Huge win for Boeing

In a huge victory for Boeing, the Government Accountability Office (GAO) upheld its protest of the Air Force’s decision to award a $40 billion aerial tanker contract to archrivals Northrop Grumman and EADS North America.

The decision followed an unprecedented lobbying and public relations campaign by Boeing that criticized the Air Force.

{mosads}The tough tone risked alienating Air Force officials who will make future contract decisions, but on Wednesday Boeing basked in its victory. In a statement, it hailed the GAO ruling and said it looked forward to working with the Air Force “on next steps in this critical procurement for our war fighters.”

The GAO recommended that the Air Force reopen the bidding process for a contract to build refueling tankers, and also asked the service to reimburse Boeing for the cost of its protest.

“We also recommended that if Boeing’s proposal is ultimately selected for award, the Air Force should terminate the contract awarded to Northrop Grumman,” the GAO statement said.

The GAO recommendation all but ensures that lawmakers will put pressure on the Air Force to reopen the competition.

“The GAO’s decision in the tanker protest reveals serious errors in the Air Force’s handling of this critically important competition,” said Sen. Carl Levin (D-Mich.), chairman of the Senate Armed Services Committee. “We now need not only a new full, fair and open competition in compliance with the GAO recommendations, but also a thorough review of — and accountability for — the process that produced such a flawed result.”

{mosimage}By statute, the Air Force has 60 days to respond to the GAO’s recommendations. Though it is not bound by law to follow those recommendations, it is customary for the Pentagon to heed them.

The decision boosts efforts by Boeing’s vocal Hill supporters to use the 2009 defense authorization and appropriations bills to pressure the Air Force into awarding the contract to Boeing. Congress could do this in a number of ways, including by freezing funding for the Air Force program.

The decision also could have political implications. Democrats have criticized GOP presidential candidate Sen. John McCain (Ariz.), whom they insist pressured the Air Force against awarding the contract to Boeing.

McCain on Wednesday released a statement calling for the Air Force to “carefully consider” the GAO’s decisions and implement its recommendations as quickly and and to the fullest extent as possible.

“The GAO’s finding that the Air Force did not fairly apply its own rules in making its original award decision must be taken very seriously,” he said in a statement released after the Democratic National Committee called on him to insist that the Air Force re-open the bidding process.

Sen. Barack Obama’s (D-Ill.) campaign praised the GAO’s decision in a statement that did not mention McCain.

McCain pressured the Air Force to hold an open competition for the tanker contract after a corruption scandal involving Boeing, which had struck a deal to lease tankers to the Air Force. McCain was instrumental in highlighting the corruption and thwarting the deal.

Boeing’s supporters on the Hill have criticized the Air Force for granting the contract to a foreign firm, as EADS is the parent company of Airbus, Boeing’s chief rival in the commercial aircraft sector.

“The GAO’s announcement today reinforces my belief that buying these foreign-made aircraft is a bad move,” said Rep. Todd Akin (R-Mo.), a House defense authorizer who has a strong Boeing presence in his district.  “It is clear that there were major irregularities in the contracting process, which resulted in a flawed decision. There are also serious strategic issues with outsourcing our national defense instead of fostering a strong domestic defense industry.”

At the close of markets, Boeing’s stock was up 27 cents to $74.65, while Northrop Grumman’s had dropped by $1.08 to $70.01.

Lawmakers from Washington state, Kansas and Missouri — the states with the largest stake in a Boeing victory — trumpeted the GAO ruling.

“Today, the GAO sustained Boeing’s protest and confirmed what I have been saying for months — the Air Force’s tanker decision was fundamentally flawed,” said Sen. Patty Murray (D-Wash.), a veteran defense appropriator and Boeing’s strong supporter for the tankers.

Some called on the Air Force simply to award the contract to Boeing, while others suggested a full re-evaluation of the process. Murray said if the Air Force does neither within 60 days, Congress will force a legislative solution.

“The GAO has reprimanded them and told them to re-evaluate,” Murray said. “They need to do that. We’re expecting them to do that.”

The GAO said it was ruling in favor of Boeing’s protest because of “significant errors” by the Air Force that could have affected the outcome. GAO said those errors included the Air Force’s failure to assess the relative merits of the proposals in accordance with its own evaluation criteria. It also faulted the Air Force for conducting misleading and unequal discussions with Boeing.

The decision compounds problems for the Air Force; its secretary and chief of staff were forced to resign amid several flaps involving nuclear weapons as well as other disagreements with Secretary of Defense Robert Gates.

GAO’s recommendation will likely further delay a key military program already far behind schedule.

The Air Force has stated that replacing its tankers is its No. 1 priority.

Earlier this week, a Pentagon spokesman said any further delay in the renewal of its tanker fleet would be a “real problem.”

“This is the No. 1 acquisition priority of the Air Force; it is 10 years overdue; the average age of this fleet is 47 years old,” said Pentagon spokesman Geoff Morrell.

The Air Force issued a statement that it was reviewing GAO’s findings and recommendations and will determine a course of action “as soon as possible.” Northrop Grumman said it “respected” GAO’s work but continued to believe it offered “the most modern and capable tanker.”

J. Taylor Rushing contributed to this report.