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Tanker Bid Moves Toward Endgame
Boeing, Northrop Maneuver for Pentagon Deal

By Dana Hedgpeth
Washington Post Staff Writer
Friday, August 29, 2008

Score another one for Boeing.

The defense and aerospace giant has been clawing its way back into the competition to build a new generation of aerial refueling planes for the Air Force in an unusually public way. After losing the recent Air Force decision to award the $40 billion program to rival Northrop Grumman and its partner, European Aeronautic Defence & Space, Boeing managed to get the contract overturned and re-bid.

Now Boeing has said it might drop out of the competition if it doesn't get more time, a move analysts are calling shrewd in a very Washingtonian game of chess, as major corporations and their political allies jockey for a program that could be worth as much as $100 billion in the coming decades.

Boeing and Northrop leaders have each had three meetings in the past three weeks behind closed doors with Pentagon officials at Wright Patterson Air Force base in Dayton, Ohio, to air their concerns and grievances about the latest request for offers to build 179 tankers. Few will discuss details, but observers say the Pentagon is trying to avoid another round of protests from the two teams.

After Boeing threatened to pull out of the competition last week, Northrop and its foreign partner fired back with e-mail blasts and newspaper and radio ads to try to get the Pentagon to pick its plane as the winner.

The bickering has left the Air Force in a bind. If Boeing were to drop out, having only one bidder would be a major blow for the Pentagon's top weapons buyer John J. Young Jr., whose mantra is to have more competition in multibillion-dollar programs to ensure U.S. taxpayers get the best deal.

"This is becoming more bizarre than even a classic Washington story," said Robbin F. Laird, a defense industry consultant. "It's like a soap opera. We're looking at 'As Washington Turns' here. You've got politics, big money and a much needed aircraft and possibly even more delays."

The tanker deal has a long, checkered past.

The Air Force initially tried to lease tankers from Boeing in 2003 but canceled the deal after a procurement scandal sent a Boeing executive and a Pentagon official to prison. Last year, the Air Force set out again to find a contractor to replace its aging fleet of tankers, which Boeing started building nearly 50 years ago. The Air Force selected Northrop and EADS in February.

Chicago-based Boeing protested and in June won a major decision from the Government Accountability Office, which said Boeing was indeed treated unfairly. The Pentagon agreed to rebid the deal. Defense Secretary Robert M. Gates -- in an unusual move -- put Young, the undersecretary for acquisition, technology and logistics, in charge of running the new tanker competition, taking the power from the Air Force to select what its leaders have called its "number one acquisition" program in decades.

Pentagon leaders have said they want to pick a winner by year's end but are already behind schedule, having missed a mid-August deadline to put out the final request for proposals. Analysts say the decision is likely to be punted to the next administration.

The Pentagon has said bidders would likely have 45 to 60 days to place their bids from the date of the request for proposals.

But Aug. 21 two of Boeing's top executives -- Jim McNerney, the company's chairman, president and chief executive, and Jim Albaugh, president and chief executive of Boeing's Integrated Defense Systems, its $32.1 billion division that includes the tanker and other weapons programs -- appealed to Deputy Defense Secretary Gordon England in a meeting at the Pentagon to give them another four months to put together a new proposal for a bigger plane that will carry more fuel. One of Boeing's lobbyists is former Congressman Bill Paxon (R-N.Y.) of Akin Gump Strauss Hauer & Feld, and the company has gotten support from its labor unions in Washington state, where it has major operations.

"We certainly don't want to walk away," said Daniel Beck, a Boeing spokesman, "but we need to make sure we have enough time."

Some experts say Boeing is bluffing. The company is threatening to pull out to "see if the Defense Department blinks" and gives it more time, said David J. Berteau, a senior defense analyst at the Center for Strategic and International Studies.

A Boeing pullout would open the door for its biggest rival -- Airbus, which is owned by EADS -- to set up shop in the United States at a plant proposed for Mobile, Ala. "It isn't just tankers that will be built in Alabama. It will be Airbus commercial planes," said Loren Thompson, a defense consultant for several major firms. Jacques Gansler, who served as the Pentagon's top weapons buyer under Bill Clinton, said "Congress would raise a stink if Boeing pulls out.

"They've been defending their districts over the jobs involved in this and are trying to influence the decision," Gansler, who said he participated in a paid study two years ago for Northrop on its proposed tanker. "The companies now have tremendous lobbying power, but politics should not be the basis for deciding on national security needs."

Some analysts and executives at competing defense firms say the outcome of the presidential election could be critical for Boeing. The handicapping goes like this: Sen. John McCain, the presumptive Republican nominee, helped kill the previous leasing deal, and some of his advisers once worked as lobbyists for Airbus. Democratic nominee Sen. Barack Obama, on the other hand, is from Boeing's home state of Illinois.

Northrop is trying to hold its position as the winner. The Los Angeles-based company spent about $8 million this year on its own internal lobbyists and hired such big names as the lobbying firm of former Sen. John Breaux (D-La.) and Sen. Trent Lott (R-Miss.), according to recent lobbying reports. Northrop lists about 20 lobbyists and executives who have recently meet with Congressional leaders on the tanker and other issues, and it has gotten support from groups like Citizens Against Government Waste, a nonprofit group.

Northrop sends out daily e-mails that usually slam its competitor, and a recent full-page ad in The Washington Post castigated Boeing for trying to stall for time. "And should Boeing not prevail after its latest delay," the ad said, "what is to stop the company from demanding yet another and another until it is guaranteed a win?"

One thing both sides agree on is that the deal puts the spotlight on Young, the Pentagon's decision-maker, who will face political fallout from the losers no matter which side wins. Spokesman Chris Isleib said Young was in Italy this week and unavailable for comment, but said his office expected to have a final request for proposals out next week.

"Both companies are playing hardball, and their political backers are providing virtually unlimited support," said Richard Aboulafia, an aeronautics analyst at Teal Group in Fairfax. "If you're Young, you're in a weak position. Ideally, you want to make neutral decisions purely for best value for your money without fear of being second-guessed and overruled by politicians. But he is very definitely not in that position."

Staff researcher Julie Tate contributed to this report.

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