Boeing triumphs over EADS in battle for $35 billion aerial tanker contract

The Air Force on Thursday awarded Boeing a $35 billion contract to build a fleet of aerial tankers in a long-awaited decision that was the subject of intense scrutiny on Capitol Hill.  

The selection of Boeing's 767-based flying gas station was a bit of a stunner. Many analysts and congressional staffers had determined European Aeronautic Defence and Space (EADS), the rival bidder, likely would offer a lower price than Boeing.

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"Boeing was a clear winner," said Deputy Defense Secretary William Lynn.

For Boeing the win means a sizable profit, but it also deals a significant blow to EADS, its chief rival in the large aircraft market, analysts said.

Pro-Boeing lawmakers hailed the decision, touting the jobs the defense work will deliver to their areas.

"This decision is great news for our state’s economy and will bring much-needed jobs to the aviation industry that has been hit particularly hard during the economic recession," Sen. Jerry Moran (R-Kan.) said in a statement.

Jim McNerney, Boeing chairman, president and CEO, said his firm "is ready now to apply our 60 years of tanker experience to develop and build an airplane that will serve the nation for decades to come."

EADS executives said they were disappointed and confused by the result.

“This is certainly a disappointing turn of events, and we look forward to discussing with the Air Force how it arrived at this conclusion,” EADS North America Chairman Ralph Crosby said in a statement.

The competition was decided by 372 mandatory specs, which Boeing met at a better price, Pentagon officials said.

During a Thursday evening conference call with reporters, Boeing officials said they believe a major deciding factor was the projected cost of operating the two planes for several decades. In a competition largely set up around choosing the plane with the smaller price tag, Boeing officials believe the air service determined it would cost less to operate a fleet of smaller 767-based tankers.

The officials said their plane should burn about 24 percent less fuel than the A330. in addition, Boeing officials said they believe their proposal for things such as basing needs and construction costs came with lower price estimates.

Secretary of the Air Force Michael Donley emphasized Thursday that "many factors" were taken into account in reaching the final decision.

"[We] are confident in the fact that when our young pilots, boom operators and maintainers receive this aircraft, they will have the tools they need to be successful at what we ask them to do," Donley said.

Donley said the decision "represents a long-overdue start" to the process of replacing the Air Force's aging tanker fleet.

"Your Air Force leadership, supported by others throughout the Department of Defense, is determined to see this through, and we will stand behind this work," Donley said. 

The rival aircraft makers vied for the 179-plane deal for nearly 10 years in a competition that turned ugly at times. 

Lawmakers staged an intense lobbying campaign on Boeing’s behalf, arguing recently that the Obama administration should give the lucrative contract to an American-based company in order to help “win the future” and create jobs.

During a briefing in the Capitol last Thursday, a handful of pro-Boeing members said if that company won, it would bring 50,000 “American jobs” to 40 states.

EADS countered that its home base in Europe wasn't important, because work on the tanker would have taken place in Mobile, Ala. EADS said it would “support” 48,000 U.S. jobs through the contract.

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Pro-EADS lawmakers echoed that sentiment, saying Americans would do most of the production work for EADS on American soil.

EADS could decide to challenge the Pentagon's decision, and lawmakers have already raised questions about a data mix-up last year that accidentally gave the competitors information about each other's bids.

That mix-up became a political hot potato for several days last month after Boeing’s congressional backers called for a probe by the Pentagon inspector general. The IG, satisfied with an Air Force probe of the incident, last week said he would not investigate the matter.

Rep. Jo Bonner (R-Ala.) panned the Air Force's decision Thursday and said a protest is likely.

"After having already won the competition three years ago ... it’s deeply disappointing that Mobile and the Gulf Coast were not chosen as the home of the new Air Force tanker," Bonner said in a statement. "I intend to demand a full accounting as to why. This competition has been challenged before and it’s not unlikely it will be challenged again."

EADS said it will carefully examine how the air service made its decision, but did not mention a protest in its statement.

Should EADS protest, Boeing will have allies in powerful places on the Hill.

One is Rep. John Larson (D-Ct.), chairman of the House Democratic Caucus, who said the Air Force "made the right decision today and American manufacturers and our workforce are the beneficiaries."

Pratt & Whitney is slated to make the engines that will power the new tankers, dubbed the KC-46A. That company has a strong presence in Larson's state.

"The Boeing tanker, powered by Pratt & Whitney engines, is more cost efficient to own and operate and will well serve our fighting men and women," Larson said. "The Obama Administration has responded to the call of make it in America and this will help keep critical manufacturing jobs and skills here in the U.S. instead of sending them to Europe."

Another issue that flared up during the process was government subsidies.

The World Trade Organization in recent months floated preliminary rulings that both firms have received illegal government aid.

But EADS has gotten billions more from European governments, according to the WTO. Boeing’s congressional friends hit EADS hard on that finding.

EADS executives downplayed the impact of any subsidies on their proposed price.

In a joint statement, the chairman and ranking member of the House Armed Services Committee, Reps. Howard "Buck" McKeon (R-Calif.) and Adam Smith (D-Wash.), said the contract award moves the Air Force "closer" to replacing its aging KC-135s.

That panel's seapower and projection forces subcommittee, chaired by Rep. Todd Akin (R-Mo.), intends to hold a hearing to examine how the service arrived at its decision, the two lawmakers said. No date for that session was announced.

As is customary, Air Force officials are expected to brief EADS officials as soon as next week.

- This story has been updated.