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Archive for Thursday, February 24, 2011

Air Force awards $35 billion tanker contract to Boeing Co.

February 24, 2011, 3:02 p.m. Updated February 25, 2011, 12:35 a.m.

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— Capping a decade of delays and embarrassing missteps, the Air Force on Thursday awarded one of the biggest defense contracts ever — a $35 billion deal to build nearly 200 giant airborne refueling tankers — to Chicago-based Boeing Co. over European Aeronautic Defence and Space Co.

The contract will mean tens of thousands of jobs for a recession-weary nation, with Washington state and Kansas getting the bulk of the work building a replacement for the Eisenhower-era tanker fleet. The decision was a blow to the Gulf Coast and Alabama, which had been counting on EADS to assemble the aircraft at a long-shuttered military base in Mobile.

Air Force Secretary Michael Donley said the contract “represents a long overdue start to a much-needed program” as somewhat relieved Pentagon officials announced the decision, a clear surprise since defense analysts, lawmakers and even company executives had expected EADS to prevail.

“What we can tell you was that Boeing was a clear winner,” Deputy Defense Secretary William Lynn said.

Replacing the 1950s-era KC-135 planes — the equivalent of a flying gas station — is crucial for the military. Pilots who weren’t even born when the last aircraft was delivered in 1965 are operating air tankers that the Pentagon is struggling to keep in flying shape.

The refueling tankers allow jet fighters, supply planes and other aircraft to cover long distances, critical today with fewer overseas bases and with operations under way far from the United States in places like Iraq and Afghanistan.

Pentagon leaders said both bidders met all 372 mandatory requirements for the contract. They said because the difference in price between the two bids was greater than 1 percent of the total, the cost essentially was the deciding factor, and other non-mandatory requirements were not used to make the decision.

The award gives Boeing the initial $3.5 billion for engineering, manufacturing and development of the first four aircraft. Under the contract, 18 tankers will be delivered to the Air Force by 2017.

Boeing will have to move fast to get the plane ready, at a time when its commercial aircraft division is still trying to deliver the new 787 and a new version of the 747.

“This will be a rapid-pace program, one that will be very focused on getting capability out to our warfighters as soon as possible,” said Dennis Muilenburg, president and CEO of Boeing’s defense business.

Both Boeing and EADS have said they were aggressive in their bids. Muilenburg declined to say how much Boeing cut into its anticipated profits with its final bid.

“Clearly we’ve been focused on affordability,” he said. He said Boeing was able to make the plane more cheaply because it will be made on the same production line as the civilian version.

Although the plane is based on its passenger-carrying 767, and has some similarities to a tanker it is building for Italy and Japan, many pieces are different from the U.S. Air Force version. As a result, production and the plane’s first flight are not expected until 2015, said Jean Chamberlin, vice president and general manager of the tanker program.

Lawmakers who have lobbied for Boeing to win the contract were gleeful over the news.

“I’m in the middle of a blizzard but it’s all blue skies,” said Sen. Pat Roberts, R-Kan.

Said Rep. Norm Dicks, D-Wash.: “This is the happiest day of my professional life.“ He called the win decisive.

Lawmakers from Alabama were bitter in defeat and suggested politics played a role.

“I’m disappointed but not surprised,” Republican Sen. Richard Shelby said. “Only Chicago politics could tip the scales in favor of Boeing’s inferior plane. EADS clearly offers the more capable aircraft.”

Not only does President Barack Obama call Chicago home, but his new chief of staff, William M. Daley, resigned in January from the Boeing board of directors where he had served since 2006. The White House had said Daley would have no role in the Air Force decision.

Republican Rep. Jo Bonner vowed to get a full accounting of why the EADS bid was rejected.

“This competition has been challenged before and it’s not unlikely it will be challenged again,” he said. “It will ultimately be up to EADS to determine whether they will protest this decision and I will fully support whatever decision they make.”

Lynn said that while the losing bidder has a right to appeal the decision, he believes the process was clear, transparent and fair enough that there will be no grounds for a protest.

The $35 billion contract calls for producing 179 new tankers. It could end up being a first installment on a $100 billion deal if the Air Force decides to purchase more aircraft.

Through the years, the Air Force’s efforts to award the contract have been undone by Pentagon bungling and the criminal conviction of a top Defense Department official.

Initially, the Air Force planned to lease and buy Boeing planes to serve as tankers, but that fell through. The Air Force later awarded a contract to Northrop Grumman Corp. and EADS, but in 2008 the Government Accountability Office upheld Boeing’s protest of the contract.

