Tanker fight to go on and on and on

The Pentagon is punting the awarding of a $35 billion contract to build refueling tankers to the next administration, handing Boeing a huge political victory and ensuring the long-running lobbying drama will continue through most of next year.

This is Boeing’s second victory in as many months over Northrop Grumman and EADS, Airbus’s parent company and Boeing’s rival in the commercial aircraft market. The two sides have vied for years to win the contract to replace the Air Force’s Eisenhower-era tankers.

{mosads}Boeing cheered Defense Secretary Robert Gates’s decision for a cooling-off period on Wednesday, while Northrop Grumman did not hide its dejection.

“We are extremely disappointed at the decision to terminate the current tanker competition,” said Randy Belote, Northrop’s vice president of communications. “Northrop Grumman entered this competition in good faith. While we understand [the decision], we are greatly concerned about the potential future implications for the defense acquisition process.”

Gates announced the decision in an early-morning news release that cited “mistakes and missteps” by the Defense Department.

“Over the past seven years the process has become enormously complex and emotional — in no small part because of mistakes and missteps along the way by the Department of Defense,” Gates said. “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.”

He said terminating the process would allow the next administration to craft a new acquisition strategy for the tanker. Gates added that the current fleet of refueling tankers could be maintained to satisfy Air Force missions for the near future.

The decision follows years of controversy surrounding the valuable contract.

After the Air Force awarded the contract to Northrop and EADS in February, Boeing launched an aggressive lobbying and public relations campaign that publicly criticized the Air Force’s decision. Boeing’s actions culminated in June with a successful protest of the contract with the Government Accountability Office.

That prompted the Pentagon to set up a new bidding process. But Boeing threatened to quit the competition if the Pentagon did not offer the company more time to prepare its bid. Boeing argued a draft request for bids issued earlier this summer by the Pentagon favored its rivals.

{mospagebreak}The tanker controversy has already spilled into the presidential elections. Some Democrats, particularly from Washington state, where Boeing has major operations, have blamed Sen. John McCain (R-Ariz.) for helping Northrop win the initial contract in February. McCain, the Republican presidential candidate, had led an investigation into a corrupt tanker lease deal between Boeing and the Air Force earlier this decade, which led to the imprisonment of a former Air Force officer and a Boeing official.

When the Air Force opened the competition for the multibillion-dollar contract, McCain sent letters insisting that Northrop Grumman and EADS should not be excluded from the competition because of subsidies European governments provide to Airbus.

McCain also faced tough questions this year after reports that some of his top advisers lobbied for EADS. His campaign at the time said those advisers never lobbied him on the tanker.

{mosads}McCain’s campaign did not answer a request for comment on Gates’s decision to cancel the tanker solicitation for now.

Democratic presidential candidate Sen. Barack Obama (D-Ill.) criticized the Air Force’s decision to award the contract to Northrop, questioning whether this would take jobs away from the U.S. and give them to Europe. Boeing’s headquarters are in Chicago.

Obama has said employing U.S. workers should be a priority in procurement decisions, particularly when enormous contracts for vital pieces of the U.S. military are at stake. As a result, it’s likely that an Obama Pentagon could impose stricter rules on the tanker’s U.S. content, and require an analysis of the impact on the national defense industrial base.

“Sen. Obama has consistently raised concerns about the tanker contract and long called for an independent review,” Wendy Morigi, an Obama spokeswoman, told The Hill in a statement on Wednesday.

“Today’s announcement is the latest indication that our defense acquisition process needs real reform,” she said. She added that as president, Obama’s review of the issue will put “our national security and the American taxpayer first.”

Boeing supporters on Capitol Hill hailed the Pentagon’s decision.

“This pause is a reality check on a procurement process that got very complicated and a little muddled,” said Sen. Patty Murray (D-Wash.), one of Boeing’s most aggressive supporters. “It gives the Pentagon enough time to work with our war fighters to meet their needs and get this done right.”

Rep. John Murtha (D-Pa.), the chairman of the House Appropriations Defense panel, also said Gates made the right decision.

“Our committee advised the Defense Department to ensure that there was enough time for legitimate competition,” Murtha said in a statement. “This decision will allow for that.”

But Sen. Richard Shelby (R-Ala.), whose state stood to gain if Northrop won the contract, blasted the decision.

“It is unacceptable that the Department of Defense would abdicate its responsibility to our men and women in uniform,” Shelby said in a release. “This misguided decision clearly places business interests above the interests of the war fighter.”

Northrop and EADS planned to assemble the tankers in Mobile, Ala., saying doing so would create hundreds of jobs in the region.

The Pentagon will have to pour more money into the upgrades and maintenance of its older tankers — the KC-135s. That could also prove a boon in business for Boeing, which builds those planes and currently holds the maintenance contract for those aircraft.