GAO Review Of Tanker Deal Unlikely To Produce Truce

GAO Review Of Tanker Deal Unlikely To Produce Truce
June 10th, 2008  
Team Infidel

Topic: GAO Review Of Tanker Deal Unlikely To Produce Truce

GAO Review Of Tanker Deal Unlikely To Produce Truce
Seattle Post-Intelligencer
June 10, 2008 Both sides have ways to fight on
By Joelle Tessler, Associated Press
WASHINGTON -- Northrop Grumman Corp. and the European Aeronautic Defense and Space Co. beat out The Boeing Co. to win a $35 billion order from the Air Force three months ago.
Yet the contract to build 179 aerial refueling tankers is hardly a done deal.
The surprise selection of a team that includes EADS -- the parent company of The Boeing Co.'s rival Airbus -- has ignited a backlash among unions representing Boeing workers, lawmakers from Washington, Kansas and other states with Boeing plants and "Buy American" proponents in Congress.
They have pinned their hopes on the Government Accountability Office, which will rule on Boeing's protest of the massive military contract by June 19. Although the Air Force is not bound by the GAO review, the decision will shape the tug of war on Capitol Hill and potentially determine which company walks away with the high-stakes award.
A ruling that finds problems with the Air Force selection would give critical ammunition to Boeing's congressional supporters as they try to block funding for the contract or force a new tanker competition. And that could position Boeing to capture part or all of the deal.
But a GAO ruling that upholds the award would leave Boeing backers with little justification to overturn the order. To be sure, the Boeing side wouldn't just abandon the fight, yet it would be an uphill effort.
"The outcome here is so unsettled that nobody knows where this will end up," said Loren Thompson, a defense industry consultant at the Lexington Institute in Virginia.
Further complicating matters is last week's ouster of the two top Air Force officials over mistaken nuclear shipments, leaving the service ill-equipped to answer difficult questions it may soon face about the contract, Thompson said.
The Air Force is under intense pressure to prove that it ran a fair competition after a procurement scandal in 2003 sent a top Air Force acquisition official to prison for conflict of interest and led to the collapse of an earlier tanker contract with Boeing.
The current contract is the first of three Air Force deals worth as much as $100 billion to replace its entire fleet of nearly 600 aerial refueling tankers over the next 30 years. With so much at stake, both sides have poured money into lobbying, advertising, media campaigns and blogs, though neither will say how much it has spent.
Northrop's message is clear: Its tanker will create American jobs. Northrop estimates the contract will support four new factories and 48,000 jobs with 230 U.S. suppliers, including more than 1,500 new positions in Mobile, Ala., where the tanker would be assembled.
A Boeing tanker would support 44,000 new and existing jobs at Boeing and more than 300 U.S. suppliers, the company says. Boeing would perform much of the work in Everett and Wichita, Kan.
On Capitol Hill, supporters have echoed Boeing's claim that the Air Force biased the tanker competition to favor the larger plane offered by Northrop and EADS even though it had originally asked for a medium-sized aircraft. Boeing's backers also maintain the Northrop/EADS team had an unfair advantage since the U.S. Trade Representative has filed a complaint with the World Trade Organization charging the European Union with providing illegal subsidies to Airbus.
The EU has filed a similar complaint with the WTO, accusing the U.S. government and several states of providing unfair support to Boeing.
Lawmakers are holding off moving on any major tanker-related legislation until after the GAO ruling. Still, a massive fiscal year 2009 defense policy bill passed by the House does include a provision requiring the Air Force to review the effect of subsidies on the tanker competition if the WTO rules against the EU.
The bill also would prohibit the Pentagon from awarding future contracts to companies that benefit from illegal subsidies and require it to consider the effect of contracts on U.S. jobs.
"It is crucial to our industrial base to keep the fruits of this contract in America," said Duncan Hunter, R-Calif., ranking member of the House Armed Services Committee, which produced the bill.
The real action, however, will come after the GAO decision.
If the GAO rules in favor of Boeing, the company's supporters in Congress will use the decision "as a club" to politicize the matter, predicts Teal Group analyst Richard Aboulafia. Aboulafia believes Congress could even push the Air Force to split the tanker order between Boeing and EADS/Northrop if it can force a new competition.
Yet even if the GAO upholds the existing award, the tanker controversy won't disappear. Although the White House opposes the measures in the House bill, Boeing's backers insist Congress needs to examine the role of subsidies and American jobs in defense contracts.
And they may use the Pentagon spending bill to make their case. Boeing has several key allies on the appropriations subcommittees that write that legislation: Todd Tiahrt, R-Kan., and Norman Dicks, D-Wash., in the House, and Patty Murray, D-Wash., in the Senate.
But Northrop Grumman and EADS also have some powerful supporters in their corner. Alabama Republican Richard Shelby is a member of the Senate Appropriations subcommittee on defense, and he stresses that the Northrop/EADS tanker "is going to be built by Americans."
Shelby added, however, that the debate over American jobs is focused on the wrong issue. "What we want is the best plane for the war fighter," he said.

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