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Originally published June 12, 2008 at 12:00 AM | Page modified June 13, 2008 at 12:16 AM

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Air Force concedes Boeing tanker bid was lower

The Air Force has conceded it chose the more expensive option in awarding a $35 billion contract for refueling tankers to a team led by...

AP Business Writer

WASHINGTON — The Air Force has conceded it chose the more expensive option in awarding a $35 billion contract for refueling tankers to a team led by Northrop Grumman Corp. instead of Boeing Co., the companies said Thursday.

Northrop acknowledged Boeing's assertions that its proposal included cheaper life cycle costs for the tankers. The Air Force said it cannot legally comment on the tanker proposals, the evaluation process or its selection decision. In a statement, however, the Air Force said it "stands by its process and its decision."

Boeing's action is the Chicago-based company's latest attempt to show that the Air Force's award to European Aeronautic Defence and Space Co. — parent company of its rival Airbus — and Northrop was unfair. The disclosure comes days before the Government Accountability Office is set to rule on Boeing's protest of the deal.

Although the Air Force is not bound by the GAO decision, any finding of error with the competition is certain to give ammunition to Boeing's supporters in Congress as they seek to block or overturn it.

"We have been saying for months now that errors had to be present in this contract award," said Rep. Todd Tiahrt, a Kansas Republican who represents a district where Boeing would do much of its tanker work. "This is strong evidence that the tanker contract should be re-competed."

The new information appears to undermine the Air Force's original assertion that the Northrop/EADS plane offers cost advantages, according to Boeing.

When announcing the award in February, the Air Force said the larger size of the Northrop/EADS plane helped tip the balance in its favor since that tanker would be able to haul more fuel, cargo and troops.

Boeing contends the larger tanker will cost the Air Force more to operate since it will be less fuel efficient, and will require the military to strengthen runways and expand hangars.

According to both Boeing and Northrop, the Air Force initially put the cost to operate the tanker over its lifespan at $108.01 billion for the Northrop plane, compared with over $108.04 billion for the Boeing tanker. Boeing now claims the Air Force miscalculated those costs, although it would not release revised numbers.

In a statement, Northrop said minor errors resulted in a "slight adjustment" in the operating costs of the two planes, but maintained that its the tanker still provides "the most capability at the best overall value."

In its statement, the Air Force said, "any single document, or set of documents, viewed by itself, without the broader context, could easily be misinterpreted."

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

Shares of Chicago-based Boeing rose 81 cents to $74.12 Thursday. Shares of Los Angeles-based Northrop Grumman rose 7 cents to $71.53.

Copyright © 2008 The Seattle Times Company

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