Ruling Puts Air Force Critically Behind


A June 18 decision by the GAO will likely delay the Air Force's already distant deadline to put new refueling tankers in the sky

U.S. Air Force officials are unhappy about the prospect of having to reopen bidding on a new mid-air refueling aircraft. And it's not just because the June 18 ruling by the Government Accountability Office criticized the service for unfairly rejecting Boeing's (BA) offer. The military also has serious concerns about its ability to keep enough tanker planes in the air during future missions.

The current fleet of flying gas stations, which have an average age of some 40 years, is being heavily used to refuel fighter jets in the skies over Iraq and Afghanistan. Those 500 Boeing-built planes require heavy, costly maintenance as it is, but they are rapidly reaching the point where even that won't keep them safely in the air. Replacing them has been the Air Force's top purchasing priority for years, as debate and controversy over how to do so has dragged on.

Now, says outgoing Air Force Secretary Michael Wynne, the service is unlikely to make a deadline of 2013 for putting the first new refueling tankers into flight. Wynne, in remarks on June 20, his last day on the job, predicted the Air Force "will try desperately" to stick to the deadline—but won't be able to. Northrop Grumman (NOC), which was awarded the latest contract along with Franco-German partner European Aeronautic Defence & Space, or EADS, has delayed breaking ground on two factories that would make its version of the tanker. The Air Force said on June 20 that a "stop-work" order imposed on Northrop would remain indefinitely in effect while the service considers its options.

"There's almost no way" to make the deadline in the face of the GAO ruling, Wynne said. "We were very disappointed." He added that the Air Force felt it had conducted "a very open and a very transparent" contest between Boeing and Northrop. Now, he said, Air Force officials might have to get busy "reshaping and revising…the way we offered to buy" the tankers. The Air Force's chief purchasing officer, Sue Payton, vowed siwftly to resolve the issue. "Swiftly," however, could mean weeks if not months.

Tough Competition

In the aftermath of the ruling, reaction has been swift. At Boeing's 767 production line in lines in Everett, Wash., and Wichita, Kan.—the new Boeing tanker is based on the 767 commercial airliner, while the Northrop/EADS plane is based on the EADS/Airbus A330—employees are once again hopeful. In Washington, key members of Congress such as Senate Armed Services Committee Chairman Carl Levin are urging the Air Force to start a new contest for the tankers.

"GAO's findings are a sweeping indictment of the way the Air Force conducted the tanker competition. They reveal fundamental unfairness and lack of professionalism," says Loren Thompson, a Lexington Institute defense analyst with close ties to the military. "The only way forward will be to start over, presumably with a new cast of characters applying the selection criteria."

The ruling focuses on the methods used by the Air Force to evaluate the proposals from Northrop and Boeing—and not on the relative merits of the very different aircraft offered by each. "While the GAO finding was a repudiation of the Air Force process rather than the Northrop product," says Thompson, "many observers will assume this now gives Boeing an edge in any re-competition."

Meanwhile, Boeing had more good news this week: On June 20 tests went well on the power systems of the oft-delayed 787 Dreamliner commercial jet, a program that is even more critical to the company's future. First flight of the Dreamliner is now anticipated in the last quarter of the year. Delivery to customers is behind by some 14 months.

Epstein is a correspondent in BusinessWeek's Washington bureau.

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