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Originally published Wednesday, September 16, 2009 at 7:13 AM

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Gates restores Air Force authority in tanker deal

Defense Secretary Robert Gates on Wednesday restored the Air Force's authority to select the winner of a $35 billion contract for aerial refueling tankers between Boeing Co. and Northrop Grumman Corp.

AP Business Writer

WASHINGTON —

Defense Secretary Robert Gates on Wednesday restored the Air Force's authority to select the winner of a $35 billion contract for aerial refueling tankers between Boeing Co. and Northrop Grumman Corp.

Gates last summer stripped the service's ability to award a contract in the wake of a Government Accountability Office report that found the Air Force failed to evaluate both proposals on the same merits.

Northrop, and its partner Airbus parent European Aeronautic Defense and Space Company N.V., beat out rival Boeing for the deal to replace 179 tankers last February. Boeing later successfully protested the award.

The Pentagon "cannot afford the kind of letdowns, parochial squabbles, and corporate food-fights that have bedeviled this effort in the past," Gates said, speaking at the Air Force Association trade show in National Harbor, Md.

While Gates' move might be seen as a "small moral victory" for the Air Force, the political showdown among lawmakers in states with jobs at stake will be "worse than ever," said Teal Group aerospace analyst Richard Aboulafia. "You are going to see continued micromanagement by the politicians involved."

The political war of words began anew following the World Trade Organization's interim ruling earlier this month that deemed European loans for Airbus as illegal subsidies. A separate ruling on a European Union counter-complaint against the U.S. is expected in about six months.

On Tuesday, Boeing supporters Reps. Todd Tiahrt, R-Kan., and Rick Larsen, D-Wash., along with 45 other lawmakers sent a letter to President Barack Obama arguing the U.S. government "should not award defense contracts to companies entangled in illegal activities."

Sen. Richard Shelby, R.-Ala., a Northrop supporter, sent a letter last week to U.S. Trade Representative Ron Kirk saying it would be a "grave mistake" by lawmakers to seek retaliation on the WTO's decision through the tanker contract.

For the last seven years, the Pentagon has tried and failed to award a contract to replace its aging fleet of current tankers that refuel military planes in flight. Some of the planes are nearly 50 years old, and senior defense officials have said they need to be replaced soon.

Air Force Secretary Michael Donley said the tanker program remains the service's top acquisition priority. Still, Gates' office will continue to oversee the troubled competition.

Gates said a draft request for proposals is due out shortly with an anticipated contract award next year.

Boeing spokesman William Barksdale said the Chicago-based company looks forward to working with the Air Force, and seeing what the service requires in a new tanker.

Randy Belote, a spokesman for Los Angeles-based Northrop Grumman, said it is looking forward to winning the tanker contract again.

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