April 2 (Bloomberg) -- Boeing Co., the loser in a $35 billion U.S. Air Force aerial tanker competition won by Northrop Grumman Corp., will be allowed to pursue its protest of the contest after a ruling by a federal agency.

The Government Accountability Office rejected motions by Northrop and the Air Force to toss out parts of Boeing's complaint, spokesmen for the military service and the companies said today. The GAO declined to comment.

``The GAO denied the Air Force's request to dismiss some of Boeing's protest as untimely,'' Major Linda Pepin, a spokeswoman for the service, said in a statement. ``As a result, the Air Force better understands the protest issues. The Air Force is satisfied with this result.''

Los Angeles-based Northrop and Boeing, of Chicago, have battled each other through the media and congressional hearings since the Air Force's Feb. 29 decision and Boeing's March 11 protest. The GAO has until mid-June to issue a final ruling.

The offensives continued today, with Los Angeles-based Northrop saying the GAO acted only after Boeing narrowed the complaint. Boeing denied it had backed off.

``We are encouraged that the company has streamlined its approach,'' Northrop spokesman Randy Belote said of Boeing in an e-mailed statement today. ``We remain convinced that the Air Force process that led to Northrop Grumman's selection was fair, open and transparent.'' He declined to elaborate on his statement that Boeing had scaled back the complaint.

``We haven't narrowed anything,'' Boeing spokesman Bill Barksdale said in an interview. ``As a matter of fact, our case gets stronger the more information we see.'

GAO spokesman Chuck Young said the agency won't comment on whether Boeing narrowed its protest or confirm the Air Force and Northrop motions were turned down.

Tanker Program

Northrop and Airbus SAS parent European Aeronautic, Defence & Space Co. won the 179-plane program using an entry modeled after the Airbus A330 commercial jetliner. Boeing's bid was based on its 767 commercial plane. Boeing, which trails Airbus as the world's second-biggest planemaker, says the Air Force made decisions that unfairly put its smaller entry at a disadvantage.

Northrop had sought to dismiss most of Boeing's protest on grounds that the issues raised were ``untimely'' and should have been questioned before Boeing bid. Boeing has filed two supplemental protests since its original one.

Both companies offered ``offered fair and reasonable prices'' and ``a reasonable business arrangement,'' according to Air Force documents on selection criteria reported by Bloomberg News on March 20. Northrop was deemed ``more advantageous in mission capability'' and ``in key system requirements'' and ``program management,'' the documents said.

The service determined it would require 22 fewer Northrop tankers to meet certain combat scenarios than if it used the smaller Boeing jet, the documents said.

Northrop rose 69 cents to $78.94 at 4:15 p.m. in New York Stock Exchange trading and gained 5.4 percent in the past 12 months. Boeing rose 97 cents to $76.85 and has fallen 13 percent.

To contact the reporter on this story: Susanna Ray in Chicago at sray7@bloomberg.net; Edmond Lococo in Boston at elococo@bloomberg.net;

Last Updated: April 2, 2008 20:44 EDT