Boeing wins Pentagon’s $35 bn tanker contract

Thursday, February 24, 2011

WASHINGTON - Boeing Co has won the Pentagon’s $35-billion tanker contract over rival European Aeronautic Defence and Space Co. (EADS), securing the lucrative deal to supply the next generation of US Air Force refuellers.

The contract to build 179 of the KC-46As is one of the largest in the defence department’s history. The Pentagon announced late Thursday Boeing won the first phase of a three-phase contract that could reach a value of $100 billion.

Deputy Defence Secretary William Lynn said both companies met the requirements and were eligible to win the contract, but an evaluation of cost effectiveness and capability over the life of the programme gave the edge to Boeing.

“Boeing was the clear winner,” Lynn said.

EADS said it was disappointed with the outcome, asserting the Air Force had selected “a high-risk, concept aircraft” over its proven and more capable plane.

“This is certainly a disappointing turn of events, and we look forward to discussing with the Air Force how it arrived at this conclusion,” Ralph D. Crosby Jr., the chairman of EADS North America, said in a statement.

Crosby did not say whether the company intends to protest the decision and seek to have the award overturned.

“With a programme of such complexity, our review of today’s decision will take some time,” he added.

The Pentagon hopes the decision will bring an end to the long and problematic saga to begin replacing its fleet of 1950s era KC-135 tankers built by Boeing. The tankers provide fuel to aircraft in mid-flight to extend the range of military operations. Boeing is scheduled to deliver the first 18 aircraft by 2017.

Boeing chief Jim McNerney said his firm was honored to have been chosen to build the tankers.

“Our team is ready now to apply our 60 years of tanker experience to develop and build an airplane that will serve the nation for decades to come,” said McNerney, the company’s chairman, president and chief executive.

Boeing and EADS had been in a fierce competition for years to win the contract, sparring publicly and with expensive advertising. Both companies touted their planes as superior and the best deal for the military.

Guy Hicks, a Washington-based spokesman for EADS, said prior to the announcement even if EADS lost, having competed against Boeing for such a high value contract had raised the stature of the firm in the US defence establishment.

“EADS has competed head-to-head with one of America’s iconic aerospace companies for the department’s second largest programme in its history, and that is a significant accomplishment,” Hicks said.

While EADS would not say whether it will lodge a protest, defence procurement analysts have predicted the losing company would likely do so, effectively prolonging the dispute.

Lynn said the process was fair and transparent and he did not believe there were grounds for a protest. An aerospace industry source said EADS would not protest solely on the basis of losing the contract, but would consider such a move if the company felt the Air Force violated its own process for selecting the winner.

The Pentagon has twice failed in its 10-year effort to award the contract for the KC-46A. A leasing programme with Boeing collapsed amid scandal in 2004.

The Pentagon awarded the contract to an EADS-Northrop Grumman partnership in 2008. But the Government Accountability Office, the investigative arm of Congress, partially upheld a Boeing protest, ruling that errors had occurred in the evaluation process,

effectively requiring the Pentagon to hold a new competition.

EADS, the parent company of France-headquartered Airbus, based its proposal on the A330, while Boeing used its 767 and will build the planes at plants in Everett, Washington and Wichita, Kansas.

The competition had shaped up along political lines as well, with Democrats mostly supporting Boeing, arguing an award to EADS would ship badly needed US jobs overseas.

EADS, with the support of southern Republicans, said it would assemble the planes in Mobile, Alabama and create 48,000 jobs in the US.

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