WASHINGTON — The Pentagon on Wednesday canceled its $35 billion competition for a new Air Force aerial-refueling tanker, with Defense Secretary Robert Gates saying that because of the "highly charged environment" he had no choice but to leave the decision to the next administration.
The postponement was seen as a victory for Boeing and a setback for Northrop Grumman and its European partner, the parent company of Boeing rival Airbus. The initial contract is for 179 planes, but the contract eventually could be worth more than $100 billion as the Air Force replaces its fleet of 600 tankers, some dating to the Eisenhower era. It's potentially one of the largest Pentagon contracts ever.
The action came only three weeks after Boeing's chief executive, James McNerny, and the head of Boeing's defense unit, James Albaugh, told the Defense Department's No. 2 official, Deputy Secretary Gordon England, in a face-to-face Pentagon meeting that the company wouldn't compete for the tanker contract unless it was given four more months to prepare a bid.
After losing the initial competition earlier this year to a team of Northrop Grumman and the European Aeronautic Defense and Space Co., Boeing filed its first-ever protest involving a Pentagon contract and threatened not to submit a new bid after the protest was upheld and a new competition begun.
The Government Accountability Office, in supporting Boeing's protest, found that the Air Force had made "significant errors" in awarding the contract to Northrop-EADS and recommended a new competition. Among other things, the GAO found that there were mistakes in calculating the life-cycle costs of operating and maintaining the competing tankers, there was uncertainty over whether the Northrop-EADS plane could refuel all the Air Force's planes and that the Air Force had unfairly favored the larger tanker offered by Northrop-EADS.
The Pentagon was preparing to offer its final proposal for bids in the new competition when Gates acted Wednesday. The Defense Department had planned to award the contract before the end of the year.
"This is a major victory for Boeing," said Loren Thompson, a national security analyst with the Lexington Institute, a research center in Virginia. "It resulted in equal parts from Boeing's willingness to play hardball with the customer and Secretary Gates' good sense in seeing he didn't have time to do this right in the Bush administration."
Gates said that although his decision would delay the delivery of new tankers, the current KC-135s would meet the Air Force's needs in the coming months. The average age of those planes is about 45 years.
In announcing his decision, Gates said, "It is my judgment that in the time remaining to us, we can no longer complete a competition that would be viewed as fair and objective in this highly charged environment."
Democratic presidential candidate Barack Obama, an Illinois senator, generally had been supportive of Boeing's bid, calling it an issue of protecting American jobs. Boeing is based in Chicago.
Even before the contract initially was awarded to Northrop-EADS, Arizona Sen. John McCain, who's now the Republican presidential nominee, wrote three letters to the Pentagon urging officials to take steps to ensure that there would be more than one bidder. The letters came as Northrop-EADS was threatening not to bid. Roughly half a dozen McCain staffers and fundraisers, including his former finance chairman, have ties to Airbus, whose parent company is EADS.
Boeing builds its 767 at its plant in Everett, Wash.; the planes would be converted into military tankers at its facilities in Wichita, Kan.
The Airbus A330 currently is assembled in Toulouse, France, using French, German, British and Spanish parts. Northrop-EADS has announced plans to build an assembly plant in Mobile, Ala., but construction has been postponed indefinitely.
Boeing welcomed Gates' decision, while Northrop-EADS said it was "extremely disappointed."
In its statement, Boeing said it "welcomes the Defense Department's decision and believes it will best serve the war fighter in allowing the appropriate time for this important and complex procurement to be conducted in a thorough and open competition."
Northrop-EADS said the decision would slow the production of a critically important plane and, "while we understand, we are greatly concerned about the potential future implications of the defense acquisition process."
Boeing supporters on Capitol Hill, who'd lobbied the Pentagon to extend the competition, were pleased with Gates' decision.
"We are going back to square one," said Sen. Patty Murray, D-Wash., who was prepared to offer language to the Senate defense-appropriations bill Wednesday to ensure a level playing field for Boeing. "It doesn't matter who is in the White House, I will fight for a fair competition and one that will support American workers."
Northrop-EADS supporters were far from happy with Gates.
Sen. Richard Shelby, R-Ala., called the decision "unacceptable," "irresponsible," "shortsighted" and "harmful."
"This misguided decision clearly places business interests above the interests of our war fighters," he said in a statement.