WSJ reports on the Lobby War Boeing v. EADS and Northrop Grumman

Boeing to Protest Air-Force Tanker Award

By AUGUST COLE and J. LYNN LUNSFORDMarch 11, 2008; Page A3
Boeing Co. said it plans to protest the Air Force's decision to award a $40 billion contract for aerial refueling tankers to a team comprising Northrop Grumman Corp. and the parent company of rival Airbus.

The move sets up a protracted political fight over the use of foreign contractors for U.S. military jobs.

• Protest Planned: Boeing plans to file a protest over a $40 billion U.S. Air Force tanker contract won by Northrop Grumman Corp. and Airbus parent European Aeronautic Defence & Space Co.
• The Debate: The contract award has set off contentious debate over whether U.S. jobs will be sacrificed. Boeing said its team "found serious flaws" in the process.
• Biding Time: The Government Accountability Office has 100 days to review the protest, which could lead to a rebid.
Boeing said it will file a formal protest today for the first time this decade, asking the Government Accountability Office to review the Air Force's decision to give the contract to Northrop and European Aeronautic Defence & Space Co. (See related article.)
"Our team has taken a very close look at the tanker decision and found serious flaws in the process that we believe warrant appeal," said Boeing Chairman and Chief Executive Jim McNerney in a statement. "This is an extraordinary step rarely taken by our company and one we take very seriously."
The decision to go with a European-designed Airbus A330 jet, rather than Boeing's 767 model, has set off a contentious debate over whether U.S. jobs will be sacrificed as a result. Boeing's supporters in Congress have gone on the attack against the Air Force decision.
Some Boeing backers have even suggested that the situation could hurt Republican presidential candidate John McCain, whose investigation of a previous tanker deal scuttled a contract award to Boeing and forced rebidding of the contract.
At the same time, the protest is a risky move for Boeing because it could delay delivery of tankers that an important customer -- the Air Force -- says it badly needs. Tankers are vital to the Air Force's ability to move materiel and troops during wartime, and for refueling warplanes striking targets far from home. The tanker program is the No. 1 weapons-buying priority for the service, officials have said.
The Government Accountability Office takes as long as 100 days to review the objections under a company's protest and issue a report. The GAO's findings have sometimes resulted in rebids. That was the case in a $10 billion Air Force search-and-rescue helicopter contract that was twice protested by Lockheed Martin Corp. and United Technologies Corp., parent of Sikorsky, after Boeing won it in 2006. A winner is expected this fall.
Boeing said it spent three days reviewing the Air Force's decision following a briefing it received from military officials Friday. Boeing said a "rigorous analysis" led it to conclude that a protest was warranted. "Based upon what we have seen, we continue to believe we submitted the most-capable, lowest-risk, lowest most-probable-life-cycle cost airplane as measured against the Air Force's request for proposal," Mr. McNerney said.
Northrop said in a statement late yesterday that the competition was the "most rigorous, fair and transparent acquisition process in Defense Department history" and that it wouldn't comment further until it learned more details about Boeing's planned protest.
The Air Force also declined to comment before seeing the official paperwork. Earlier in the day, an Air Force spokeswoman said the contract process was "fair and transparent."
Admiral Michael Mullen, the chairman of the Joint Chiefs of Staff, said that while the tanker contract was "not going to be the first contract I've seen protested," he is concerned about the potential delay in getting the planes into service. "I would hope that we could get through this as rapidly as possible," he said. "I need those tankers. That's a real military capability that I've got to have."
Boeing declined last night to provide specific details about its planned protest. However, it hinted at some of its concerns yesterday afternoon in an update it released prior to the decision to pursue an appeal.
Northrop Grumman via Associated Press
The first KC-45A aerial refueling tanker taking off.
Citing its Friday briefing with the Air Force, Boeing said it believes it fared well under the Air Force's five main criteria to evaluate bids. For example, Boeing said it received a top rating for its aircraft's "mission capability," the No. 1 factor, and said it scored very similarly in other areas to the Northrop offering. The company said subjective assessments and changes to an important analytical model contributed to the loss.
"We have serious concerns over inconsistency in requirements, cost factors and treatment of our commercial data," said Mark McGraw, the head of Boeing's tanker effort, in the statement.
In particular, Boeing said the Air Force had sought in-depth cost information on the company's modified 767 tanker offering, which is the product of work by the company's commercial and military divisions. This posed a challenge as the level of detail needed for the government's cost analysis was more than what the commercial side could offer. Boeing said the Air Force was satisfied with the data, though they were less extensive than the government expects under military contracting.
Boeing also said the Air Force made changes in its model that allowed a bigger plane to stay in the competition.
Northrop, based in Los Angeles, countered that its offering won because of its cost, past performance on other contracts, the airplane's capabilities beyond refueling and how the plane fared using a complex model assessing the plane's performance on military missions. The debriefing was "rigorous and deliberative," Northrop said. Air Force officials walked Northrop executives through their proposal yesterday to explain why it won.
Sen. Patty Murray (D., Wash.) applauded Boeing's decision, saying: "The Air Force's shortsighted decision to place the future of America's aerospace industry and national security in the hands of an illegally subsidized foreign competitor is simply wrong for America."
Alabama Sen. Richard Shelby, whose state will have the first Airbus assembly facility in the U.S., said lawmakers should hold back from interfering in the process now. "Though I am sure there will be a great deal of rhetoric following Boeing's official protest, I firmly believe that we should follow standard contracting protocol and keep the Congress out of the procurement business," he said.
The Air Force's attempt to run an unusually transparent contracting process for the tanker was in part a result of a $23 billion contract in 2003 to lease at least 100 Boeing tankers. That lease deal failed after illegal job negotiations surfaced between an Air Force acquisitions official who oversaw Boeing contracts and a senior Boeing executive. The official, Darleen Druyun, and Boeing's former chief financial officer, Michael Sears, served time in federal prison.
--Yochi Dreazen contributed to this article.
Write to August Cole at august.cole@dowjones.com and J. Lynn Lunsford at lynn.lunsford@wsj.com