The GAO said it found “a number of significant errors” in the Air Force’s decision, including its failure to fairly judge the relative merits of each proposal.

The Air Force reopened the bidding in 2010, only to be embarrassed again as it mistakenly gave Boeing and EADS sensitive information that contained each other’s confidential bids.

Production will occur in Everett, Wash., Wichita, Kan., and dozens of other states. Boeing has said the contract will mean some 50,000 jobs.

Boeing workers leaving the Everett plant after a shift change Thursday afternoon greeted the news with blaring car horns.

“We are absolutely delighted, obviously,” said Bill Dugovitch, spokesman for the Society of Professional Engineering Employees in Aerospace, the union representing Boeing’s engineers and technical workers. “Our work force is ready to go to produce the world’s best tankers.”

Sen. Maria Cantwell, D-Wash., said many of those workers had been at Boeing their entire lives.

“It’s part of the psyche of the Northwest. Building airplanes truly is what we do out here,” said Cantwell, welcoming the prospect of at least 11,000 jobs to Puget Sound.

“This decision is a major victory for the American workers, the American aerospace industry and America’s military,” Sen. Patty Murray, D-Wash., said.

Boeing has highlighted its offering as an “American-made” tanker, in contrast to the European roots of its competitor. But both companies had planned to make their tanker in the United States.

EADS has 11 of its tankers in production and 28 more on order for countries including Australia and Britain. Boeing built a handful of its tankers based on its 767 passenger jet for Japan and Italy.

The two companies have tussled over whether they receive unfair subsidies from the governments in their home countries. Last month, the European Union said the World Trade Organization found U.S. aid to Boeing Co. violated international rules. The EU has claimed that Boeing received almost $24 billion in illegal subsidies, such as research grants and free use of technology from NASA, the Defense Department, and the states of Illinois, Kansas and Washington.

Last year the WTO ruled that trade rules were broken by Europe’s “launch aid” to Airbus, including virtually risk-free loans as well as other support.

Jason Gursky, an analyst at Citi, said a potentially large benefit to Boeing is that the deal keeps EADS from gaining a foothold in the United States. The European company wants to set up manufacturing in the U.S. to profit from the dollar’s weakness, compared with the Euro. Currently, EADS incurs all its costs in euros, which makes its planes more expensive when shipped to the United States.

In Mobile, backslapping and high fives quickly turned to tears and long faces as officials delivered word of the Air Force’s decision.

“The news is bad,” Alabama Development Office Director Seth Hammett said.

Mobile County Commission Chairman Merceria Ledgood said the Gulf Coast region “would live to fight another day.” But despite efforts by state and local officials to put a positive spin on the news, most said they were extremely disappointed.

“There’s no way to say we haven’t had the breath knocked out of us,” said Bill Sisson, executive director of the Mobile Airport Authority.

Boeing’s share price jumped $2.44, or about 2.5 percent, to $73.20 on the news.

Comments

thuja 3 years, 1 month ago

Why do we need tankers to refuel airplanes to fight an "enemy" that is as invisible as a person walking down the street?

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sallyone 3 years, 1 month ago

What a horrible waste of money our military needs to be seriously cut back!

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bobberboy 3 years, 1 month ago

just think all the tax dollars it will generate for the State of Kansas - they will need to bust the aircraft unions though.

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jrlii 3 years, 1 month ago

In these budget-constrained times, it isn't that surprising that the less expensive option prevaled, even if the EADS plane would have been more versatile.

As for the problems with the 787, that was a management problem: They took outsourcing one step too far.

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Paul R Getto 3 years, 1 month ago

Good move, and good luck to Wichita workers.

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just_another_bozo_on_this_bus 3 years, 1 month ago

I bet Florida's and New Jersey's governors would turn down these contracts, right? I mean, we just can't afford this level of spending, can we?

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tunahelper 3 years, 1 month ago

Thank God Boeing won the tanker contract! I love Boeing, they built the B-17s that bombed the crap out of Germany! Boeing also built the B-29s that torched (literally) Japan and dropped the first atomic bombs! God bless America and Boeing.

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sunny 3 years, 1 month ago

Jack...The bad Guy? Obama!

