Tanker Truths

27 Mar 2008
Media reports U.S. Air Force asks GAO to throw out most of Boeing's challenge
While Boeing continues to allege that Northrop Grumman's win of a contract to build America's next generation of aerial refueling tankers should be overturned because the bidding process was flawed, there is one significant question Boeing can't answer: If it didn't like the bidding process, why didn't it complain before the Air Force made its decision?

As The Wall Street Journal, The Associated Press, Reuters and Bloomberg are reporting today, the Air Force has asked the Government Accountability Office to throw out most of Boeing's challenge to the Air Force decision. Northrop Grumman has taken similar action.

Significant elements of Boeing's complaint pertain to matters that Boeing should have complained about BEFORE filing its proposal. Boeing did not complain, and repeatedly praised the process as fair. Only after the company lost fair and square did it suddenly decide there was something wrong.

The news stories also unfortunately include a number of the material misstatements that Boeing has been making as part of its misinformation campaign to get the contract overturned. This sets the record straight on Boeing's factual errors.

Allegation: Mark McGraw, the head of Boeing's tanker program, tells Bloomberg that the Air Force made changes in contracting criteria "to keep Northrop in the competition." FACT: As the Air Force made clear in announcing Northrop Grumman's victory on February 29, the bidding process was unusually open, transparent and rigorous; Air Force officials made clear that day that they were in constant contact with both Northrop Grumman and Boeing to let each company know what it was looking for in a new tanker. Boeing did not protest the contracting criteria during the bidding process, when objections typically are raised. And McGraw himself was repeatedly quoted praising the bidding process while it was going on, saying, for example, in April 2007 that "we continue to have confidence that the Air Force is going to continue running a fair and open competition." McGraw's comments were echoed by another person now critical of the deal, Sen. Patty Murray, a Washington Democrat. In October, 2007, Senator Murray had this to say: "I'm proud that the process for selecting a company to supply these tankers has been a truly open one."

Allegation: According to The Wall Street Journal's summary of Boeing's complaint, the Air Force erred in selecting Northrop Grumman because it "offered an illusory cost benefit fueled by (Northrop Grumman's European partner) EADS' reliance upon illegal foreign subsidies." FACT: EADS received NO subsidies for this contract. Instead, the company received loans, which were repaid in full, with interest, in 2007. In addition, those loans have always been clearly stated in the company's publicly-available financial records. The Air Force, meanwhile, concluded that Northrop Grumman offered a plane with greater flexibility and superior value at a lower cost.

Allegation: According to Bloomberg, Boeing spent three days deliberating what it called "significant concerns" over the bidding process before filing the complaint. FACT: As the Air Force has made clear, it was in constant contact with both companies about what it wanted in a new tanker. Perhaps that's why Jon Kutler, a defense industry analyst at the Los Angeles-based Admiralty Partners investment firm, told the news service that he doesn't believe Boeing's challenge has much chance of success. Kutler said the Air Force "dotted every "i' and crossed every 't' because they knew how politically charged the whole thing would be."

Meanwhile, The Witchita Eagle runs an opinion piece today by defense industry analyst Richard Aboulafia that, while correctly noting that Northrop Grumman submitted a bid that was superior on "aircraft capability, cost and risk," nonetheless repeats some of Boeing's erroneous claims about the contract. This corrects those misstatements.

Aboulafia writes that one of the prevailing views of the contract decision is "the selection process was politicized, with the criteria weighted – or miscommunicated – to Boeing's disadvantage."

Again, the Air Force made clear it had multiple contacts both with Boeing and with Northrop Grumman, telling each company what its selection criteria was. This unusually thorough and open process leaves no room for surprise for either company.

Aboulafia also notes that the continuing dispute over the contract – generated entirely by Boeing – means "the implications for the Air Force are not good. Politicizing defense contracts is a great way to hurt a military service."

"Boeing's protest faces a long fight," Aboulafia concludes.

While the Air Force has made clear that Northrop Grumman offered a superior plane at better value for taxpayers, Sens. Patty Murray and Maria Cantwell, both Washington Democrats, have been trying to convince home-state newspapers that in-state Boeing's offer was superior, primarily by criticizing Northrop Grumman's plane. Murray and Cantwell are having trouble getting their argument off the ground.

The Tacoma News Tribune writes today, "One problem with such concerns is they seem to assume the Air Force has some interest in putting their pilots and planes at risk," the paper wrote. "That's hard for us to believe."

To read the Tacoma News Tribune blog editorial, go to:
http://blogs.thenewstribune.com/oped/2008/03/25/
murray_and_cantwell_on_tanker_contract

To read Aboulafia's entire column, go to:
http://www.kansas.com/business/perspectives/story/353388.html

To read the Bloomberg story, go to:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=awYlM5tlu4Jc

To read the entire Reuters report, go to:
http://www.reuters.com/article/marketsnews/idUSWAT00919320080326

To read the entire Wall Street Journal report, go to
http://online.wsj.com/article/SB120656634052666509.html?mod=
googlenews_wsj

To read the entire AP report, go to: http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=
AP&date=20080326&id=8389611

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