Curtain falls on tanker fight: EADS will not protest Boeing's win

EADS announced Friday it will not protest the Air Force’s selection of Boeing to build 179 aerial tankers, ending a hard-fought race that went on for nearly a decade.

"EADS has decided not to protest. ... We are stepping aside," EADS North America Chairman Ralph Crosby said during a midday briefing. "The basis for protest does not exist."

The Air Force decided to seek a replacement for its KC-135 tankers, said Sean O'Keefe, the company's North America CEO, rather than buy what the company characterized as a more-capable plane, like its larger A330-based tanker.

"The acquisition architecture was mechanistic and mathematical ... and the Air Force ran this in accordance with all the ground rules," Crosby said.

The executives said EADS knew the Air Force had decided to seek a cheaper plane than it was looking for in the last competition, which ended in 2008 with EADS as the winner. That decision was voided by a Boeing protest, reopening the competition.  

"The outcome [this time] was decided by price," Crosby said. 

Boeing's "total evaluated price" was $20.6 billion, while EADS came in at $22.6 billion, EADS said.

A Pentagon weapons acquisition reform law passed by Congress in 2009 "seems" to encourage such price-focused competitions, Crosby said. He questioned whether that is best for deployed troops and taxpayers.

Last Thursday, the Air Force announced Boeing had won a $35 billion contract to build the new flying gas stations. The Chicago-based firm will build a tanker based on modified a 767 aircraft. 

Deputy Defense Secretary William Lynn called Boeing's proposal "a clear winner."

Experts said Boeing won the tender by offering a lower price, with a major deciding factor being a lower 40-year operating cost.

The EADS executives said it is "a logical conclusion" that Boeing submitted such a low bid to keep its top large aircraft-making rival from erecting a production facility on U.S. soil.

EADS proponents on Capitol Hill vowed Friday to continue examining the service's decision.

“Air Force officials declared Boeing the winner of the tanker contract, which was a great disappointment to Mobile. EADS has evaluated the results of the competition and has chosen not to protest," Sen. Jeff Sessions (R-Ala.) said in a statement. "However, I will continue to scrutinize the results to ensure the contract award was fair and justified."

Sessions also said EADS's presence in the competition helped force down Boeing's proposed price.

"It is clear that this fierce competition drove down the cost of the aircraft," Sessions said. "Now, the winner must deliver on their promises."

Boeing's congressional allies applauded the European firm's decision.

Several members of the pro-Boeing delegation held a conference call Friday afternoon that amounted to a victory lap.

Rep. Norm Dicks (D-Wash.) said he was shocked that Boeing won, but was immediately "optimistic" that EADS would decline to protest given the nature of the competition.

Sen. Maria Cantwell (D-Wash.) said the move will allow the Air Force to begin building tankers in her state, which will receive an economic jolt. She also said it will help maintain a U.S. aerospace and defense industrial base that many experts say is in decline.

Sen. Patty Murray (D-Wash.), one of Boeing's most vocal allies on the Hill, was not present. 

Cantwell spoke to her earlier in the day. According to Cantwell, Murray said she "was practically dancing in the streets" upon hearing EADS would not contest the decision.

For EADS, the tanker competition was a major part of its efforts to increase its presence in the U.S. defense market.

That effort would have been boosted by a tanker win, "but it was not contingent upon it," O'Keefe said, adding the company is involved in many U.S. weapons programs. He called EADS North America an emerging competitor among defense contractors vying for U.S. weapons contracts.

The European firm initially expressed shock and disappointment over the Air Force's decision. Defense insiders had considered EADS the front-runner.

Pro-EADS lawmakers threw around some fiery rhetoric immediately after the announcement. Sen. Richard Shelby (R-Ala.) tied Boeing to President Obama, saying “only Chicago politics could tip the scales in favor of Boeing’s inferior plane.”

Had it won, EADS would have built its tankers at a facility in Mobile, Ala.

At a Wednesday House Appropriations Defense subcommittee hearing, Rep. Jo Bonner (R-Ala.) told Defense Secretary Robert Gates that the decision would hurt the people of Alabama and surrounding states economically.

In a Friday statement, Bonner said he has concluded that, "Boeing simply bought the contract with a low-ball bid and I sincerely hope our military and taxpayers are not the ultimate losers if Boeing fails to deliver." 

Bonner also promised to ensure Boeing abides "by the terms of their contract to produce 18 tankers on time and on budget by 2017."

Boeing has said the first KC-45A will fly in 2015; the Air Force expects the first 18 to be delivered by 2017.

All defense officials, lawmakers and industry executives involved in the often-ugly competition have for years agreed on one thing: the Air Force’s current fleet of KC-135 tankers is aging rapidly and needs to be replaced.

“EADS has done the government a big favor by electing not to protest the tanker outcome,” said Loren Thompson, a defense analyst at the Lexington Institute who had advocated for a Boeing win but predicted EADS would take the contract. “The Pentagon owes EADS a lot for enabling war fighters to get the benefits of competition without holding up an urgently needed modernization initiative.”

This story has been updated.