Money, Politics At Center Stage In Air Force Tanker Race
(Why aren't hindenbergs coming back in style? Blimps are neat eh?)
By Rebecca Christie
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--The Pentagon asked the defense industry last week for information on new tankers, used tankers, borrowed tankers and even subsidized tankers.
Proposals for flying gas stations soon will come pouring in from Boeing Co. (BA), Northrop Grumman Corp. (NOC) and possibly Lockheed Martin Corp. (LMT). Airbus (ABI.YY) is on Northrop's team, and a few shipping companies may want a piece of the action.
But money and politics may play a bigger role than the military's technology wishlist. What can the Defense Department afford? How important are long-term costs compared to short-term savings?
And perhaps most importantly, what kind of process will Congress accept as a full and open competition? U.S. Sen. John McCain, R-Ariz., and possibly the next Senate Armed Services Committee chairman, has insisted that the service cast its net as widely as possible.
Responses to the information request are due June 9. The Air Force plan will seek bids over the next year, with an eye toward picking a winner in the summer of 2007.
If the Air Force decides to take a serious look at contract refuelers or a grab bag of recycled passenger jets, its tanker aspirations will have come nearly full circle. Service officials have been fixated on a conservative approach ever since a $23 billion plan to lease and buy Boeing tankers collapsed into a major procurement scandal.
Boeing supporters say the whole exercise has been a waste of taxpayer time and money. U.S. Rep. Norm Dicks, D-Wash., acknowledges that Boeing made a grave mistake in hiring former Air Force weapons buyer Darleen Druyun, who admitted breaking federal conflict of interest laws and served a nine-month prison term.
But he says new planes remain the best choice for the U.S. military. That means either Boeing or Northrop Grumman's Airbus, despite the alternative options on the table.
"All this studying, all this has been to placate one person. And we all know who that is," Dicks said at a press breakfast last week. "I hope he's placated, because we need to move forward on this important program."
McCain's persistent efforts to expand the tanker race have opened the door to a number of long-shot contenders. The Air Force's request for information asks about the possibilities of used planes, upgrading the existing KC-135 fleet, and also contract fueling services.
This would give companies like Lockheed Martin or FedEx Inc. (FDX) a possible entry. These firms could take a set of used passenger or freighter planes, convert them to tankers, and offer them to the Air Force for sale or rent.
Analysts said there are a few used planes that fit the bill and are available in large enough numbers to make conversions worthwhile. However, maintenance records would need to be scrutinized carefully and there would be the possibility of uncovering major age-related defects as work progressed, said Teal Group aircraft expert Richard Aboulafia.
Contract tanking services pose even thornier questions. The British government's efforts to set up a part-time tanker fleet have snagged because of concerns that sensitive defense technologies would be unguarded when the planes are off-duty.
Rand Corp.'s analysis of alternatives didn't rule out either used planes or contract services, although it cautioned that each option had drawbacks. The study said the Air Force could buy a handful of different types of tankers without making its fleet too complex.
"They're close enough that we can't exclude them. But we think you should look at it very hard," said Rand senior national security policy analyst John Stillion, who worked on the study.
Boeing says it will respond broadly to the Air Force's request. The company made the KC-135 and has extensive experience maintaining, repairing and overhauling it, said Jim Albaugh, head Boeing's defense unit, in a telephone interview.
The company also has studied the costs of converting its 777 jumbo jet into a tanker. And it has canvassed the used aircraft market to see what is available, Albaugh said.
"We've been doing trade studies for the past four years on tankers. We can easily address the information request by the Air Force," he said.
But Boeing's 767 already exists in tanker format, and the company says it has spent more than $1 billion in conversion so far. The 767 also already exists as a freighter, which could give it a leg up as the Air Force considers cargo roles for its new refuelers.
Airbus hasn't yet released a freighter version of the A330. But the plane is larger than the 767 and could carry considerably more pallets, if the Air Force decides extra cargo capacity is a top priority.
Northrop Grumman isn't considering used planes or other models of new aircraft, Chief Executive Ronald Sugar said in a telephone interview. He said the company is focused on the KC-30, as it has dubbed its offering, and its plans to expand U.S. production if selected.
"Over time it's going to come back to the time to really produce new aircraft and to totally recapitalize that part of the fleet," Sugar said. "That's where we're putting most of our attention."
European Aeronautic Defence and Space Co. (5730.FR), which owns 80% of Airbus, has pledged to open a U.S. assembly line if the Northrop Grumman-led bid wins. However, lawmakers and other may still raise eyebrows about the transatlantic implications of such a deal.
The U.S. has filed a trade complaint against the European Union for its practice of launch aid, or subsidized development loans, to Airbus from member countries. Trade concerns have been a bipartisan concern in the House of Representatives, which last year sought to ban the Pentagon from doing business with any company embroiled in a trade dispute.
The Air Force acknowledged these concerns in its request for information, asking about World Trade Organization sanctions and government subsidies. The measure could cut both ways - the European Union has accused Boeing of receiving improper tax breaks, research contracts, and supplier aid in countries like Japan and Italy.
U.S. Rep. Dicks, who represents a swath of Boeing workers, says the U.S. shouldn't embark on a long-term purchase plan to import aircraft and their major components. He predicted the tanker contest will come to resemble the ill-fated initial deal.
"I don't think we're going to get a used airplane. It's going to be either an Airbus or a Boeing aircraft and it'll be an off-the-shelf deal, which is the smartest way to do this," Dicks said. "Didn't we know it four years ago when Congress stepped in and said to do it just that way?"
-By Rebecca Christie, Dow Jones Newswires; 202-862-9243; rebecca.christie@dowjones.com
(END) Dow Jones Newswires
May 01, 2006 16:01 ET (20:01 GMT)
Copyright (c) 2006 Dow Jones & Company, Inc.- - 04 01 PM EDT 05-01-06 |