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JackRipper 3 years, 1 month ago

I hope Brownback with the backing of the Koch's say no thanks, we don't want any of that tainted government money coming to this state! Boeing should be building planes for the private sector and the government ain't got no money so we sure shouldn't be buying new tankers. By the way who are our enemies now days that we need these tankers for our protection? Terrorist? Ruskies? I'm just so confused now days who the bad guy is. Some may say the Chinese but gosh, when we so willingly gave them all that money and helped developed their industries surely they wouldn't be an enemy.

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Gedanken 3 years, 1 month ago

I was talking to a person that flies the tanker planes out of Topeka. He mentioned that while the Airbus solution was bigger - it wasn't necessarily better. They would have to build new hangers and facilities at all all the bases to accommodate the bigger Airbus solution. If the Boeing solution meets the requirements and doesn't require retooling of all the bases - it is a good economical solution.

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Steve Jacob 3 years, 1 month ago

The other company that won the bid three years ago that lost today will go to court and delay more.

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Roland Gunslinger 3 years, 1 month ago

The 767 can use the same facilities as the KC-135. The A330 with a 197ft wingspan would have required all new construction for maintenance operations and new concrete to make room for them on present parking ramps. Going with Boeing awards the contract to an American company and saves us millions in military construction costs.

Plus Airbus had this whole boom-falling-off-the-airplane-into-the-ocean-incident which didn't help their cause.

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seeker_of_truth 3 years, 1 month ago

So Boeing wrote the checks to the right people and I don't mean the average taxpayer.

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thuja 3 years, 1 month ago

We sure could use that money for something/ anything else.

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alfie 3 years, 1 month ago

The contract could be the largest awarded for many years as military budgets tighten, and it could eventually reach $100 billion. The tankers are likely flying gas stations, and they transfer fuel in mid-flight to fighters, bombers and cargo planes.

Richard L. Aboulafia, an aviation analyst at the Teal Group in Fairfax, Va., said the victory could help Boeing in its battle with Airbus in the much larger market for passenger jets and freighters.

If EADS had won the tanker contract, it planned to eventually assemble commercial freighter planes at the Mobile plant, giving it a manufacturing beachhead that could help it expand other sales in the United States.

And with sharp budget cuts in Europe, “EADS also faces a home defense market that is imploding like black hole,” Mr. Aboulafia said. “So it was imperative that they get this contract.”

The award also could mark the end of a long and often embarrassing effort by the Air Force to replace its aging tankers, which date back to the Eisenhower and Kennedy years.

The bidding represented the service’s third attempt to obtain new tankers since 2001. The first effort collapsed after Senator John McCain, the Republican from Arizona, blew the whistle on corruption involving an airplane-leasing proposal with Boeing.

Northrop Grumman and EADS then won in 2008, only to have government auditors block the award after Boeing protested that the evaluation had been too subjective.

Northrop dropped out last year, prompting the Pentagon to extend the bid deadline to give EADS more time out of concern that Boeing could charge a higher price if it were the only bidder.

Boeing had complained bitterly that EADS, which bid through its North American subsidiary, could rely on subsidies from European governments to undercut Boeing’s price or to absorb losses if it won the contract with a low-ball bid.

And lawmakers from Washington State and Kansas, where Boeing assembles its planes, were worried about losing thousands of high-paying jobs to Europe and the Gulf Coast.

Lawmakers that supported Boeing contended that Pentagon’s formula for judging the bids favored the larger European plan over Boeing’s smaller one.

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alfie 3 years, 1 month ago

Boeing Wins Contract to Build Air Force Tankers By CHRISTOPHER DREW

In a surprise twist in a long-running saga, the Air Force on Thursday awarded a $35 billion contract for aerial fueling tankers to Boeing rather than to a European company that builds Airbus planes, according to congressional aides and industry executives who were briefed on the decision.

Boeing and its supporters in Congress had seemed in recent days to give up hope of winning the contest, and the decision could settle a titanic struggle between the world’s largest plane builders.

But even though Boeing had portrayed itself as the hometown favorite, the choice could still touch off a fight in Congress. Boeing’s rival, the European Aeronautic Defense and Space Company, had contended that its plane was bigger and better. And lawmakers from the Gulf Coast, which is still recovering from Hurricane Katrina, were counting on EADS’s promise to build an assembly plant in Alabama, which would have created thousands of jobs.

EADS had also lined up companies from other politically important states, like Ohio, to supply parts, and lawmakers from those states could raise questions about the decision as well.

Pentagon officials planned to provide more details about the contract and their decision at a briefing late this afternoon.

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