Boeing Makes Its Case


The company's formal protest of the tanker contract hints of shortcomings in its bid and capitalizes on U.S. fears about outsourcing

Boeing (BA) executives filed their formal bid to overturn a $35 billion contract for air refueling tankers that was awarded to the team of Northrop Grumman (NOC) and European Aeronautic Defence & Space, or EADS (EADSF). In the document, the Chicago-based company acknowledged it won't be easy to overturn the decision and provided some telling detail about why it fell short.

In its Mar. 18 filing with the Government Accountability Office, Boeing argued that the Air Force—under "continuing pressure from Capitol Hill" and from Northrop/EADS representatives—skewed the contest in Northrop's favor. Air Force contract officers "repeatedly made fundamental but often unstated changes to the bid requirements and evaluation process," Boeing complained.

A Presumptive Shoo-In?

Specifically, Boeing argues that the Air Force changed its selection criteria without informing Boeing. Thus the Air Force selected the Northrop/EADS proposed tanker, which could carry more fuel a longer distance, rather than Boeing's 767-based tanker. Boeing says if it had known of the Air Force's desires it would have offered a tanker based on the larger 777 aircraft. Boeing said the tanker contest "was not a fair and open competition, but a skewed process that unfairly compromised Boeing's proposal."

But there's also some indication Boeing may not have done an adequate job of staying informed during the evaluation process or of selling the attributes of its tanker. The company may have taken its competitive edge for granted. According to Boeing's own filing, an Air Force pricing evaluator told the company that it had provided insufficient information on its proposed tanker other than "marketing materials" and some "graphs with lines on them."

Boeing hopes to convince the government to reopen at least part of the competition. "We know it's an uphill battle," Boeing's manager of the tanker program, Mark McGraw, said Mar. 18 as the company filed its appeal. "I think we'll end up winning the day."

Political Subtext

To some extent, the continuing battle over the tanker contract has become more of an exercise in public relations and political pressuring. Boeing has hired expensive lawyers, report-preparing consultants, and lobbyists—including the Gephardt Group, started by former House Democratic Minority Leader Richard Gephardt, and Washington powerhouse Akin Gump Strauss Hauer & Feld.

Meanwhile, Northrop-Grumman has appeared defensive in recent days. The Los Angeles company released its own justifications for winning the contract, plus estimates of the U.S. jobs gained from building the tankers, and warned that overturning the deal would weaken arguments that government contracts are awarded impartially.

On the campaign trail and in Congress during this period of economic insecurity, politicians have played on perceptions of jobs lost to an overseas consortium (EADS is the European parent of Airbus, Boeing's competitor in commercial jets). But in fact Boeing, too, depends on non-U.S. content for its planes, including the 767 tanker (BusinessWeek.com, 3/10/07). Northrop/EADS intends to open a new factory in Alabama, adding U.S. jobs there. Meanwhile, some European news reports have speculated that Europeans may lose work (BusinessWeek.com, 3/10/08) to the Alabamans.

Epstein is a correspondent in BusinessWeek's Washington bureau.

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