Pentagon tanker deal boosts industry

Feb. 24, 2011 at 1:16 PM
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WASHINGTON, Feb. 24 (UPI) -- As one of the most coveted military contracts in U.S. history comes to a close, the U.S. defense industry stands to profit, experts suggest.

The contract concerns a $35 billion deal to replace the U.S. Air Force's aging aerial tankers with a new fleet of at least 179 planes. The contest has pitted Boeing and its European rival EADS for nearly a decade.

The Pentagon was expected to render its decision in November but the announcement has slid to February. Military and industry officials have long anticipated that the U.S. aerospace giant will clinch the multibillion-dollar deal.

Northrop Grumman Corp. and EADS, the parent company of Airbus, beat Boeing in a similar race three years ago. Their winning bid, however, was annulled after government auditors found that the Air Force had skewed its judgment rules.

The annulment sparked a diplomatic row, with senior European officials berating the United States for what they billed as an act of protectionism. Since then, EADS was allowed to return to the bidding process, resubmitting an 8,000-page bid to replace the Air Force's fleet of Eisenhower-era airborne refuelers.

"This decision by (the Defense Department) is unlikely to be the end of the story," said Bernstein Research analyst Douglas Harned, in a note to clients this week, Marketwatch reported.

Should EADS win, Harned wrote, "the negative reaction out of Congress will be strong, with states that are home to Boeing manufacturing facilities outnumbering EADS supporters."

Regardless of the outcome however it will be an economic boon for Southern California's space industry.

"Millions of payrolls dollars are expected to pour in to help build the 179 flying fuel-carrying behemoths, even though the planes ultimately would be assembled elsewhere," the Los Angeles Times reported.

Chicago's Boeing Co. has said that its selection would spell 4,500 jobs and $233 million for California. Likewise, EADS said its pick would mean more than 5,000 jobs for about 40 industry-related companies in the state.

Boeing's 767-based NewGen Tanker is competing against EADS North America's larger Airbus A330-based KC-45 tanker for the contract. The companies have spent millions in trying to influence perceptions in Congress and to advance their companies' interests within the public domain.

The military depends heavily on the tankers all over the world because they afford in-flight refueling of bombers, fighters and cargo planes beyond U.S. frontiers. Despite the importance of the project, the Pentagon has been mired in massive controversy over the handling of the contract.

Experts suggest Thursday's anticipated announcement may not end the 10-year saga.

Last fall, Pentagon officials accidentally mixed up addresses and inadvertently offered the competing companies confidential information on each other's bid. That may spark an appeal from the losing bid.

Said aviation analyst Richard Aboulafia of Teal Group Corp., "It's the most politicized nightmare ever to hit the defense budget. … It's hard to imagine we are nearing the end."

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