Boeing to File Protest on Lost Tanker Deal

By Dana Hedgpeth
Washington Post Staff Writer
Tuesday, March 11, 2008

Boeing said it will file a formal protest today with a government oversight agency after it was passed over in favor of its rival commercial airline company, European Aeronautic Defence and Space, in a competition for one of the U.S. military's largest contracts.

The Air Force awarded the initial $40 billion contract to build 179 new refueling tankers two weeks ago to a team of Northrop Grumman, the third-biggest U.S. defense contractor, and EADS, the parent company of Airbus, Boeing's competitor in the commercial airline business. Because EADS is based in Paris and Munich, members of Congress and supporters of Boeing have voiced concerns about national security and complaints about job losses, especially in Kansas and Washington state, where Boeing has major facilities.

Air Force procurement officials debriefed the Boeing team Friday and the Northrop team yesterday. In a statement released yesterday, Boeing, which is based in Chicago, said a "rigorous analysis of the Air Force evaluation" led it to the conclusion "that a protest was necessary."

"Our team has taken a very close look at the tanker decision and found serious flaws in the process that we believe warrant appeal," said Jim McNerney, Boeing's president and chief executive.

Some leaders in Congress, including Rep. Norm Dicks (D-Wash.), whose district includes a Boeing manufacturing plant, applauded the company's decision to protest with the Government Accountability Office, which has 100 days to issue an opinion. He is calling for the Air Force to open the contract for auction again.

"We have to turn this decision around," Dicks said. "This is a bad decision. It was just not fair."

EADS and Northrop, which is based in Los Angeles, said that while parts of their aircraft would be made in Europe, they expect to create nearly 2,000 jobs in Mobile, Ala., where the new tanker will be assembled. The team said yesterday that the number of jobs supported nationwide could reach 48,000.

Both teams wanted desperately to win the deal. It gives EADS a bigger foothold in the U.S. military aircraft business and an opportunity to expand its commercial business. It leaves Boeing, which built the KC-135 tankers that the Air Force has used for nearly 50 years, with the strong likelihood that it will have to shut down its 767 line on which its tanker is based because commercial sales of the aircraft are down.

Air Force procurement officials, who testified last week before Congress, have said they stand behind their decision and that they followed procurement regulations, choosing the Northrop-EADS team because it offered better value. Defense consultants who have talked to executives and Pentagon officials close to the deal said Boeing did not put its best foot forward and that Northrop beat it in key areas, including past performance, cost and operations in a wartime scenario. Sue C. Payton, assistant secretary of the Air Force for acquisition, said Northrop brought its "A game" with its proposal, which was based on the Airbus A330.

Boeing and Northrop put out statements firing back at each other. In one, Boeing denied defense consultant's assertion that "Boeing didn't manage to beat Northrop in a single measure of merit."

"Nothing could be further from the truth," Boeing said in its statement. The company said it received the "highest rating possible" when judged on its mission capability, that its proposal was low risk and its past performance was rated "satisfactory."

Boeing officials and congressional leaders say the Air Force modified the requirements on the kind of aircraft it wanted after the request for the proposal was issued, switching from a medium-sized plane to a larger one, which favored the Northrop team. The Air Force has denied the allegation.

Northrop said in a statement after its debriefing that its K-45A was selected because it was "more advantageous to the government" on many of its requirements. "Our tanker clearly provides the war-fighter with the best capability and at the best value to the American taxpayer," said Paul Meyer, Northrop's tanker program manager and vice president of its air mobility system.

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