Boeing victory: GAO calls for new bids for Air Force tanker

McClatchy NewspapersJune 18, 2008 

WASHINGTON — The Government Accountability Office concluded Wednesday that the Air Force made "significant errors" in awarding a $35 billion contract for aerial-refueling tankers to a team that included a European aerospace company.

In a major victory for Boeing, the GAO recommended that the Air Force reopen the competition and rewrite contract specifications.

"Our review of the record led us to conclude that 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," the GAO said. "We therefore sustain the Boeing protest."

The Air Force has 60 days to respond to the GAO recommendations, which are not binding. But some lawmakers on Capitol Hill suggested the GAO decision was such a "vindication" for Boeing that it ought to be awarded the contract outright without a new contract competition. Others said they would be watching closely to see if the Air Force learned anything.

"If they decide not to rebid, it would be insanity and Congress would order them to," said Rep. Norm Dicks, D-Wash. But, Dicks added, "If their top priority is to get a plane as quickly as possible, they should give it to Boeing."

In March the Air Force awarded the contract to replace 179 Eisenhower-era KC-135 tankers to Northrop Grumman and the European Aeronautic Defense and Space Co., the parent company of Boeing's chief commercial airplane rival, Airbus. The Air Force said Northrop-EADS had bested Boeing in virtually every category and insisted the competition was fair and open.

Two weeks later Boeing filed its protest with the GAO, arguing the Air Force contract award was riddled with errors and needed to be overturned.

The Air Force has faced a recent string of setbacks ranging from an earlier procurement scandal involving a tanker lease deal that had been awarded to Boeing to serious questions about its safeguarding of nuclear weapons.

Lawmakers said the tanker decision will likely fall to Defense Secretary Robert Gates, who earlier this month fired Air Force Secretary Michael Wynne and Air Force Chief of Staff T. Michael Moseley. The firings were unrelated to the tanker contract but left a vacuum in the top civilian and military ranks of the Air Force.

"This is a good time for the Air Force to be getting new leadership because the GAO has just issued the most sweeping denunciation of its acquisition practices I have ever seen," said Loren Thompson, a defense analyst with the Lexington Institute.

The Air Force was reviewing the 69-page GAO decision and had no immediate comment.

The contract eventually could be worth an estimated $100 billion as the Air Force replaces its fleet of roughly 600 tankers.

The Boeing tanker would use a 767 airframe built at its plant in Everett, Wash., and modified into a tanker in Wichita, Kan. At stake were about 9,000 jobs in Washington state. Northrop-EADS would use an Airbus A-330, which is currently built in France using parts manufactured in France, Germany, Great Britain and Spain.

Both Boeing and Northrop Grumman-EADS were cautious in their reaction.

"We continue to believe that Northrop Grumman offered the most modern and capable tanker," said Randy Belote, the company's vice president for corporate and international communications.

Ironically, the GAO decision came as Northrop Grumman-EADS announced plans to break ground on a new facility in Mobile, Ala., where its tankers would be assembled.

Boeing officials said they looked forward to working with the Air Force on resolving the tanker contract dispute.

"We welcome and support today's ruling by the GAO fully sustaining the grounds of our protest," said Mark McGraw, vice president of Boeing's tanker program.

Northrop-EADS supporters said that while they were disappointed with the GAO decision, the process was not over.

"The GAO report specifically notes this should not be read to reflect negatively on the airplane's merits," said Sen. Jeff Sessions, R-Ala. "While this is a most disappointing decision, the competition is not over."

Sen. Thad Cochran, R-Miss., also said the GAO decision did not "reflect on the merits" of the Northrop-EADS plane.

"Rather, the GAO report suggested the Air Force made a number of significant errors in the competition process," Cochran said.

Wednesday's decision was such a slam dunk for Boeing that the GAO recommended the Air Force reimburse all of Boeing's costs for filing and pursuing its protest, including attorney fees.

While the GAO said it denied a number of Boeing's challenges because it did not have enough evidence, the agency, Congress' investigative arm, singled out seven specific errors the Air Force made in selecting Northrop-EADS.

They included questions about the Northrop-EADS tankers' ability to actually refuel all of the Air Force's current aircraft, lifecycles costs that the Air Force has already admitted miscalculating, and problems in assessing related military construction costs for the larger Airbus plane when compared to the mid-size Boeing tanker.

The GAO also found the Air Force had conducted "misleading and unequal" discussions with Boeing over the "operational utility" of its tanker.

The full GAO decision remained under a protective order, with lawyers for both companies asked to remove proprietary information before it is publicly released.

"I am not surprised that the GAO identified significant errors in the selection process," said Sen. Patty Murray, D-Wash. "The Air Force bought a tanker that doesn't meet their needs and has been waging a PR campaign ever since."

Murray and Dicks exchanged high-fives as they, other Washington lawmakers and their colleagues from Kansas and Missouri arrived at a news conference.

"Thanks be to God and the GAO," said Sen. Sam Brownback, R-Kan.

Kansas' other senator, Republican Pat Roberts, said he would ask the Senate to approve a non-binding resolution calling on the Air Force to rebid the contract.

"It's not nice to say, 'We told you so,' but we told you so," said Roberts, calling the GAO report "tough, aggressive and damning."

Other lawmakers said the GAO had not considered other, more politically sensitive issues such as jobs, the nation's defense industrial base and foreign trade.

The World Trade Organization could rule in the next month or so whether Airbus has received $15 billion in allegedly illegal subsidies from European governments.

Dicks was not the only one who suggested the Air Force might want to award the tanker contract directly to Boeing. Others included Brownback and Roberts.

"Certainly it would save them a lot of embarrassment," Roberts said.

McClatchy Newspapers 2008

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