obama in a letter Thursday to make sure the contract goes forward.

"While the citizens of Alabama, Mississippi, Louisiana and Florida would benefit greatly by a contract award to EADS North America -- and we unabashedly hope for such an outcome -- our primary interest is that this long-delayed process come to a swift conclusion so that American workers can get right to work providing a weapons system our military desperately needs," wrote governors Robert Bentley, Haley Barbour and Bobby Jindal.

The US and European rivals are offering militarized versions of their commercial aircraft and promising the contract would pump tens of thousands of jobs into the post-recession US economy still struggling with high unemployment.

The EADS KC-45 is based on the long-haul Airbus 330. EADS says it has 31 percent more capacity and a longer range than Boeing's offer, the KC-767.

It would be assembled in Mobile, Alabama, where EADS expects to produce at least 12 aircraft a year and says the program would create 48,000 jobs.

EADS North America, the US division, posted an upbeat tweet at noon Thursday on micro-blogging site Twitter: "We're looking forward to the KC-X #tanker announcement later today -- and so is the work force in Mobile Alabama!"

Boeing is proposing the KC-767, or NewGen Tanker, built around its long-haul 767 plane. The plane would be assembled at Boeing's plant in Everett, Washington and equipped in Wichita, Kansas. Boeing says a win would provide 50,000 jobs.

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