Pentagon to announce winner in U.S. tanker saga

By @ibtimes on

The Air Force will announce on Thursday the winner of an epic $35 billion procurement battle between Boeing and Airbus over 179 aerial refueling planes, its third attempt to start replacing a fleet of planes built before man first landed on the moon.

Analysts increasingly expect Airbus parent EADS to win a price shootout that saw both companies submit very aggressive offers, but Pentagon officials were keeping a tight lid on any possible leaks ahead of a 5:10 p.m. EST briefing.

Deputy Defense Secretary William Lynn, Pentagon acquisition chief Ashton Carter, Air Force Secretary Michael Donley and Air Force Chief of Staff General Norton Schwartz are due to name the victor at a short news conference.

The government will likely pay less for either plane than it would have under the past competition, said former Pentagon arms buyer John Young, who oversaw the last round. This competition is very focused on price and I think it will yield even better prices for the government.

The losing bidder has 10 days to file a formal protest after a contract award, but congressional backers of the losing side can also seek to reverse the move legislatively.

The Air Force has failed with two previous attempts to begin replacing its 50-year-old KC-135 Stratotankers, which provide fuel to fighter planes and other aircraft in mid-flight, extending the range of military operations.

The decade-long saga has sparked transatlantic tensions and clashes in Congress among lawmakers eager to bring high-paying aerospace jobs to their states.

Just before the announcement, top Pentagon and Air Force officials plan to call the companies and key lawmakers, who are in their home districts during the current recess.

EADS and Boeing, arch rivals in the market for passenger jets, have fought bitterly in public over the contest with expensive advertisements while their respective supporters have battled it out at dueling news conferences.

The governors of Alabama, Mississippi and Louisiana wrote President Barack Obama on Thursday in support of EADS' bid, saying it would provide a needed boost for the Gulf Coast.

They insisted that EADS would build its tanker, based on the Airbus wide-bodied A330 passenger jet, in Mobile, Alabama -- not Europe as Boeing supporters have said.

This will create a much-needed economic ripple effect across a Gulf Coast region still reeling from natural and man-made disasters, said the letter, signed by Alabama Governor Robert Bentley, Mississippi Governor Haley Barbour and Louisiana Governor Bobby Jindal.

Boeing is offering a variant of its 767 plane, also a twin-engined wide-body jet, to be built in Washington state and Kansas.

Documents from the previous competition showed an average price for the Airbus plane of $160 million versus $168 million for the Boeing plane, but analysts say the price could wind up being 5 to 10 percent lower this time.

Defense consultant Loren Thompson is predicting that EADS will win the bidding because Airbus generally underbids Boeing in commercial deals and was likely to have done so again, especially given its desire to build big planes on U.S. soil.

I expect Airbus to prevail by offering a concessionary price that Boeing cannot match, since that is the European company's typical approach in commercial-transport competitions and has been the core of their tanker strategy since 2006, Thompson wrote in a blog on the Lexington Institute website.

European defense expert Howard Wheeldon, senior strategist with London brokers BGC Partners, said EADS was the most likely winner, although he said he would not completely rule out the possibility that the award for 179 aircraft might still be split between EADS and Boeing.

Analysts widely expect the losing side to file a protest against the decision with the Government Accountability Office, the arm of Congress which rules on federal contract disputes, which would then have 100 days to rule on the case.

The Air Force has been trying since 2001 to begin replacing its Boeing-built KC-135 tankers.

An initial $23.5 billion plan to lease and then buy 100 modified Boeing 767s as tankers, fell apart in 2004.

EADS, partnered with Northrop Grumman Corp, won a 179-plane deal in February 2008, only to have it canceled after government auditors upheld parts of a protest by Boeing.

Northrop subsequently pulled out, leaving the European aerospace and defense company to bid alone. That allowed EADS to adjust its price significantly, removing one layer of profit.

Boeing also likely adjusted its bid significantly after criticism during the last competition that it had priced the commercial aircraft too high.

(Reporting by Andrea Shalal-Esa and Tim Hepher; Editing by Tim Dobbyn, Dave Zimmerman)

Join the Discussion