Gates gets involved in disputed $35B tanker deal

Defense Secretary Robert Gates on Wednesday pledged direct involvement in moving forward a disputed $35 billion tanker contract after congressional investigators detailed numerous mistakes the Air Force made in awarding the deal to Northrop Grumman and its European partner over Boeing Co.

In a redacted 67-page report, the Government Accountability Office found the Air Force failed to evaluate both refueling tanker proposals based on the same merits, and on a number of occasions offered unfair preference to team of Northrop and Airbus parent European Aeronautic Defence and Space Co.

"This in our view, is not a matter of simply counting strengths and weakness, but of evaluating the advantages and disadvantages of competing proposals consistent with the request for proposal's evaluation scheme," the GAO wrote.

The government watchdog found that the Air Force offered the Northrop Grumman/EADS team extra credit for exceeding a fuel offload requirement when both teams "should have received equal credit."

The GAO also agreed with Boeing that the Air Force did not establish in advance any size requirements for the aircraft. While a larger tanker like Northrop's could provide greater refueling capabilities, there also could be possible disadvantages with respect to costs and space constraints.

The news did little to bolster Boeing on Wall Street, where the Chicago-based company's shares sank to a two-year low after some negative analyst reports.

Gates was meeting with Pentagon lawyers, Air Force officials and John Young, the under secretary of defense for acquisitions, to talk about the tanker contract in the wake of the GAO report.

"It will be the first time he has had a chance to hear from them about the GAO's recommendations as well as the preliminary analysis that's been done within the department on how those recommendations would potentially impact the Air Force's February decision to award the new tanker contract," said Pentagon press secretary Geoff Morrell.

While the Defense Department has 60 days to respond to the GAO report, Gates wants to move quickly, and will be involved in any subsequent decision on the contract, Morrell said.

"He wants to make sure that there are no further delays to replacing this vitally important piece of equipment on which our warfighters depend every single day," said Morrell.

The report comes a week after the GAO upheld Boeing's protest of the refueling tanker contract and recommended the Air Force hold a new competition.

The service in February selected the Northrop-led team to replace 179 Eisenhower-era aerial refueling planes. Boeing filed its protest with the GAO in March.

"There is no question that Northrop Grumman was very skillful in presenting its position to the Air Force and as a result the final decision reflected their ideas," said Loren Thompson, a defense industry consultant for the Lexington Institute in Virginia. "There's nothing wrong with that as long as the criteria was applied fairly."

The contract has sparked a fierce backlash among lawmakers from Washington, Kansas and other states that stand to gain jobs if Boeing succeeds in landing the award.

The tanker deal is the first of three Air Force contracts worth as much as $100 billion to replace its fleet of nearly 600 refueling tankers the next 30 years. As original winners of the first contract, the Northrop/EADS team would be in a strong position to win subsequent deals.

Shares of Boeing tumbled Wednesday after Goldman Sachs cut its rating on the aircraft manufacturer citing rising fuel prices and weakness in the economy, and a Jefferies & Co. analyst said Wall Street is starting to sell off shares of aerospace companies in anticipation of a possible downturn in orders.

Boeing shares fell $5.17, or 6.9 percent, to $69.62 in late-afternoon trading, after earlier hitting a new two-year low of $69.35. Shares of Los Angeles-based Northrop Grumman added $1.27 to $70.52.

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Associated Press Writer Lolita C. Baldor contributed to this report.