Boeing, Northrop, EADS Await Tanker Decision

The U.S. Air Force is expected to announce whether it will reopen bidding on the troubled billion-dollar program

Will the U.S. Air Force reopen competition for one of the most lucrative military contracting prizes in history, giving Boeing (BA) another shot at building refueling aircraft? Or will it stay the course, giving the business to Northrop Grumman (NOC) and its European partner, European Aeronautic Defence & Space (EAD.PA), the parent of Airbus? A decision is expected to be announced July 9.

The $35 billion award, the first of three contracts to replace 600 aging tanker planes, has been mired in controversy and delay for years. The latest holdup came when the Government Accountability Office (GAO) sustained a protest by Boeing of the Air Force's chosen supplier of the planes, a consortium of Northrop Grumman and EADS.

The Air Force has several options, but the public and investors won't learn which it has chosen until Defense Secretary Robert Gates makes his announcement. Then all eyes will turn to the House Armed Services Committee, to see if they'll go along with the verdict. Congress holds the purse strings, and some in the House have threatened to find ways of compelling the military to give its tanker business to Boeing. Lawmakers on Capitol Hill anticipate getting "courtesy calls" informing them of the decision at around 10 a.m. ET; an Air Force press conference is anticipated about two hours later.

Top acquisition officials from the Pentagon are set to testify on the award July 10 before the House Armed Services Air & Land Forces subcommittee.

A "Quick Fix" or "Starting Over?"

Lawmakers from Washington state and Kansas, where Boeing employs thousands of workers, have put considerable pressure on the Air Force to reopen the bidding process and cancel the contract with Northrop Grumman and EADS.

"The Air Force could try anything from a quick fix to starting over," said Loren Thompson, a defense analyst at the Lexington Institute, an Arlington (Va.)-based think tank. But as a practical matter, Thompson said, any attempt that appears to ignore the GAO report would meet resistance in Congress, where lawmakers could move to block the Air Force from awarding the contract to Northrop Grumman.

Meanwhile, Senator Patty Murray (D-Wash.) introduced a Senate resolution on July 8, calling on the Pentagon to rebid the flawed tanker contract. "The GAO's decision was clear, and today we are reiterating that message so that the Pentagon knows there is no wiggle room," Murray said. "It's time to go back and hold a truly transparent competition that does our war fighters and taxpayers justice."

The resolution was co-sponsored by Senators Pat Roberts (R-Kan.), Kit Bond (R-Mo.), and Claire McCaskill (D-Mo.)

Senator Richard Shelby, a Republican from Alabama, where the Northrop Grumman plane would be assembled, said he would support the bidders submitting revised proposals instead of a "full recompetition" to speed the process along. "It is important to remember that the GAO's concerns were with procedural flaws in the Air Force's process, not with Northrop Grumman's product," Shelby said.