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Originally published August 7, 2008 at 12:00 AM | Page modified August 7, 2008 at 12:11 PM

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Revised rules for tanker contest give edge to Airbus

The Air Force refueling-tanker contest is to be rerun under amended rules and a new timeline, but industry and political reactions suggest...

Seattle Times aerospace reporter

The revised tanker competition

Some of the key changes

Refueling: "Proposals will receive positive consideration for the amount of fuel offload exceeding the threshold." The original rules allowed no extra credit for exceeding the requirement. This change should favor the larger Airbus A330.

Timetable: The Pentagon set out a fast-track timetable that would see a new winner by year end. That suggests the selectors want only minimal changes to the original assessment and should favor Airbus. The schedule doesn't give Boeing time to propose a different airplane.

Cost of planes: The cost of buying the airplanes will be evaluated separately from the program life-cycle costs. The former is likely to be given more weight, as these are near-term predictable costs that the Pentagon must factor into its budget.

This change could favor the A330. Most analysts believe Airbus offered its planes at an exceptionally low price.

Cost of program: The tanker program life-cycle costs will be calculated over 40 years, not 25 as per the original award. This change could favor the 767, which uses less fuel per trip.

Source: Pentagon briefing and new RFP

The Air Force refueling-tanker contest is to be rerun under amended rules and a new timeline, but industry and political reactions suggest the Airbus A330 jet still has the edge over the Everett-built Boeing 767.

According to the revised Request for Proposal (RFP) outlined at a Pentagon briefing Wednesday, the selection committee will give the Airbus airplane extra credit for its larger size and correspondingly greater capability to offload fuel.

The tanker's air-refueling performance is cited as the most important factor.

And a compressed schedule envisions a new decision by the end of the year, leaving Boeing no time to pull together a proposal for a larger tanker.

"The unusually brief timeline of the new RFP process ... suggests that the Pentagon wants to justify its previous decision," U.S. Rep. Norm Dicks, D-Bremerton, a key Boeing supporter in Congress, said in a statement. "If this was a bona fide competition for a much larger tanker ... it is unimaginable that the government would launch a $40 billion procurement with final proposals due in 45 days and a source selection decision by the end of the year."

Boeing may try amending its offering, perhaps slashing the cost of its plane. It also could conceivably withdraw from the competition.

More likely, it will fight on by protesting again and extending the contest into next year and a new administration in Washington, D.C.

At the Farnborough Air Show in England last month, Boeing executives said they would ask for a complete contest redo if the government made any major change to the requirements.

The original contract was awarded to Boeing in 2001 but canceled in 2004 after a procurement scandal.

A new contract was awarded in February to Northrop Grumman in partnership with Airbus parent company European Aeronautic Defence & Space. But the award was put on hold in June after federal auditors found the process flawed.

At a Washington news conference, defense-procurement director Shay Assad said the Pentagon limited its changes to those that addressed specific criticisms in a Government Accountability Office (GAO) report done after Boeing's protest.

"I would not consider this to be a substantial modification of the request for proposal [RFP]," said Assad.

"The changes we've made have been focused on the GAO ruling."

Assad emphasized the new contest would have more transparency, with the two competitors "given a clear and unambiguous understanding of the relative order of importance of our requirements."

Boeing is studying the details of the revised requirements and plans a formal response next week.

But an initial company statement expressed concern the Pentagon is getting around the errors in the original process simply by rewriting the rules — with little likelihood of a different outcome.

"Our team is focused on identifying and understanding any changes that may have been made to the original requirements and evaluation criteria," the Boeing statement said.

In contrast, a Northrop Grumman statement "applauds [the Pentagon] for recognizing that the acquisition of replacement refueling tankers for the Air Force should be put on a path toward quick closure."

Only one change in the new requirements appeared to favor Boeing's plane: the life-cycle costs of the tanker program are to be assessed over 40 years instead of 25.

The Boeing plane is expected to be cheaper to operate. But if the Air Force changes its operational use of the planes, perhaps using fewer of the larger aircraft, that could revise this calculus.

In any case, cost is much less important in the selection process than performance.

Aerospace and defense analysts concurred that the Pentagon's position favored Airbus.

"If it's a redo of the same criteria, only more transparent, there's a good chance the outcome is exactly the same," said Richard Aboulafia of the Teal Group.

Scott Hamilton, an Issaquah-based analyst with Leeham.net, said he thought Northrop would win again, mainly because it has two prototype tankers ready to fly next year while Boeing lags in development.

Defense expert Loren Thompson of the Lexington Institute insisted this plan for a redo won't fly.

"How can you favor an outcome that wasn't in the original [requirements] without giving the teams time to adjust what they are offering? I'm not sure which airplane is better ... but I know a bad process when I see one," said Thompson.

"Boeing is stuck with a proposal that was responsive to the original [requirements]. The rules have now changed, and its proposal is not as good a fit with the new selection criteria."

Thompson expressed skepticism that the Pentagon will succeed in pushing it through by the end of the year.

"Both teams know the new award will not be made in this administration," Thompson said.

Members of Washington state's congressional delegation said they will do everything they can to ensure that outcome.

Democratic Sen. Maria Cantwell said she is blocking Senate action on President Bush's nomination of Michael Donley as the new Air Force secretary, largely because of the handling of the tanker competition.

And Dicks ended his reaction to the Pentagon's announcement with a dry suggestion:

"Since the department seems to be confused on what type of tanker it believes is needed at this time, I believe that moving forward with such a large procurement in such a precipitous manner is inadvisable," Dicks said.

"I believe that it's time for Congress to exert greater control of this process."

Dominic Gates: 206-464-2963 or dgates@seattletimes.com

Copyright © 2008 The Seattle Times Company

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