Air Force may reopen $35B tanker bid

Boeing's day of protest

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WASHINGTON (CNN) -- Congressional auditors urged the Air Force to reopen bidding for a new fleet of aerial tankers Wednesday, finding the service made "significant errors" in awarding the $35 billion contract to Northrop Grumman.

The Government Accountability Office (GAO) opinion is a major victory for aerospace giant Boeing, which protested the February decision to award one of the largest contracts in U.S. military history to its rival. The Air Force said it is reviewing the decision, which was welcomed not only by Boeing, but also by several members of Congress with Boeing (BA, Fortune 500) plants in their states.

"What we have been saying for a number of weeks - that this competition has brought forth a wrong decision - has been validated by the GAO in a very, very strong way, and that is good news for American workers," said Sen. Patty Murray, D-Wash.

Sue Payton, the assistant Air Force secretary for acquisitions, said the service would decide what to do "as soon as possible."

"The Air Force will do everything we can to rapidly move forward so America receives this urgently needed capability," Payton said in a written statement. "The Air Force will select the best value tanker for our nation's defense, while being good stewards of the taxpayer dollar."

And in another written statement, Boeing Vice President Mark McGraw said, "We look forward to working with the Air Force on next steps in this critical procurement for our warfighters."

The decision to award the tanker contract to Northrop Grumman (NOC, Fortune 500), which plans to use an airframe from European manufacturer Airbus, surprised many defense industry observers. The Air Force wants to replace 179 tankers under the program, which could expand to nearly 500 aircraft and more than $100 billion.

"We respect the GAO's work in analyzing the Air Force's tanker acquisition process," Northrop Grumman spokesman Randy Belote said. "We continue to believe that Northrop Grumman offered the most modern and capable tanker for our men and women in uniform. We will review the GAO findings before commenting further."

Boeing's proposed design was based on its 767 commercial airliner. Northrop and its partner, the European Aeronautic Defense and Space Company (EADS) - parent company of Boeing archrival Airbus - offered a model based on the larger Airbus A330, variants of which are already used by Australia's air force.

Air Force officials said in February that they chose Northrop because it "clearly provided the best value to the government." But the GAO found the service "made a number of significant errors that could have affected the outcome of what was a close competition," wrote Michael R. Golden, the GAO's managing associate general counsel for procurement law.

Sen. Maria Cantwell, D-Wash., said the ruling leaves the Air Force "absolutely no other choice" than to take new bids for the tanker contract - and that Congress will be watching "to make sure that the Air Force actually does their job."

To sweeten the deal, EADS announced it would put its tanker assembly plant in Mobile, Ala., where it planned to hire nearly 2,000 workers. Boeing builds planes in the state of Washington and has major plants in several other states, including Missouri and Kansas.

"Thanks be to God and the GAO on this one," said Sen. Sam Brownback, R-Kan. "This is a huge victory for us."

Rep. Todd Tiahrt, R-Kan., held up a sign that read "vindicated" during a news conference by Boeing's supporters. And Rep. Norm Dicks, D-Wash., said the tankers are "critical to our defense technology" and should be American-made.

"If the Air Force doesn't get it right, I am going to reserve all my options as a member of the Appropriations Committee to offer amendments and do anything I can to stop this thing from going forward," Dicks said.

Northrop says its tanker project will employ nearly 50,000 people in 49 states, and most of the planes' electronics and controls will be American-made.

The GAO found the Air Force did not judge the competing bids according to its own published standards. It also concluded that Air Force officials held "misleading and unequal discussions with Boeing" by failing to tell the company that it had changed its assessment of a key objective, even as they continued talks with Northrop Grumman about the same part of the proposal.

And, after the protest, the Air Force acknowledged that it had misjudged the expected construction and lifetime operating costs of the competing designs, the GAO announced.

The Air Force has been trying to replace its tanker fleet since 2001. Some of its current KC-135 models, built on Boeing 707 airframes, are nearly 50 years old, and the average age of the fleet is more than 24 years. By comparison, the average age of a U.S. commercial airline fleet is just over nine years, according to Air Force officials.

Those plans have already been delayed by a corruption scandal stemming from the Air Force's earlier plans for a lease-purchase deal for 767 tankers that would have cost more than buying the aircraft outright. Critics said that amounted to a taxpayer bailout for the then-slumping 767 program, and Congress - led by Arizona Sen. John McCain, now the presumptive Republican presidential nominee - blocked the deal in 2004.

CNN Pentagon Producer Mike Mount contributed to this report.