Tanker Deal: Why Boeing Shouldn't Protest

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Some of the planes have plywood floors, cockpit windows that come loose, and cracks in the landing gear—among countless other costly maintenance headaches. Putty holding parts in place sometimes give the planes the appearance of having Band-Aids, which is essentially what they are. Before each Stratotanker takes off, a maintenance crew must check hundreds of items on a list the size of a phone book. The inspections require eight hours, compared with only two hours for the average modern jet. Sometimes, mechanics unable to find replacement parts have had to improvise their own. Once, in 2003, parts fell from a landing KC-135, prompting repairs to flaps on 14 planes.

Strategic risks and soaring maintenance costs made the Air Force eager for a new fleet—years ago. But bureaucracy and scandal delayed acquisition, most recently in 2003 when the Air Force, after a congressional investigation spearheaded by Senator John McCain (R-Ariz.), halted an order to lease 100 tankers from Boeing.

Prepare for Hearings

The Air Force now intends to "debrief" Boeing on Mar. 7, providing a detailed explanation about why it lost the contract. Boeing then has 10 days to file a protest with the Government Accountability Office. A decision from the GAO, which has adjudicated a rising number of protests from defeated contractors in recent years, could take 100 days.

If Boeing persists in a protest, the public noise surrounding the controversial award won't likely subside, either; the railing of Boeing supporters, Presidential candidates on the campaign trail, and grumbling by labor unions in recent days would likely have echoes in congressional hearings, possibly leading to still more delays in replacing the nation's refueling tankers. House Speaker Nancy Pelosi (D-Calif.) said Mar. 4 that Congress will schedule hearings on the Air Force decision. Pelosi said in a statement that the award to Northrop Grumman "raises serious questions that Congress must examine thoroughly."

While the Air Force has declined to disclose details of its extensive internal deliberations over the tanker contract, the choice may have been easier than advertised. Boeing, in fact, may have been woefully far behind. Loren Thompson, a Lexington Institute defense analyst well connected and widely respected in the Pentagon, said Mar. 3 that "Northrop Grumman's victory was not a close outcome."

While both Boeing and Northrop Grumman satisfied requirements established by the Air Force, Northrop was clearly the better buy. With Northrop, the military could have "49 superior tankers operating by 2013," Thompson said, while Boeing's proposal would give it "only 19 considerably less capable planes" by then.

Measuring Up the Aircraft

World markets, politicians, labor unions, and others may have been stunned by the upset, but Thompson insists that "Boeing didn't manage to beat Northrop in a single measure of merit"—not in flight range, fuel capacity, speed of delivery, or cost. "Boeing would have to find a lot of problems to overturn this outcome," Thompson tells BusinessWeek. The Northrop tanker carriers 250,000 pounds of fuel, compared to 202,000 on Boeing's—a crucial difference considering that refueling tankers must often circle for many hours when military operations require.

Thompson's information, which he disclosed Mar. 3, irritated Boeing officials, who are now seeking ways to craft a delicate statement that criticizes the military for speaking with Thompson and some members of Congress before explaining in detail to the company why it lost. Thompson, for his part, is a longtime military analyst with deep ties to the top military brass and defense contractors. Boeing executives also are said to be troubled by a "disconnect" between what the military said it wanted and the reasons given by the Air Force for why it chose Northrop. Now Boeing must wait a week before hearing from the Air Force the detailed reasons for its defeat.

Air Force officials are eager to put the controversy behind them and secure the tankers they need. And, in considering a protest, Boeing may risk delaying an overdue overhaul of the U.S. military's airborne backbone to refight a battle it can't win.

Epstein is a correspondent in BusinessWeek's Washington bureau.