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<< Previous   of   Next >>   ADVERTISEMENT   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Wednesday, June 18, 2008 Tanker ruling by GAO imminent for Boeing By Michelle Dunlop Herald Writer EVERETT -- The Boeing Co. could find out as early as today whether its protest over losing a U.S. Air Force aerial refueling tanker contract will gain ground. Boeing pleaded its case to the Government Accountability Office after the Air Force on Feb. 29 awarded a $35 billion deal for replacing 179 tankers to Northrop Grumman and EADS, the parent company of Airbus. The deadline for the GAO to give its ruling is Thursday. But few industry observers believe the GAO's decision will settle the tanker debate. Boeing has alleged the competition was "seriously flawed" and "replete with irregularities." It had pitched a tanker based off the company's Everett-assembled 767 commercial jet. Northrop and partner European Aeronautics Defense and Space Co. offered a tanker based off an Airbus A330, which they would assemble in Mobile, Ala. Boeing filed a protest with the GAO in mid-March -- its first protest in several decades. Northrop Grumman said on Tuesday that it hopes Boeing will back down if the GAO's ruling is definitive. "If the GAO gives the all clear, it's time to get to work," said Northrop's Randy Belote. Here are a few reasons why that may not happen: 1. The Air Force has admitted it made a mistake in the contract. In their recently released, yet incomplete, GAO documents, Northrop and Boeing note that the Air Force erred in how it calculated the costs for Boeing's tanker. Northrop has said the error was minor. Boeing supporters, however, point to it as reason to throw the contract out and start over. The Air Force isn't commenting and hasn't made its GAO documents public. When the error was reported, U.S. Rep. Todd Tiahrt, a Republican from Kansas, where Boeing would finish its KC-767 tankers, said the Air Force analysis "does not pass the common-sense test." "This is strong evidence that the tanker contract should be re-competed under a fair acquisition process that gives American workers a fair opportunity," Tiahrt said. 2. The Secretary of Defense fired the Air Force's top brass. Earlier this month, Defense Secretary Robert Gates ousted Air Force Chief of Staff Gen. Michael Moseley and Air Force Secretary Michael Wynne after nuclear mishaps. Boeing's supporters immediately linked the errors in judgment to the tanker procurement process. U.S. Sen. Patty Murray, D-Wash., said the leadership shake up raised new red flags. "For months the Air Force has stonewalled Congress and the American people in answering basic questions about the tanker decision," Murray said. "Now, on the eve of a GAO ruling, the Administration itself has expressed a lack of confidence in the decision-making and leadership of the Air Force's top officials." 3. GAO decisions can be appealed. The GAO only makes recommendations. It can't force the Air Force or the companies involved to follow its instructions. A recent decision from the GAO involving Boeing and Alabama Aircraft Industries demonstrates that rulings by the investigative arm of government aren't always final. The Air Force awarded a maintenance contract for the existing fleet of tankers to Boeing over Alabama Aircraft Industries. The losing bidder protested to the GAO, which suggested the Air Force review the contract. The Air Force again chose Boeing for the deal. In March, just days after Boeing protested Northrop's win, Alabama Aircraft filed another protest. Late last week, the GAO denied Alabama Aircraft's latest protest. The company, however, said its not backing down. "While we are disappointed with the GAO's latest decision, we fully intend to continue to press our case until the Air Force has conducted a full and fair evaluation of proposals," said Ron Aramini, Alabama Aircraft's president, in a statement. 4. Boeing's supporters in Congress are itching to take action. Just yesterday, Sen. Murray spoke again about the reasons that Congress should intervene in the Congress. "(W)hile the GAO decision is important -- it won't even come close to addressing all of the questions that have been raised about this contract," Murray said. The GAO's scope is limited to determining whether the Air Force followed the rules of procurement, Murray said. The GAO doesn't examine associated costs, national security or trade dispute issues, she said. "That is Congress's job," Murray said. "We must get answers to the questions that have been raised about this deal." U.S. Rep. Norm Dicks, D-Wash., also has said publicly that he plans to draft legislation to block tanker funding. 5. The contract has larger implications than a $35 billion jackpot. The deal, worth about $35 billion, would be only a drop in the bucket for either Boeing or Northrop and EADS. Boeing pulled in $66.4 billion in revenue in just the fourth quarter of 2007. Its backlog has swelled to $346 billion. But this bid gives the winner the advantage for subsequent rounds with the Air Force for deals worth roughly $100 billion. Boeing hasn't done well with defense contracts this year and has lost the last several international tanker competitions. Company officials have said that the loss could put Boeing out of the tanker business for the next several decades. More importantly, noted aerospace analyst Scott Hamilton, with Leeham Co., in a recent commentary, a Northrop and EADS win gives Airbus a toehold to production in the United States. EADS has said it will move A330 freighter assembly to Alabama should the decision stand. "Boeing is doing everything possible to kill the tanker deal because this will kill the A330 production shift," Hamilton wrote.

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