Wednesday, September 10, 2008

Pentagon Decision to Delay Tanker a Huge Win for Boeing

Today the Defense Department announced that it was terminating the current competition to build the next generation of the Air Force’s airborne refueling tanker, leaving the final decision on who would control the $35 billion program to the next Administration.

In the press release announcing the decision, Defense Secretary Robert Gates stated that the atmosphere surrounding the competition between Boeing Company and Northrop Grumman and its partner European Aeronautical Defence & Space Company (EADS), “has become enormously complex and emotional” and that in his judgment “ in the time remaining to us, we can no longer complete a competition that would be viewed as fair and objective.”

This decision can only be viewed as helpful to Boeing, who as of late February were out of the tanker competition entirely. On February 29 the Pentagon announced it was awarding the contract to Northrop Grumman. Boeing received a reprieve in June, when the Government Accountability Office (GAO) upheld Boeing’s protest of the contract award. At the time, GAO stated that in selecting the winner, “the Air Force had made a number of significant errors that could have affected the outcome of what was a close competition between Boeing and Northrop Grumman.”

While neither today’s announcement nor GAO’s finding actually reverses the Air Force’s initial decision to award the contract to Northrop Grumman, Boeing lives to fight another day. The delay, which could easily exceed a full year, will allow Boeing to significantly revamp it’s initial bid, including developing a proposal based on a larger aircraft – something Boeing officials believe is critical if they are to be competitive. In August Boeing announced (albeit likely with their fingers crossed behind their backs) that they would consider withdrawing from the competition entirely if they weren’t given additional time to complete revisions of their bid, which would include a design based on a larger air frame.

Northrop Grumman is unlikely to “stand pat” on its bid now given additional time. Widespread media accounts over the last few weeks indicate that it too will submit a new bid using a different airframe.

For background on the Air Force’s tanker competition, see my Fact Sheet "GAO Review of the Air Force Tanker Contract Award to Northrop-Grumman."

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