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Boeing Shocks With 'Clear' Tanker Win

UPDATES: Boeing Pledges 'On Time, On Budget;' EADS NA Says Boeing Pick "High Risk;"

Boeing continued its dominance of the U.S. airborne tanker business, winning  the $35 billion contract to build 179 KC-X tankers, one of the biggest defense contracts in the next decade. The award shocked experienced observers who had predicted a big win for EADS NA. Word came from a Pentagon email announcing the initial $3.5 billion contract.

Deputy Defense Secretary William Lynn, Pentagon procurement czar Ashton Carter, Air Force Secretary Mike Donley and Air Force Chief Gen. Norton Schwartz stood together in the Pentagon's briefing room, sending a clear signal of resolve and institutional commitment to the incredibly contentious contract award. Donley, flanked by Schwartz, made the official announcement.

A congressional source said Boeing was the "clear winner." Lynn repeated the mantra and told reporters during the press briefing "that I think what we can tell you is Boeing was the clear winner" when asked how close was the competition.

The difference between the two bids may have come down the difference in fuel consumption, speculated Loren Thompson, defense consultant and analyst at the Lexington Institute. "The Airbus plane burns over one ton more of fuel per flight hour than the Boeing plane. Multiply that by 40 years and that's a lot of money," Thompson said. Boeing has argued for some time that its fuel consumption rate would save taxpayers "tens of billions" of dollars over the life of the program.

Carter told reporters that the requirements this time were "absolutely clear from the warfighter" and he touted the award as a reflection of the Gates Pentagon's efforts to "deliver better value to the taxpayer."

Donley said the "award marks a long overdue start to a much needed program."

The award will raise questions among America's allies whether the Pentagon can open its door and make crucial contract awards to them. It will also provide a convincing argument to European governments when they oppose the U.S. when it presses for entry into their traditionally closely held foreign defense markets.

But representatives from both companies have privately acknowledged that today's contract announcment is just the beginning of what may be the toughest fight so far in the decade-old quest for a new airborne tanker.

And EADS signalled that within minutes of the contract announcement, saying in a statement that the Air Force had picked "a high-risk concept aircraft over the proven, more capable KC-45..." The company's board chairman, Ralph Crosby, said the company's review of the award "will take some time" given the program's complexity. In a clear signal to financial markets, CEO Sean O'Keefe said "it's important to remember that this is one business among many for EADS in the United States."

A Boeing statement from spokesman Bill Barksdale countered that, saying the newly-designated KC-46A tankers "will be built using a low-risk approach to manufacturing by a trained and experienced U.S. work force at existing Boeing facilities." And Jim Albaugh, president and CEO of Boeing Commercial Airplanes, made an important pledge that will be remembered and quoted throughout the program: "Boeing has always been committed to the integrity of the competitive process, and the men and women across our Boeing commercial and defense teams and our entire supplier network are ready to extend that commitment to delivering these tankers on time and on budget."

Meanwhile, the Pentagon is ready should the losing company present a bid protest to the Government Accountability Office.

“Let me say right off we have assumed there might be a protest,” Air Force Secretary Mike Donley said last week at the Air Force Association conference in Orlando. “We have taken a lot of care and extra time in our source selection process.” Donley, said “we certainly hope the offerors will not decide to protest but we recognize it is their right to do so.”

Congressional reaction was swift in coming.  “At a time when our economy is hurting and good-paying aerospace jobs are critical to our recovery, this decision is great news for the skilled workers of Everett and the thousands of suppliers across the country who will help build this critical tanker for our Air Force," said Washington Sen. Patty Murray. “This decision is a major victory for the American workers, the American aerospace industry and America’s military.   And it is consistent with the President’s own call to ‘out-innovate’ and ‘out-build’ the rest of the world. Even when competing against an illegally subsidized foreign competitor, Boeing’s skilled workforce proved that they have the know-how and the product that can best serve our military.  And it is finally time to get this Boeing tanker into the hands of our men and women in uniform."

The leaders of the House Armed Services Committee issued a temperate statement. "We look forward to receiving more information from the Air Force as we review their decision-making processes. The seapower and projection forces subcommittee will hold a hearing on this issue as soon as enough information is publicly available,” said the statement by Reps. Buck” McKeon, his ranking member Adam Smith, the chair of the seapower and projection forces subcommittee Todd Akin, and his ranking member. Mike McIntyre.

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