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Boeing gets $35 billion Air Force tanker contract

After a decade of false starts, Boeing pulled off an upset to win the $35 billion contract to build a fleet of Air Force aerial refueling tankers, two congressional sources told POLITICO Thursday.

The decision was 10 years in the making after bitter back-and-forth lobbying, advertising and scandal. Two earlier efforts floundered– one ending the careers of several Air Force officials and landing a Boeing executive in jail, and another award to European Aeronautic Defence and Space Company and Northrop Grumman in 2008 being overturned after Boeing protested.

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The world’s two largest aerospace companies — EADS and Boeing – are used to operating in such a cutthroat environment. But the regions and politicians competing for tanker business also have good reason to fight so hard: The contract is good news in a country racked by stubbornly high unemployment rate. EADS, the parent company of Airbus, plans to assemble its tankers in Mobile, Ala., a state that doesn’t rely on union labor; Boeing would build its tanker in Everett, Wash.

“This is a spark that can turn the economy in another direction. This is a lot of work for many, many, many years,” said Rich Michalski, general vice president of the International Machinists and Aerospace Workers Association, a union that backed Boeing in the spirited competition. “This is $4 billion of generated income for American workers per year.”

The Pentagon is expected to provide both companies with detailed briefings early next week on how the decision was reached. And members of Congress are expected to receive the full explanation by midweek, sources said.

Going into Thursday’s announcement, EADS had been the favorite – largely because of a story line driven by Loren Thompson, the chief operating officer of the Lexington Institute who was the first to predict that Boeing would lose. Thompson, who’s been far from neutral on the issue, has clearly favored Boeing.

But others saw EADS talking openly about discounts and Boeing’s supporters grumbling more and more.

“I’m not as much on pins and needles as the last time,” said one defense insider who saw the competition swinging EADS’ way.

In this, the third time the Pentagon has tried to bid the fleet of 179 aerial tankers, Boeing’s surrogates have taken a defensive posture and appealed to the White House for help in steering the contract to Boeing, with lawmakers and governors from Washington state and Kansas leading the charge.

But the White House said it was staying out of the procurment business. And chief of staff Bill Daley specifically recused himself of any involvement, since he had been on the board of Boeing, headquartered in his hometown of Chicago.

Boeing’s backers have argued since Northrop Grumman, the old partner of EADS, dropped out last March, that EADS should not receive additional time to recast its bid. But the Defense Department granted an extension, allowing EADS to stay in the running.

The extension also enabled a Russian company to put together its own bid, but the company’s deliveryman got lost on his way through Wright Patterson Air Force Base in Ohio and showed up minutes late, enabling the military to turn away the proposal.

EADS suffered a setback last summer, when EADS North America CEO Sean O’Keefe was severely injured in the plane crash that killed former Sen. Ted Stevens (R-Alaska).

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And in November, the Air Force mistakenly sent computer discs to the two contractors containing information about their competitor’s score on a computer model vital to the contract award, opening up a new avenue of discontent. After the mix-up, the Air Force shared the data with both companies.

Throughout the competition and previous rounds, Boeing and its supporters have argued that EADS bid should be docked because of an ongoing World Trade Organization dispute involving illegal subsidies.

Last week, Washington state’s Democratic senators, Patty Murray and Maria Cantwell, and Kansas’ Republican senators, Pat Roberts and Jerry Moran, held a joint press conference imploring President Barack Obama to get involved and consider the impact of subsidies.

Supporters of EADS responded Thursday with their own letter to Obama, urging “that the United States Air Force be allowed to make its choice according to its own priorities, free from parochial interest group pressures, and without the distraction of accusations over trade practices.” The signers: Republican Govs. Robert Bentley of Alabama, Haley Barbour of Mississippi and Bobby Jindal of Louisiana.

EADS had been cautiously optimistic about its bid for weeks, and had focused primarily on the nuts and bolts of the competition, while taking a few shots at Boeing.

“My take is: the rules are clear in terms of the requirements, the pricing methodology and the evaluation criteria. So, our perspective is we’re in this game, a game well-defined, a game we intend to win,” EADS North America Chairman Ralph Crosby told reporters after announcing the company had lowered its price to be more competitive.

Asked how much the price was dropped, Crosby quipped, “Just enough to win.”


Eric D. Schwerin
Rosemont Seneca Partners, LLC
1010 Wisconsin Ave., NW
Suite 705
Washington, DC 20007
(202) 333-1880
eschwerin@rosemontseneca.com
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