Saying that the competition had become too "highly charged," the Defense Department announced Wednesday that it was postponing a decision on a $35 billion contract to replace the Air Force's aging tanker fleet until the next administration.
The competition, which has stretched on for seven years, has pitted Boeing and an international partnership led by Northrop Grumman in a fierce lobbying battle. After the decision was announced Wednesday by the defense secretary, Robert Gates, it was immediately praised by Boeing and criticized by Northrop.
"We can no longer complete a competition that would be viewed as fair and objective in this highly charged environment," Gates said. "The resulting 'cooling off' period will allow the next administration to review objectively the military requirements and craft a new acquisition strategy" for the tanker program.
In addition, Gates said that the seven-year acquisition process had become "enormously complex and emotional," blaming "mistakes and missteps along the way" by the Pentagon.
Gates' decision is an about-face from a plan that he announced in July to re-start a stalled bidding process between the two companies and complete the procurement process before the next administration, perhaps by as early as December 2008. Once that July announcement was made, Boeing began a highly visible lobbying campaign to delay the competition, even going so far as to threaten to withdraw entirely.
The contract in question would provide for 179 new airplanes to replace an aging fleet of aerial refueling tankers that provide fuel mid-flight to military craft. The Pentagon was expected to issue a new guidelines for the bidding by mid-August. At one time the contract was awarded to Boeing, only to be overturned and handed to the Northrop-led partnership, with that decision quickly challenged.
For its bid, Northrop partnered with the European Aeronautic Defense and Space Company, the parent company of Airbus. An Airbus plane had been selected by the Air Force last March for the contract — which could ultimately rise to $100 billion as more planes are acquired. But as soon as that decision was announced, it was challenged by Boeing. A subsequent study by government auditors found that the bidding process that awarded the contract to Northrop was flawed, which only opened the whole process up again.
Boeing on Wednesday praised Gates' decision: "Boeing Company welcomes the Defense Department's decision and believes that it will best serve the warfighter the appropriate time for this important and complex procurement to be conducted in a thorough and open competition," the company said in a statement.
Politicians who have been supporting the Boeing bid quickly echoed the same sentiments. "This pause is a reality check," said Senator Patty Murray, a Democrat from Washington. "It gives the Pentagon enough time to work with our warfighters to meet their needs."
Randy Belote, a Northrop spokesman said "we are extremely disappointed" and that the company was "greatly concerned about the potential future implications for the Defense acquisition process."
Northrop also noted that many of the tankers in use go back to the Eisenhower era.
Louis Gallois, the chief executive of EADS, also expressed "disappointment" in a statement from Paris. He said he felt the Airbus plane was "the best tanker for the U.S. warfighter and we remain steadfastly behind our prime partner Northrop Grumman."
The Airbus plane was going to be built at a new plant in Alabama. Governor Bob Riley, a Republican, said, "I strongly disagree with this decision and find it absolutely bewildering." He added that "another delay does nothing except put our warfighters at greater risk. For that reason alone, I can't understand why anyone would make this decision."
Lawrence Korb, a senior fellow at the Center for American Progress in Washington and a former assistant defense secretary, said Gates' decision "indicates how badly the Pentagon has managed this procurement process. This is a failure of management at the Pentagon."
Korb added that Boeing has been adept at arguing that more jobs would be created in the United States if it won the contract. "Boeing basically knows the majority of those on the Hill would like to see them get the contract."
