Boeing Says it Will Protest $35B Air Force Tanker Award

Boeing Co. on Monday said it will formally protest a $35 billion Air Force contract awarded to European Aeronautic Defence and Space Co. and Northrop Grumman Corp.

The Chicago-based aerospace company "found serious flaws in the process that we believe warrant appeal," Boeing's chairman and CEO, Jim McNerney, said in a statement.

Boeing's protest, to be filed Tuesday, compounds existing pressure on Air Force officials to explain their decision to award the high-stakes deal to a European company instead of an American one. There has been fierce backlash on Capitol Hill, led by lawmakers from Washington, Kansas and other states that would have gained jobs had Boeing won. Air Force officials have said the impact on American jobs was not one of their criteria for awarding the contract.

Air Force officials will testify before House and Senate committees on Tuesday.

The contract to replace 179 air-to-air refueling tankers is the first of three Air Force awards worth as much $100 billion to replace its entire fleet of nearly 600 tankers over the next 30 years.

Following a debriefing by Air Force officials on Friday, Boeing questioned the fairness of the competition, citing "inconsistency in requirements, cost factors and treatment of our commercial data."

The company argued that the Air Force changed its method for evaluating the two tankers even after issuing a request for proposals. These changes allowed a larger tanker to be competitive even though the Air Force originally had called for a medium-sized plane. Air Force officials have indicated that the larger size of the tanker offered by the EADS/Northrop team helped tip the balance in its favor.

"We didn't think they wanted a bigger plane," Jim Albaugh, head of Boeing's Integrated Defense Systems unit, said last week. Albaugh said this is why Boeing based its offering on Boeing's 767, noting that "we were discouraged from offering the 777," a bigger aircraft that would have been more comparable to the winning bid.

Once Boeing files its protest, the Government Accountability Office will have 100 days to issue a ruling. A protest could delay execution of the tanker contract by nearly a year, according to Loren Thompson, a defense analyst with the Lexington Institute, a think tank.

In a statement, Northrop Grumman said the tanker competition was "the most rigorous, fair and transparent acquisition process in Defense Department history."

The Air Force selection of EADS, the European parent of Boeing rival Airbus, and Northrop Grumman of Los Angeles came as a major surprise. Boeing has been supplying refueling tankers to the Air Force for nearly 50 years.

With anger mounting on Capitol Hill, top Air Force officials — including Air Force Secretary Michael Wynne, Air Force Chief of Staff T. Michael Moseley and Sue Payton, the Air Force's assistant secretary for acquisition — are scheduled to testify this week at a series of congressional hearings.

"This is one of the worst decisions I've ever seen," said Rep. Norm Dicks, a Democrat from Washington State, which is home to many Boeing jobs. Dicks said he will work to block the decision or push for a new tanker competition.

The EADS/Northrop Grumman team plans to perform its final assembly work in Mobile, Ala., although the underlying plane would mostly be built in Europe. It would also use General Electric Co. engines built in North Carolina and Ohio. (Northrop Grumman estimates a Northrop/EADS win would produce 2,000 new jobs in Mobile and support 25,000 jobs at suppliers nationwide.)

Boeing would have performed much of the tanker work in Everett, Wash., and Wichita, Kan., and used Pratt & Whitney engines built in Connecticut. The company said a win would have supported 44,000 new and existing jobs at Boeing and more than 300 suppliers in more than 40 states. But even if Boeing had won the deal, critical parts of its tankers would have come from other countries, including Japan and Italy.

Sen. Richard Shelby, R-Ala., said he remains confident that the GAO will uphold the Air Force decision and added that he want to "keep the Congress out of the procurement business."

Thompson said Boeing will have a tough time overturning the Air Force decision. "This was the most rigorous and complete weapons award that the Air Force has done in modern times," he said.

According to data and reports reviewed by The Associated Press, corporate claims of contract irregularities and improprieties are rejected more often than not by the GAO. Of the 1,327 bid protests lodged with the GAO in 2006, just 249 got as far as an official decision. And in 71 percent of those cases, the office sided with the government and denied the complaint.

Boeing's shares fell $2.22 to $74.38 Monday. And Northrop's shares fell 62 cents to $78.39.