Boeing Says It Might Exit Tanker Bidding
Citing New Terms, It Seeks More Time

By Dana Hedgpeth
Washington Post Staff Writer
Friday, August 22, 2008

Boeing said it may pull out of the competition to win a $40 billion contract to build new, aerial refueling tankers for the Air Force unless the Pentagon agrees to give it more time to submit a new bid.

The prospect of a key bidder's departure from the competition is the latest twist in the Air Force's ill-fated effort to replace its aging tanker fleet. The Defense Department last month canceled its previous award of the tanker deal to Northrop Grumman and a foreign partner after a government oversight agency said the contract had been awarded unfairly.

Pentagon officials say they want to pick a new winner by year's end. To meet that deadline, defense industry analysts have said, the government is likely to give the competitors 45 to 60 days to turn in new proposals. The government is expected to put out a new request for proposals early next week.

Boeing spokesman Dan Beck said the company needs six months to put together a new bid because it thinks the Air Force has changed the requirements and is now asking for a plane that can carry more fuel. Beck said the four additional months are needed to do further price analysis and engineering work to propose a different plane.

If the Pentagon doesn't grant more time, Beck said "one of the options we would seriously consider is that we would possibly" not bid at all.

"If we can't have a competitive proposal, there doesn't seem to be a lot of value in us going through this process if the best we can do is come up with a proposal that falls short of what the [Department of Defense] is looking for," he said.

Defense industry analysts have said Boeing is likely to replace its original proposal of a tanker based on its 767 commercial aircraft with one based on its larger 777. Boeing officials have declined to describe their plans, citing competition.

If Boeing pulled out of the bidding, it would be a blow to the Pentagon's procurement process and could delay delivery of the planes. The contract could be worth as much as $100 billion as the Air Force eventually replaces its entire fleet of tankers, which are essentially gas stations in the sky.

The tanker contract has long been plagued by troubles. The Air Force initially tried to lease tankers from Boeing in 2003 but canceled the deal after a procurement scandal that landed a former Boeing executive and a Pentagon official in prison.

The Air Force tried again in 2007, opening a new competition. It decided in February to buy 179 tankers from Northrop Grumman and its foreign partner, European Aeronautic Defence & Space Co. -- rejecting a bid from Boeing, which started making the Air Force's current refueling tanker nearly 50 years ago.

Boeing's loss set off a firestorm on Capitol Hill and a highly visible public relations campaign to win support from union and trade groups and other supporters. The Chicago-based manufacturer protested the award in March. The Government Accountability Office ruled in Boeing's favor in June, saying that the Air Force had unfairly evaluated the proposals in picking the Northrop team.

The Pentagon said it would rebid the contract, and, in an unusual move, the Defense Secretary's office rather than the Air Force is now overseeing the new competition.

Northrop Grumman spokesman Randy Belote said "this process allows the competitors to see what's included and either move forward or not."

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