McCain Calls On Gates To Review Tanker Buy

Team Infidel

Forum Spin Doctor
Aerospace Daily & Defense Report
December 6, 2006

Sen. John McCain (R-Ariz.) is asking Robert Gates, the nominee to take over as Defense Secretary, to withhold release of a controversial request for proposals for the Air Force's tanker replacement program until providing assurance that a number of competitive issues are addressed.
McCain, a senior member of the Senate Armed Services Committee, sent the letter to Gates Dec. 1; Gates' confirmation hearing took place Dec. 5.
One of McCain's concerns is whether the Air Force plans to make its decisions based on the hypothetical impacts of a pending trade dispute between Boeing and Airbus on pricing of their offerings for a refueling tanker. "I remain troubled that, without clarity on how answers to this provision will be evaluated, this element ... may risk eliminating competition before bids are submitted," McCain says. Each company accuses the other of unfair pricing based on government subsidies.
Meanwhile, the Air Force is showing signs of reversing its position on the World Trade Organization matter. "The Air Force has revisited its position on WTO on the tanker replacement program based upon discussions with the offerors and will in the next [request for proposals (RFP)] update add a clause that hold all harmless to any future WTO claims," says a statement from Ken Miller, the Air Force's special assistant for acquisition governance and transparency.
In a Sept. 25 draft request for proposals, the Air Force asked for information from competitors on how an adverse ruling from the WTO over the affect of subsidies on commercial airliner costs could impact the price of proposals from Boeing and a Northrop Grumman/EADS North America team. Boeing is expected to propose a tanker variant of the 767 or, possibly, the 777 while its rival is pitching an A330-based solution.
Service acquisition chief Sue Payton says more than 1,000 comments were received from companies in response to the draft RFP, allowing the Air Force to better understand the trade dispute and how it could affect the KC-X competition to build the first 179 replacements for the KC-135 fleet.
Yet, it is unclear why the Air Force missed its self-imposed deadline of Dec. 4 to release this and other updates to the draft RFP. Payton deferred media questions to the impending Dec. 4 RFP update during a Nov. 30 press conference. "When you read the language ... it will make things much clearer," she told reporters.
Meanwhile, Air Force Lt. Gen. Arthur Lichte, assistant vice chief, told Aviation Week on Dec. 5 that the supposed RFP update had more to do with clarifying requirements for the proposed tanker than the WTO dispute. Namely, that the Air Force was looking for an aerial refueling aircraft more than a cargo airlifter or network node in the sky. "It's a tanker," he said after speaking at Credit Suisse and Aviation Week's aerospace and defense conference in New York.
Lichte said he believes that the WTO-RFP concern is a nonissue that observers soon will realize was a distraction.
A formal RFP is still expected out Dec. 15, Payton says, although the recent plea from McCain could prompt a delay.
Both competitors have had questions about how the Air Force's position on the WTO issue could impact the outcome of the competition. Scoring teams based on potential pricing impacts is seen as harmful to the Northrop Grumman/EADS team. The Air Force's fear is that an adverse ruling against a competitor could drive the price up and inadvertently pin the service into paying unanticipated costs.
'Fair and open competition'
The Air Force's Sept. 25 draft RFP was the first from the Pentagon to consider how an international trade dispute could impact a procurement there, and it drew criticism from some in industry as well as McCain. Lt. Gen. Donald Hoffman, the Air Force's top military acquisition official, says the Air Force is simply leaving no stone unturned in this massive competition.
"This is not something that comes up very often. So, the fact that it is coming up now and we are struggling with the implications of WTO should not be viewed as a very unique offshoot," Hoffman says. "It is an attempt to look at this and make sure that we have a fair and open competition and that we have the maximum number of competitors in the process."
Some industry officials privately say that if the requirement to provide pricing data based on the impact of a future WTO decision is a criteria in the competition that EADS will likely back out before constructing a formal proposal.
-- Amy Butler