Pentagon spells out rules in new tanker competition

The long-running dogfight that pits an Airbus jet against a Boeing jet to be the next Air Force refueling tanker resumed Thursday with a Pentagon briefing on the new competition that should produce a winner by next summer.

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

The briefing laid out a painstakingly objective process in the competition ahead and promised a decision based solely on military effectiveness and cost.

But initial reaction from Congress indicates that despite Defense Secretary Robert Gates' plea to avoid "parochial squabbles and corporate food fights," the Pentagon will still face a major political battle centered on which of the two tankers provides more American jobs.

The two sides are to offer formal proposals four months from now, with a new contract award in summer 2010 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 (RFP), with crucial detail on precise requirements, won't be released until today, but the briefing indicated that it includes wins and losses for both bidders.

Boeing's plane appeared to be favored by the determination that the scoring will consider operational costs, including fuel burn, as well as the costs of military construction at forward air bases.

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 and fuel-offload capacity.

A key detail that should emerge from the draft RFP is exactly which additional 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 evaluate the effectiveness of each contender for the tanker mission using the same war-fighting simulation model as in the previous competition, when the A330 came out on top.

However, that model has been tweaked to incorporate operational experience in a way that Boeing requested.

The briefing document provided to Congress summarized these decisions as steering "straight down the middle."

The result is a new competition on a knife edge. "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 Gates has repeatedly ruled out ordering some tankers from each company as too costly.)

A new twist

One new aspect of the competition is that the companies have to make a fixed-price bid for the first 68 airplanes and put an upper limit on the cost of the remaining 111 aircraft.

Previous iterations of the tanker battle were structured as "cost-plus" contracts, which have been common in the military world but have led to a ballooning defense budget.

Northop Grumman, offering the Airbus jet, is likely to present essentially the same airplane configuration as previously. That'll be similar to the Airbus A330 tanker due to be delivered to the Royal Australian Air Force (RAAF) next year and to the United Kingdom, Saudi Arabia and the United Arab Emirates in 2011.

Boeing has already indicated that its bid will look different this time: It won't mix and match wings and fuselage from different models of the 767 as last time, and it is considering adding winglets for fuel efficiency.

Boeing has delivered three 767 tankers to the Japanese Air Force and is in final flight tests of the first 767 tankers for Italy.

With a fixed-price bid, Boeing will have to carefully weigh whether developing any additional feature such as winglets for the U.S. Air Force will add cost it doesn't want.

Tangled history

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

When Northrop won the re-run competition 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.

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, noting that the European counterclaim 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, Sen. Patty Murray, D-Wash., said the Air Force had done "a much better job of clearly defining what the parameters are."

But Murray said the issue of Airbus 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."

And it's politics that might prove decisive.

Loren Thompson, a defense analyst with the Lexington Institute, said the political shift in the country — with a Democratic White House and Congress listening to labor unions, and swelling U.S. unemployment that encourages protectionism — tilts the competition toward Boeing.

"On the technical merits, either one of these planes could prevail," Thompson said. "But on the politics, the situation has definitely migrated in Boeing's favor."

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

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