Bidding Ordered on Tanker Contract

The Pentagon said Monday that it would require the Air Force to open to competitive bidding any new contract to replace or upgrade its aging fleet of aerial refueling tankers, long a lucrative source of revenue for Boeing Co.

“Let me be clear: After we have selected an appropriate alternative, we intend to require competition,” Deputy Defense Secretary Paul D. Wolfowitz said in a letter to Sen. John W. Warner (R-Va.), chairman of the Senate Armed Services Committee. The letter was released Monday

Congress last month killed a 2002 deal, valued at $23.5 billion, to lease and buy 100 tankers from Boeing after a former top Air Force acquisition official admitted providing favorable terms to Boeing while she was negotiating a job with the aerospace company.

Wolfowitz’s decision marks the latest fallout from one of the biggest Pentagon ethics scandals in decades. This month the former Boeing executive who hired the Air Force procurement official in charge of the tanker deal pleaded guilty to a conflict-of-interest charge.

Analysts said the new competition would bolster the prospects for Boeing’s chief rival, European Aeronautic Defense & Space Co. Netherlands-based EADS owns 80% of European aircraft maker Airbus. In 2002 the Air Force awarded the tanker contract to Boeing over EADS.

“We’ve always said if there is a competition, we’ll be there,” EADS spokesman Guy Hicks said Monday.

Boeing spokesman Douglas Kennett said the company “respects the [Defense] Department’s position and looks forward to the competition.”

Despite the Boeing scandal, there remains some support in Congress to award any tanker contract to an American defense company.

But Ralph Crosby, head of EADS’ North American operations, has been aggressively campaigning for a new, open competition for the lucrative tanker project. EADS has proposed modifying Airbus’ A330 passenger jet for refueling purposes.

In an interview with The Times this month, Crosby said it would now make sense economically for the Air Force to split the contract and buy tankers from both Boeing and EADS.

To try to make an Airbus tanker deal politically palatable, EADS has pledged to build a $600-million plant in the United States for final assembly work and to guarantee that at least half the parts would be made by American companies.

EADS also would try to team with a U.S. company in any tanker bid. Last week Lockheed Martin Corp. and Northrop Grumman Corp. said they would consider partnering with EADS, after initially balking.

The Pentagon is reviewing two studies about its aerial refueling requirements before deciding whether the tanker fleet requires new planes or simply refurbished aircraft.

At the moment, the Air Force pays Boeing about $100 million a year to maintain the aerial tankers, some of which were built during the Eisenhower administration. The modified 767s are used to refuel military fighter and transport planes.

Richard Aboulafia, an analyst with aviation research firm Teal Group Inc., believes that the Air Force may decide, for financial reasons, to refurbish the existing tanker fleet.

“It’s conceivable that the Air Force may decide it doesn’t need to replace the tankers with new planes,” he said.

One reason the Air Force wanted to lease some aerial tankers was to avoid having to take funds from its primary procurement budget. But Congress has rejected any leasing options, and the Air Force faces the prospect of siphoning money from prized procurement programs such as the F-22 fighter to pay for new tankers.

“I can’t see them taking $3 billion out of the procurement budget each year to start a new tanker program,” Aboulafia said. “That’s almost unimaginable.”

If there is tanker competition, analysts expect a new round of bidding to begin early next year.

Wolfowitz’s letter was sent Friday, the same day that Sen. John McCain (R-Ariz.), a chief critic of the tanker deal, railed against it in a 42-minute speech on the Senate floor.

Shortly after McCain made his speech, he and Warner asked for an investigation of all who had a role in awarding the Boeing contract, not just those who may have acted criminally.

McCain disclosed e-mails of retiring Air Force Secretary James G. Roche, who belittled critics of the deal, pressured Boeing to lobby harder for the contract and criticized EADS’ Crosby, a onetime colleague when they worked at Northrop.

The e-mails do not point to any criminal wrongdoing, said Keith Ashdown, vice president of Taxpayers for Common Sense, a Washington-based government watchdog group, but they show how senior Air Force officials seemed to have shown some bias while overseeing a $37-billion annual procurement budget.

“Roche and others acted irresponsibly,” Ashdown said. He said the Roche e-mails would make any new tanker competition “hyper-accountable,” noting: “It makes it more likely that there will be a real and not just paper competition.”

Boeing shares rose 20 cents to $53.97 on the New York Stock Exchange.