Boeing weighs exiting $40B tanker competition

Boeing Co. is considering bailing out of a politically charged competition for a $40 billion contract to build aerial refueling tankers for the Air Force, if it does not receive an additional four months from the Pentagon to assemble its offer.

The aerospace manufacturer said Friday it also may file a protest on the final bids request - expected to be released early next week by the Pentagon - which could further delay an award. No final decision will be made until Boeing has a chance to review the final bids request, said company spokesman Daniel Beck.

"It's very clear to us this is a new competition," said Beck. "Clearly, the requirements have changed and the Defense Department is essentially asking for a different kind of plane from the first competition."

Boeing lost the initial contract in February to Northrop Grumman Corp. and its partner Airbus parent European Aeronautic Defense and Space Co. The competition was reopened after government auditors found "significant errors" in the Air Force's decision. The revamped competition will focus on eight areas where the Government Accountability Office found problems with the initial process.

A Boeing decision not to submit another bid could jeopardize Pentagon efforts to maintain a two-team competition to replace 179 Eisenhower-era refueling planes. The deal - one of the largest in Pentagon history - is the first of three contracts worth up to $100 billion to replace nearly 600 refueling tankers over the next 30 years.

"This is a strange situation moving forward," said Richard Aboulafia, an analyst for the Teal Group in Virginia. "The Pentagon is quite mindful that Congress is more likely to go to bat for Boeing if this becomes a sole source contract."

Based on its review of the draft request for bids, Boeing said it's clear the Air Force is looking for a larger-sized aircraft with greater cargo capacity and better fuel offload capabilities.

"If we don't receive sufficient time to prepare a competitive proposal, there's really little option for us than to no-bid in this competition," said Beck.

The Chicago-based company contends it is not asking the Pentagon to change its requirements - just for additional time to put together a competitive offer. Boeing declined to specify what kind of changes it would make in a new bid, but said it is considering other types of commercial aircraft.

"We think we can meet these requirements if given the time to put together a proposal," said Beck.

Defense consultant Jim McAleese said John Young, the Pentagon's acquisition chief, is likely to provide Boeing with a "modest" amount of time to redo its bid, but nothing that would put it beyond the current administration.

Pentagon spokesman Chris Isleib said the department is on track to submit its final request for bids early next week, but declined to provide any further comment due to the ongoing negotiations.

A spokesman for Los Angeles-based Northrop Grumman could not immediately be reached for comment.

Boeing's latest tactic nearly replicates an approach taken by Northrop Grumman during the early stages of the first competition in 2007. At that time, Northrop threatened to walk away from the table, unless the Air Force revised its requirements so the competition did not favor Boeing.

The Pentagon is aware of the impact of Boeing's efforts to help level the playing field as Northrop Grumman and EADS did, Aboulafia said.

"I can't imagine Boeing losing anything from taking this approach," he said.

Shares of Boeing gained $1.89 to $65.44 in afternoon trading, while Northrop added 67 cents to $70.06.