Pentagon Cancels Tanker Contest - For Now

In a stunning twist to the ongoing saga over the replacement for the US Air Force’s tanker requirement, the Department of Defense (DoD) terminated the contract, paving the way for the next US Administration in waiting to take the reins of this contentious award, pitting Boeing against Northrop Grumman and its partner, EADS.

Defense Secretary Robert Gates announced the contract annulment during a testimony before the House Armed Services Committee.

“It has now become clear that the solicitation and award process cannot be accomplished by January,” he said.

Image courtesy of Boeing

“Thus, I believe that rather than hand the next administration an incomplete and possibly contested process, we should cleanly defer this procurement to the next team.“

“We can no longer complete a competition that would be viewed as fair and objective in this highly charged environment,” said Gates.

Only last month, Boeing IDS chief, Jim Albaugh, had threatened to withdraw completely from the contest unless it had additional time to rework part of its proposed tanker submission to better conform to a revised draft for proposal by the US Air Force.

EADS CEO, Louis Gallois was clearly more than disappointed with the decision by the DoD.

“We have not received any detailed direction from the Air Force or Northrop Grumman. However, we have a contract and will seek an appropriate conclusion to that contract,” said Gallois.

One can surmise from Gallois’ statement that EADS’ contract stands with Northrop Grumman as its partner and subcontractor as opposed to any formal deal with the DoD.

During these “dark days” of a union strike that has hit Boeing, the company can now look to the next contract and base its new proposal on a new, equal footing, without the fear of having to lodge a protest to the GAO.

EADS will no doubt be reeling from this stalled tanker deal, not least because its plan to shift production of the Airbus A330 model to Mobile, AL, has effectively been killed off.

Image courtesy of EADS

EADS had linked winning the KC-X tanker deal with shifting A330 production to the USA, allowing capacity on its Toulouse factory for the upcoming A350XWB airplane.

“The whole notion of Airbus using Mobile to shift A330 production was murky from the very outset. I don’t care what critics say, but it was nothing more than a ploy by EADS to get the US taxpayer to fund an ageing airplane [in the A330] design that Airbus has oversold and now ran the risk of airline cancelations with the current environment of high fuel and labor costs.

EADS needed a new party to underwrite these A330’s so it could continue to cut its price to keep airlines attracted to it while the 787 is delayed because it knows the European Union won’t give it more aid in one hand while it begs for aid on the A350 with the other,” said one veteran US commentator close to the tanker deal.

“A330 in Alabama? Forget it, its dead,” said the commentator.

One of the most vocal critics of the tanker deal being originally awarded to the Northrop/EADS team was Senator Patty Murry, who said that “it’s absolutely the right decision to allow a $40 billion, 40-year contract to continue in a fair way.“

As per usual, the US Air Force now faces an even longer wait for replacement tankers.

The next US Administration will clearly have to pay close attention to and learn from the mistakes made from this protracted affair to ensure that the next contest is clear, concise and fair from the very start.

If that means making changes within the US Air Force itself to ensure a smoother contest, then perhaps its something both electoral candidates should be thinking about.

9 comments September 11th, 2008