Pentagon spells out rules in new Air Force tanker competition

A Pentagon briefing to members of Congress this morning outlined the terms of the latest competition to supply an Air Force refueling tanker that pits an Airbus jet against a Boeing jet.

The details provided strongly suggest that Boeing will need to offer its 767 tanker once again, and not the much larger 777 tanker that it had suggested as an alternative.

The briefing lays out a painstakingly objective process in the competition ahead, though initial reaction from Congress indicates that the Pentagon will still have to deal with political issues on top of military and cost considerations. The two sides are to offer formal proposals four months from now, with a new contract award by next summer for an initial 179 aircraft worth about $35 billion, and the potential for orders later worth up to $100 billion.

The draft Request For Proposal with crucial detail on precise requirements won't be released until Friday, but the description provided includes wins and losses for both bidders. Boeing's plane appeared to be favored by a determination that operational costs, including fuel burn, as well as the costs of military construction at forward air bases would be taken into consideration.

The 767 is a smaller plane that burns less fuel and would not require as much new infrastructure, such as larger hangars or reinforced runways, as would the A330.

At the same time, those very considerations probably rule out the much larger 777.

On the other hand, the Airbus plane appeared favored by the fact that the outcome won't rest solely on price, but on "best value," including additional capability beyond the refueling role — such as extra troop carrying capacity.

The draft RFP should indicate exactly which of those capabilities are "mandatory" and which will be considered only if the two bids come in close on price.

Airbus will also be buoyed by the Air Force decision to continue to evaluate the tanker mission effectiveness using the same war-fighting model as in the previous competition, when the A330 came out on top.

Those shifts leave the new competition on a knife edge. It will almost certainly be a close call.

"I think it could go either way," said Scott Hamilton, an industry analyst with Leeham.net who has closely followed the tanker competition.

(Issaquah-based Hamilton said he believes the A330 is the better Air Force option, although he has also argued that a dual-source award could be the best outcome. Defense Secretary Robert Gates has repeatedly ruled out ordering some tankers from each company as too costly.)

The Pentagon briefing document quotes Gates' desire that both sides avoid "parochial squabbles and corporate food fights."

That doesn't seem likely.

The tanker competition has been intensely controversial ever since the first contract award to Boeing in 2001. That was later canceled following a procurement scandal.

Then when Northrop Grumman, offering the Airbus airplane, won a new contract last year, Boeing successfully protested. The award was canceled on the grounds that the process had not been fair and transparent.

After that, the competition became a highly politicized fight, with labor unions and the largely Democratic Congressional delegations of the Pacific Northwest and Kansas favoring Boeing and largely Republican Congressmen in the South favoring the Airbus plane, which would be assembled in Alabama.

The Pentagon briefing again handed out wins and losses to both sides on the politics.

Northrop had complained that in the aftermath of the protest last year, Boeing had been given pricing data on the A330 offer that could inform its bid in a new competition and confer an unfair advantage.

The Pentagon rejected that argument and concluded the disclosure gave "no competitive disadvantage."

On the other side, Boeing's Congressional and labor union supporters have been lobbying heavily to have the government take into account the recent World Trade Organization (WTO) ruling that Airbus has received illegal subsidies to launch its families of jets and specifically to develop the A330.

But the Pentagon rejected that argument too, noting that the European counter claim at the WTO against Boeing has not yet been ruled on and that "final resolution of these cases is many years away."

Still, that won't stop Boeing's supporters from pushing the issue in Congress.

After listening to the Pentagon briefing, Senator Patty Murray said the Air Force had done "a much better job of clearly defining what the parameters are."

But Murray said the issue of Airbus illegal subsidies remains very much alive.

"Outside the RFP, the White House is going to have to make a political decision at some point as to whether taxpayer dollars should be allowed to be used to purchase a plane from a company proven to have taken illegal subsidies," said Murray. "It's a political question for our country."

Boeing released a statement declining to comment, pending release of the draft RFP Friday.

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