Air Force Faulted Over Handling Of Tanker Deal

In 2003, the Air Force attempted to award a contract to replace the fleet, but that effort was mishandled. After awarding a $20 billion contract to Boeing to lease tankers, the Air Force's procurement chief at the time, Darleen A. Druyun, admitted that she favored Boeing while negotiating for a job with the company. Druyun and Boeing's former chief financial officer went to prison, and Boeing agreed with the Justice Department to pay $615 million -- the biggest penalty ever paid by a defense contractor -- to settle allegations of misconduct on the tanker deal and others.

Arizona Sen. John McCain, the presumptive Republican nominee for president, had spearheaded the investigations that turned up fraud in the contract for leasing tankers and pressed the Air Force to widen the competition for a new one. Yesterday, Democrats said the GAO report showed that McCain's pressure on the Air Force was improper, and his Democratic presidential rival, Sen. Barack Obama (Ill.), called for a new competition. A McCain spokesman said in a statement that the senator's hope all along was for a fair and open process.

The tanker contract, after its initial phase, could be worth up to $100 billion over the next two decades. The deal gives the winner a major inside track on future military aircraft sales and an advantage in commercial airline business.

Boeing said in its protest that the Air Force had not fairly evaluated the technical capabilities, costs and other areas of its proposed aircraft, which is based on the 767 jetliner. Without the tanker contract, Boeing has said it would shut down the 767 production lines. EADS and Northrop said they planned to build a major plant in Mobile, Ala., and had scheduled a groundbreaking for next week.

The GAO's 69-page decision has to be reviewed by both teams and redacted for proprietary information, so it could take several days before the details are known, officials said.

In a summary of its decision, the GAO outlined seven reasons why it sustained Boeing's protest, saying the Air Force conducted "misleading and unequal discussions with Boeing" during the process. The Air Force's evaluation of operating the aircrafts was "unreasonable," it said, noting that the service adjusted Northrop's engineering costs so that they were lower than Boeing's.

The report said that the Air Force never justified its conclusion that the proposed Northrop tanker could handle refueling all types of military planes and that the service mistakenly found that Boeing's plane was more expensive to operate and maintain when it was, in fact, cheaper.

Mike McGraw, vice president of Boeing's tanker program, said "we welcome and support today's ruling by the GAO fully sustaining the grounds of our protest."

Northrop spokesman Randy Belote said, "We continue to believe that Northrop Grumman offered the most modern and capable tanker for our men and women in uniform."

The GAO rarely sustains protests, defense analysts said, so it raises serious questions about the Air Force and its leadership.

"I cannot believe that in the most highly scrutinized procurement in the history of the United States Air Force, the GAO found so many errors," said Sen. Richard C. Shelby (R-Ala.).

Even one of Northrop's strongest supporters called for an investigation of the selection process.

"Air Force officials didn't miss it by a little; they apparently missed it by a mile," said Tom Schatz, president of Citizens Against Government Waste, a nonprofit group that worked closely with Northrop on a public relations campaign defending the award. "If this is the best the Air Force can do on its most critical contract award, the system remains dysfunctional."

Staff writer Michael D. Shear and staff researcher Julie Tate contributed to this report.