US sets stage for Boeing-Airbus tanker contest

WASHINGTON, Apr 15 (Reuters) The US Air Force has been cleared to resume a drive to phase out its Eisenhower-era aerial-refueling tankers, the Pentagon said, setting the stage for a multibillion-dollar transatlantic competition.

Chicago-based Boeing Co. and EADS, Europe's largest defense contractor, have been preparing to compete against each other to supply the tankers, used to refuel aircraft in flight.

EADS' North America unit has partnered with Northrop Grumman Corp., headquartered in Los Angeles, to offer a derivative of the Airbus 330 in a push for what could be the European company's biggest US defense contract yet.

The projected competition for the US tanker market has been a long time coming. In 2004, Congress killed a 23.5 billion dollar Air Force plan to lease and buy 100 modified Boeing 767s as tankers after Darleen Druyun, a former Air Force weapons buyer, admitted to inflating the deal before taking a 250,000 dollar-a-year job with Boeing. Druyun served a nine-month prison sentence for conflict-of-interest violations.

The Air Force got the green light to relaunch the process from Kenneth Krieg, undersecretary of defense for acquisition, after a two-year study by the non-profit RAND Corp. on ways to upgrade the US fleet of 531 KC-135 tankers.

RAND found there were a number of ''competitive, medium-to-large, commercial derivative aircraft that can fulfill'' Defense Department needs, a Pentagon memorandum said.

Both the RAND study and a September Air Force assessment said the department had sufficient time to structure ''a traditional competitive program to gain the best value for the taxpayer,'' although the KC-135 fleet averages 45 years old, the Pentagon said yesterday.

GEARING UP FOR COMPETITION Krieg signed an order late Thursday clearing the way for the Air Force to start a competition, said Cheryl Irwin, a Pentagon spokeswoman.

''Northrop Grumman is pleased to see the process moving forward and we welcome the opportunity to respond to the upcoming request for information and subsequent request for proposal,'' said Randy Belote, a company spokesman.

A spokesman for Boeing, the Pentagon's second-ranking supplier after Lockheed Martin Corp., did not respond to a request for comment.

The Air Force may now formally invite industry input, refine operational-capability requirements and develop a full-fledged acquisition strategy, the Pentagon memorandum said.

Air Force Secretary Michael Wynne has said he expects to invite bids as early as this fall.

Opening the competition to EADS is likely to anger some lawmakers. Last year, the House of Representatives Armed Services Committee voted in effect to shield Boeing by barring the acquisition of a major weapons system from a company accused by the United States of getting subsidies banned by the World Trade Organization.

The Senate, however, did not adopt a similar measure and the House initiative did not make it into law. In 2004, the United States filed a WTO case challenging French, German, British and Spanish government loans to Airbus.

Rand concluded that potentially suitable tankers could be derived from Airbus's A-330 and A-340 as well as from Boeing's 767, 787, 777 and 747 jetliners.

''A mixed fleet consisting of more than one of these alternative candidates also has comparable cost-effectiveness, so there is no reason to exclude a priori an Airbus-Boeing mixed buy on cost-effectiveness grounds,'' the study said.

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