Within weeks, the U.S. Air Force will launch a third attempt in eight years to replace its aging fleet of KC-135 aerial tankers and the new competition promises to be even more contentious than the last.

Both Northrop Grumman Corp and Boeing Co have teams of lawyers and acquisition experts standing by, ready to scrutinize every word of the draft request for proposals (RFP) and pounce on any sign that the terms are biased toward one of the two competitors.

That could result in protests being filed by either side, even before a contract award is made early next year.

The terms of the competition have not yet been disclosed, but U.S. lawmakers are already publishing columns and making speeches about tankers, as are their counterparts in Europe.

Everyone agrees the United States must act soon to replace its aging fleet of 415 KC-135 refueling aircraft, which are nearly 50 years old on average. The airplanes are used as flying gas stations to help get fighter aircraft and other warplanes to faraway battlefields without needing to land.

But after eight years of wrangling, contract protests and even federal prosecutions for conflicts of interest, the competition remains highly politicized and charged.

Last year T-shirts emblazoned with the words Tanker hell were making the rounds in Washington. The question now, says one industry executive, is What's lower than hell?

There's so much that's happened and it's become so politicized that it's not the contract that will be torpedoed, but the very draft request for proposals itself, said analyst Richard Aboulafia of the Virginia-based Teal Group.

He said the entire tanker competition was now characterized by a hideous mixture of scar matter and bad blood.


Top Pentagon officials insist they are committed to a fair and open competition and learned key lessons from Boeing's successful protest of the $35 billion contract awarded to Northrop and Europe's EADS in February 2008

But analysts and industry executives say it will be extremely difficult for the service to avoid slanting the terms of the competition toward one or the other airplane offering, given the big difference in size and carrying capacity.

Paul Nisbet, analyst with JSA Research, said he remained skeptical that the Air Force would be able to construct a request for proposals that kept all sides happy.

He said Northrop and Boeing -- and their supporters in Congress -- would carefully review the draft request and then probably request changes, which could delay the process.

They'll both be tearing it up quite hard. Whether they can put it back together and make a good RFP, I'm dubious, he said. I think it's going to be more contentious than the previous attempts, and it'll end up in protest again.

Some argue that the only way to avoid another protest would be to buy planes from both companies on a competitive basis, and that could even result in significant long-term savings.

But Defense Secretary Robert Gates vehemently opposes such a plan, telling officers in April that he was laying my body down across the tracks to make sure it did not happen.

Gates says buying two tankers would drive up development and logistics costs, but a study recently completed by Northrop concluded that approach could actually save $39 billion over the life of the program by averting cost growth historically seen on sole source programs, and avoiding maintenance costs for existing KC-135s, which are due to soar beginning in 2018.

The dual award would cost more in the near term, but when combined with faster reductions in the KC-135 fleet, could offer considerable long-term savings, the report said.

Former Pentagon chief weapons buyer John Young left office arguing that officials should ensure that both offerings meet the requirements and then pick the cheaper of the two.

Northrop argues that such a price shootout would fail to take into account the greater carrying capacity of its larger A330-based tanker.

Boeing is not tipping its hand, but says it may offer a 777-based tanker, instead of the 767-based one it offered last time, depending on how the Air Force frames its requirements.

And Boeing spokesman Bill Barksdale says there is no doubt the company will fight hard to win the contract this time.

When you lose a competition that changes everything for you, said Barksdale. We're very hungry to win now, based on what happened the last time.


Mark Werfel, a Virginia-based consultant who spent three decades working on federal acquisition issues, says the Pentagon has another much cheaper way out of the current mess.

Werfel notes that the nonpartisan Government Accountability Office, in upholding Boeing's protest, concluded that Northrop's proposal was not acceptable because the company failed to commit to helping the Air Force set up its own depot maintenance facility for the new tankers within two years.

As a result, he says, the government could have automatically awarded the contract to Boeing.

Moreover, he argues, the Pentagon should not have to pay Northrop termination fees, a matter still being negotiated, since their bid was not compliant in the first place.

Air Force Lieutenant Colonel Karen Platt said the issue was essentially a moot point given that the department and the Air Force are now in the process of moving forward.

Tens of millions of dollars that can be saved is not something to be moved from or that can be called moot; and could be used in better ways than ameliorating an arrogant contractor who failed, argues Werfel.

So far, the issue hasn't received much attention on Capitol Hill, but several lawmakers have expressed interest in learning more about Werfel's argument.

Eric Edelman, former defense undersecretary for policy under the Bush administration, said the Pentagon's new chief arms buyer, Ashton Carter, had his work cut out for him.

But he said all sides would be at pains to ensure a fair process this time around.

It's in everybody's interest to get this finally done. Both sides are going to want this to be done on a basis that everybody thinks is fair, he said.

(Reporting by Andrea Shalal-Esa, editing by Dave Zimmerman)