US military's tanker deal: a saga without end
Sun, Jan 23, 2011

WASHINGTON - The battle between aerospace giants Boeing and EADS to supply new aerial refueling tankers for the US Air Force could drag on even after the military finally makes a decision on the contract, experts say.

For the past decade, the Pentagon has struggled to launch a new fleet of refueling aircraft to replace the old KC-135 workhorses that date back to the 1950s, but the effort has been marred by scandal and bitter feuds.

Two previous attempts to move ahead with a new tanker were cancelled, first with Boeing and then with EADS and its US partner Northrop Grumman.

The Pentagon hopes a decision on the $35 billion deal - expected sometime in February or March - will settle the issue once and for all. But nothing is guaranteed given the high stakes and "failure is an option," said Richard Aboulafia, a defense analyst with the Teal Group.

"Nothing can ever get done because it is the most partisan defense contract in history," he told AFP.

"Boeing and EADS have allied themselves with politicians who absolutely are not going to let this rest."

Chicago-based Boeing, which is offering a military version of the 767 aircraft, can count on solid support from Democrats in Congress, while the European Aeronautic Defence and Space Company has strong backing from Republicans, including lawmakers from Alabama, where the firm plans to build a plant to construct the tanker based on its A330 aircraft.

The issue has become "very politicized," said Loren Thompson, chief operating officer of the Lexington Institute, which receives funding from defense contractors.

Thompson said he expected the Pentagon to issue the long-awaited decision in March but that "many people are going to be unhappy no matter what happens."

The latest twists in the saga have further complicated the contest, raising the prospect of a protracted legal and political fight.

In 2009, EADS, parent of France-based aircraft maker Airbus, called the contest biased and said it was withdrawing after its US partner, Northrop, pulled out. Paris and Berlin complained to Washington of an unfair competition, and the Pentagon eventually gave EADS additional time to put together a solo proposal.

In November last year, the Air Force delivered technical analyses of each side's bid to the wrong company, a mistake that spelled potential legal dynamite.

"Whoever doesn't like what happened is going to use the data release as an excuse to hold things up forever," said Aboulafia.

Senator Maria Cantwell from Washington state, Boeing's birthplace, has scheduled a hearing for Thursday on the implications of the document foul-up. Boeing, meanwhile, has not ruled out a formal complaint over the episode.

The losing company could appeal the contract decision to the Government Accountability Office, the investigative arm of Congress, which sided with Boeing in 2008, prompting the Pentagon to cancel its award to EADS and launch a third round of bidding.

If Boeing loses again, it also could choose a political route and take its case to the White House and Congress, alleging that EADS enjoys an unfair pricing advantage due to subsidies from European governments, Thompson said.

Even with a contract awarded, Congress could hold up funding for the new tanker.

"It's still going to end up being a political decision in the end," he said.

To prevent more delays for a plane deemed vital to fueling US air power, Aboulafia and some lawmakers have suggested dividing up the contract between the aerospace rivals - an option opposed by the Pentagon.

"I don't see any way out of it aside from a dual-buy, I really don't," Aboulafia said.

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