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Pentagon Postpones Tanker Competition
Decision Punted to Next Administration

By Dana Hedgpeth
Washington Post Staff Writer
Thursday, September 11, 2008

The Pentagon yesterday postponed the controversial $40 billion competition to build an aerial refueling tanker for the Air Force, conceding a breakdown in the management of the contest and postponing the politically charged decision until the next presidential administration.

The delay came after months of scrutiny and unusually visible pressure from congressional leaders, trade groups and executives at the two major defense companies vying for the award, Boeing and Northrop Grumman. At stake were thousands of jobs and work that could be worth $100 billion in the coming decades as the Air Force replaces a tanker fleet in which some planes are nearly a half-century old.

Defense Secretary Robert M. Gates had pushed to award the contract by the end of the year but said yesterday that it was impossible.

"Over the past seven years, the process has become enormously complex and emotional -- in no small part because of mistakes and missteps along the way by the Department of Defense," Gates said before the House Armed Services Committee. "It is my judgment that in the time remaining to us, we can no longer complete a competition that would be viewed as fair and objective in this highly charged environment."

He said having a "cooling-off period will allow the next administration to review objectively the military requirements and craft a new acquisition strategy for the KC-X."

It's the latest twist in a troubled saga. In 2003, the Air Force agreed to lease a new fleet of tankers from Boeing. But that deal got caught up in a procurement scandal that sent a high-ranking Pentagon official and a top Boeing executive to prison.

The Air Force then launched what it said would be an exemplary competition for a contract to build 179 of the planes. In February of this year, after lengthy deliberations, the award went to Northrop and its partner, European Aeronautic Defence and Space, the parent company of Boeing's rival, Airbus.

Boeing protested, saying it had been treated unfairly, and the Government Accountability Office investigated and agreed. The Pentagon decided to re-bid the deal in July.

In an unusual move, Gates took the power to run the competition away from the Air Force and gave it to John Young, the Pentagon's top weapons buyer.

Last month, Boeing, which built the existing tankers 50 years ago, objected to Gates's tight timetable and appealed to Deputy Defense Secretary Gordon England that it needed more time to pitch a new, larger tanker -- essentially a gas station in the sky -- that it thought the Air Force wanted. Boeing threatened to pull out of the competition entirely if it didn't get more time.

Analysts and former Pentagon officials say that Gates's decision yesterday raises questions of just how troubled the Pentagon's procurement process is and that it could cause delays in other major procurements, including new search and rescue helicopters.

Winslow Wheeler, director of the Straus Military Reform Project at the Center for Defense Information, said the tanker contract was a "microcosm of the disaster" in the Pentagon's acquisitions process. "We're now in phase three of an ongoing saga where at each phase, the Air Force and its DOD supervisors have badly screwed things up," he said.

Leaders at Boeing said they supported the Pentagon's move to postpone the decision, saying in a statement that it would give military leaders "the appropriate time for this important and complex procurement to be conducted in a thorough and open competition."

"This will assure delivery of the right tanker to the Air Force and serve the best interests of the American taxpayer," the company said.

Northrop said it was "extremely disappointed" with the Pentagon's decision and "greatly concerned" about the Defense Department's acquisition process.

"The Department of Defense, as recently as last week, stated the urgency to replace the Eisenhower-era fleet of refueling tankers," said Randy Belote, a Northrop spokesman. "With this delay, it is conceivable that our warfighters will be forced to fly tankers as old as 80 years of age."

Boeing closed down $2.31, at $61.71. Northrop's stock closed down 80 cents, at $69.99.

On Capitol Hill, leaders from Washington state and other places where Boeing has major operations said they were relieved that the Pentagon had pushed back the procurement decision.

"We're pleased this is going to be pushed over to the next administration," said Rep. Norm Dicks (D-Wash.), a member of the House Appropriations Committee. "This would have been done in the middle of a presidential campaign. Putting it off until next year lets the new administration come up with a new request for proposals."

Rep. Rosa DeLauro (D-Conn.), whose state would benefit from $185 million in economic activity annually from an estimated 4,000 direct and indirect jobs with Boeing's engine maker, Pratt & Whitney, supported the decision, saying the delay means the "Pentagon will ensure a level playing field and that no one has an unfair advantage."

The delay could pose some risk for Boeing, though, if Republican Sen. John McCain (Ariz.) wins the presidential election. McCain was a harsh critic of Boeing during the Air Force's earlier effort to lease the tankers.

Northrop had promised to build a major facility in Mobile, Ala., to work on its proposed version of the tanker -- based on the Airbus A-330 -- and it drew widespread support from congressional leaders there and in neighboring states. Leaders in those states criticized Gates's announcement.

Rep. Jo Bonner (R-Ala.) called it "flawed thinking" and said he was "outraged by the Department of Defense's decision to cancel this competition." Sen. Richard C. Shelby (R-Ala.) said "this misguided decision clearly places business interests above the interests of the warfighter."

In many analysts' eyes, though, the decision represents fundamental problems with the Pentagon's ability to buy major weapons systems.

"The Air Force and the DOD have spent over six years to reach this point, and what do they have to show?" said David J. Berteau, a senior defense analyst at the Center for Strategic and International Studies.

"They have three failed procurements," he said. "They've punted to the next administration with no clear plan of how they're going to go forward. . . . By any measure, that's a failed system of procurement and acquisitions."

Staff researcher Julie Tate contributed to this report.

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