The Pentagon's plan to award the air tanker contract by Jan. 1, and prefer a bigger plane, puts Boeing at a big disadvantage in the reopened bidding process
The Defense Dept. wants to make a decision by New Year's Day on whether Northrop Grumman (NOC) or Boeing (BA) gets the hotly contested $35 billion contract to build a new generation of aerial-refueling tankers for the U.S. Air Force. That speedy timetable already has Boeing supporters crying foul.
Politicians from Washington State fear that the reopened contest, which was detailed at the Pentagon on Aug. 6, is being rigged to give Northrop an edge. "While it will take time to analyze this document, there are several issues that already raise red flags," argued Senator Patty Murray (D-Wash.). For one, the Pentagon plans to give extra credit to the amount of fuel that can be off-loaded from the tankers, she said, and that will favor the bigger Airbus A330 design that Northrop would base its planes on. Boeing based its tanker on a version of its 767 commercial jetliner. The short timetable, Murray added, "is simply unrealistic."
Certainly, the Pentagon's new timetable is ambitious. It plans to discuss requirements in detail with the competing companies next week, and then give them until Oct. 1 to submit their proposals. After more discussions, it would then require a "best and final" offer by the end of November or early December. It would expect to choose the winner by New Year's Day and debrief both contestants in the first week of 2009.
Boeing Hints at Second Protest
Northrop officials reacted warmly to the Pentagon's latest plan. A Northrop spokesman said the company "applauds the Defense Dept. for recognizing the urgency of replacing the Eisenhower-era refueling tankers via a thorough yet speedy revised acquisition process."
By contrast, Boeing seemed to suggest it could be getting ready to take the issue back to the Government Accountability Office (GAO) if need be. "Given the very narrow window for commenting on this draft," a Boeing spokesman said, "our team is focused on identifying and understanding any changes that may have been made to the original requirements and evaluation criteria. We also need to see how the document addresses the strong concerns the Government Accountability Office identified in sustaining our protest."
The GAO forced defense officials to reopen the competition (BusinessWeek.com, 7/9/08) between the companies in mid-June by ruling that the initial award to Northrop was deeply flawed.
Among the problems: The Air Force had told Boeing that going with a larger plane to boost fuel capacity—basing it on the Boeing 777—wouldn't give it an edge. Then the Air Force cited the Airbus A330's greater capacity as a reason that Northrop and its partner, Airbus maker European Aeronautic Defence & Space (EAD.PA), won the competition in February.
That contract award triggered a furious reaction by Boeing and U.S. politicians who fret that the deal could ultimately mean more jobs for Europeans than Americans.
The Pentagon's terms of engagement for the latest round of tanker competition sparked a similar reaction from Boeing supporters. An aide to Representative Norm Dicks (D-Wash.) said the Pentagon's new Request for Proposal (RFP), or request for bids, appears to favor a larger tanker. Boeing would likely need 12 to 15 months to come up with a design larger than the 767-based design it has planned on, said the aide, George Behan. Said Dicks: "The unusually brief timeline of the new RFP process also suggests that the Pentagon wants to justify its previous decision. In the original selection process, the Air Force took nearly 10 months—and botched the job—to do what it now plans to do in three."
Dicks argued that "it's time for Congress to exert greater control of this process."
Funding for the contract may be held up in defense appropriations legislation. "Supporters on Capitol Hill will prevent this from going forward," predicted Loren Thompson, an analyst with the Lexington Institute military think tank in Arlington, Va. "This RFP seems to confirm the suspicion that there was no way Boeing could win this with existing Pentagon management."
"If the new solicitation favors a large plane and yet Boeing isn't given the time to offer one, that sounds like a stacked deck," added Thompson, who noted he hasn't taken sides in the argument but is troubled by the process. "When you try to do things fast, there's not much time to change the proposal." He said it appears the Defense Dept. "is pushing for the same outcome by a different means" and skewing the competition accordingly.
Rivals Mull Response
Boeing, which attacked the earlier award to Northrop in newspaper ads, through political allies, and through the government's protest process, isn't yet saying how it will respond to the new requirements. "Despite the fact that the first competition appropriately addressed the aircraft's intended mission, until we receive the final RFP it is too early to offer any details about Boeing's path forward," a spokesman said.
While praising the timetable, Northrop officials said they, too, would need to review the new competition terms in detail. But they took a shot at the politically charged backing Boeing has had. "We are reviewing the draft RFP with an eye toward ensuring that it addresses the issues raised by the GAO in a way that facilitates a fair and nonpolitical evaluation of the competing bids," the company's spokesman said.
The tankers, which can refuel fighters and bombers in flight, would be a key part of the Air Force's arsenal for decades to come. The winning company will be obligated to produce 179 of them. The planes they would replace have been flying for some 40 years and are wearing out. Defense Secretary Robert Gates had urged haste in the reopened competition. He had said few programs in the Defense Dept. were "more time-critical."