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FLASH: NO Tanker RFP Til Next Admin

UPDATED ADDS congressional comments and analysis of 777 bid.

Defense Secretary Robert Gates, clearly worried that the atmosphere is so poisoned by the battle between Boeing and Northrop and tainted by the poor performance of the Air Force, has decided to punt and leave any tanker RFP to the next administration.

"Rather than hand the next Administration an incomplete and possibly contested process, Secretary Gates decided that the best course of action is to provide the next Administration with full flexibility regarding the requirements, evaluation criteria and the appropriate allocation of defense budget to this mission," the Pentagon release said this morning..

The release quoted Gates, saying that "It is my judgment that in the time remaining to us, we can no longer complete a competition that would be viewed as fair and objective in this highly charged environment. The resulting 'cooling off' period will allow the next Administration to review objectively the military requirements and craft a new acquisition strategy for the KC-X.”

The first congressional reactions were positive. One of the Capitol's most important money men, Rep. John Murtha (D-Penn.) said, "I believe that Secretary Gates made the right decision in providing the next Administration with the opportunity to review the requirements and proceed with a new solicitation. Our committee advised the Defense Department to ensure that there was enough time for legitimate competition. This decision will allow for that." Murtha signalled pretty clearly that the House Appropriations defense subcommittee would come up with whatever money might be needed to keep the tankers flying. "Now our job will be to work with the Department to make certain that our current tankers, that are over 40 years old, will be rehabilitated to ensure we have tankers available for world-wide Air Force missions,” he added.

One of Boeing's staunchest supporters, Sen. Maria Cantwell (D-Wash.) issued a nice rhetorical example.

“A restart is better than a false start and a false start is where the Air Force was headed. Hopefully, a new start will be a fair process to fully understand the requirements and give contractors the proper time to bid," she said in a statement.

It included an interesting reference to the pending nomination of Michael Donley to be Air Force secretary. "I will continue to push the Air Force and the Defense Department, by maintaining my hold on the nomination of Air Force Secretary Donley, to make sure there is a fair, open and transparent process as it relates to requirements and the RFP bid process."

The Pentagon decision was made on the basis that "the current KC-135 fleet can be adequately maintained to satisfy Air Force missions for the near future," according to the release. It added that the next budget "to maintain the KC-135 at high-mission capable rates. In addition, the Department will recommend to the Congress the disposition of the pending FY09 funding for the tanker program and plans to continue funding the KC-X program in the FY10 to FY15 budget presently under review."

Before it became clear just what the Pentagon's recommendation was this morning, I heard from a congressional source says that the House and Senate defense committees were being briefed about the new tanker RFP this morning. A Boeing supporter, this aide warned that it better include at least a six month extension to allow Boeing to submit a 777 bid.

"If the RFP stipulates that DoD will not allow the competitors to have adequate time to prepare a new proposal based on the new specifications (Boeing CEO told Dep. Sec. England that the company would need minimum of 6 months to submit a proposal based on a larger 767 or a 777), the department would essentially be announcing that it is intending to conduct a sole-source procurement.  Two years ago you recall that DoD bent over backwards (issuing three draft RFPs) to assure that there was competition," this aide said.

It looks like he effectively got his wish. But since Boeing has said it needs more time to bid the 777, let's look at what a 777 bid might mean.

The 777, an exemplary commercial airplane with larger capacity and greater efficiency than the 767, would appear to better match some of the Pentagon's needs and desires by offering greater fuel and passenger capacity, as well as a more modern airframe and power plant. But the 777 comes with a lot of baggage. Richard Aboulafia, one of the country's top aviation industry experts, told me from the beach in North Carolina that there are four major issues that make the 777 a questionable choice for a tanker.

First off,  "it takes a very long time to create a tanker version of a passenger plane. It would take them six months just to get them started," he said.

Second is acquisition costs. "A 777 F is about 45 percent heavier than a 330-200 That's a lot of plane. It would be a very tough sell," Aboulafia said. And Boeing would find it extremely difficult to offer any discounts on the 777 pricing because "the order book is full." Boeing is already building seven planes per month, which is pretty much the capacity. The company has done an exercise showing that it could build 10 planes a month, Aboulafia said, but that would be difficult to sustain.

The good news is that, by the time that tankers were actually heading to production, Aboulafia believes demand would be slackening in the commercial market and the company could clear space on the line for the tankers.

Then there are life cycle cost issues. The 777 would be "considerably more expensive" to maintain, which is ironic given the GAO finding that the Air Force goofed on the life cycle costs of the Northrop offering, leading Boeing to hammer away at the long term costs of the Airbus plane. But the 777 would raise exacly the same questions about air field access and use of existing facilities, Aboulafia said.

When you boil all of this down, Aboulafia said he believes Boeing's "strategy might be to just stall until politics get better," adding there is a better than even chance the company will eventually drop the bid unless Congress mandates a split buy.

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