Air Force extends talks with Boeing, Northrop on tanker bids

WASHINGTON — The Air Force will award a much-anticipated multibillion-dollar tanker refueling contract at the end of the year, extending talks with bidders beyond the October deadline Wall Street anticipated.

Either Boeing or Northrop Grumman — which is teaming with Airbus parent European Aeronautic, Defence & Space — will emerge as the winner of the $40 billion Air Force deal to replace 179 aerial refueling tankers.

One industry analyst said the extension of talks signals extra caution by the service because of a controversy that engulfed the tanker program several years ago. The program has been on hold for three years after Boeing lost the contract to lease 100 aerial refueling planes amid an ethics scandal that resulted in prison terms for a former Boeing official and a former high-ranking Air Force official.

There has been a "cloud of scandal hanging over the Air Force's acquisition community," said Loren Thompson, a defense analyst with the Lexington Institute based in Virginia. "They obviously need to do something with the tanker competition that will vindicate their skills as a weapons buyers."

An Air Force spokesman said the decision will not be made until December to allow more time to review the strengths and weaknesses of each bidder's proposal.

"The timeliness of the industry responses will directly influence how quickly we reach a contract award," the spokesman said.

A three-month delay should have little adverse effect for either Northrop or Boeing, according to Richard Aboulafia, a defense analyst for Teal Group. Both competitors could actually benefit from the additional time to make their cases, he said.

The new tankers, considered to be one of the Air Force's highest priority programs, will replace the service's aging fleet of KC-135 Stratotankers, which have been in service for more than 50 years. Senior Air Force officials say the program is critical for U.S. military and coalition fighters to enable forces to go anywhere, anytime without having to rely on refueling bases.

"The Air Force is being very good at following the process and they want it to get it right," Boeing spokesman William Barksdale said.

But defense analysts suggest the Air Force is spending more time sifting through contract terms and cost estimates to avoid potential disputes once the deal has been inked.

For the past year, the Air Force has been caught in the middle of a $15 billion dispute with Lockheed Martin and Sikorsky Aircraft, a unit of United Technologies, over the department's decision to award a helicopter deal to Boeing. Both losing bidders initially argued that the Air Force was not clear on the requirements it was seeking or how it evaluated each of the competitors proposals.

Wall Street analysts are predicting a slew of additional protests this fall related to high-stakes Pentagon contracts, including a $4.5 billion satellite competition between Boeing and Lockheed Martin.