Monday, August 25, 2008

Moving the Goalposts

Boeing has unveiled an interesting--but not unexpected--wrinkle in the tanker war with rival Northrop-Grumman. While claiming that the move is rooted in changing contract requirements, Boeing's tactics are politically motivated, aimed at delaying a decision until after the next administration takes office--and creating a more favorable selection environment for the Chicago-based defense giant.

Just days before the Pentagon was scheduled to release its final bids request for new air tankers, Boeing announced that it may pull out of the $35 billion competition, unless it receives more time to submit its new offer. A Boeing official also revealed that his company may file a protest on the final bids request, which could further delay a final decision.

Boeing spokesman Daniel Beck said his company needs more time to study the bids request and submit a new proposal because "the rules have changed." As he told the Associated Press:

“It’s very clear to us this is a new competition,” said Beck. “Clearly, the requirements have changed and the Defense Department is essentially asking for a different kind of plane from the first competition.”


Based on its review of the draft request for bids, Boeing said it’s clear the Air Force is looking for a larger-sized aircraft with greater cargo capacity and better fuel offload capabilities.

“If we don’t receive sufficient time to prepare a competitive proposal, there’s really little option for us than to no-bid in this competition,” said Beck.

The Chicago-based company contends it is not asking the Pentagon to change its requirements — just for additional time to put together a competitive offer. Boeing declined to specify what kind of changes it would make in a new bid, but said it is considering other types of commercial aircraft.

“We think we can meet these requirements if given the time to put together a proposal,” said Beck.

Beck's comments raise some interesting questions about how Boeing plans to proceed during the next round of the tanker competition. During the last round of bidding, Boeing offered a tanker version of its 767 jetliner, which is already provides inflight refueling for the air forces of Italy and Japan.

Boeing claimed that the 767 tanker was the "right size" for today's military, noting that the competing entry from Northrop-Grumman (based on the Airbus A330 airframe) had a substantially larger "footprint" and could not operate from forward airfields and military bases around the globe. Boeing engineers also noted that the bigger Airbus could not complete required "breakaway" maneuvers to prevent in-flight accidents, and the refueling boom on the A330 represents unproven technology.

But, reading between the lines of Mr. Beck's remarks, it sounds like Boeing may offer its own, larger refueling platform, based on the 777 wide-body jetliner, or (perhaps) the state-of-the-art 787 Dreamliner, which has yet to enter service. Both would offer fuel offload and cargo hauling capabilities similar to those of the A330.

Is Boeing prepared to scrap the 767 in favor of a more advanced design? Admittedly, there are vast similarities between a commercial jetliner and its tanker equivalent, but even with a requested, four-month extension, Boeing would be hard-pressed to submit a 777 or 787 design.

As we've observed in previous posts, the aerospace giant had an opportunity to offer a larger more advanced tanker in the last round of the competition, but took a pass. At that time, Boeing believed the Air Force would buy off on the 767 variant, allowing the defense contractor to keep the production line open for another four years, and build more than 100 additional airframes.

But when the dust settles--and final bids are submitted--we still believe the Boeing entry will be based on the venerable 767. So why ask for an additional four months to study the Air Force proposal and submit a revised bid?

The answer, of course, has little to do with engineering and everything to do with politics. Extending the deadline would push the next round of bidding into December, if not early 2009. By that time the Bush Administration will be history, and Boeing believes it will face more hospitable political conditions.

Lest we forget, key members of the Washington and Kansas political delegation have already lined up solidly behind Boeing, with some elected leaders already voicing support for the extension. Most of those lawmakers are Democrats--the same ones who expressed concerns about the "export" of U.S. jobs" when the last tanker contract was awarded to Northrop-Grumman.

Boeing is gambling that the Democrats gain even more seats in the fall elections, and that the next Congress will be less inclined to support a major defense contract for a firm with foreign ties. Never mind that the Northrop-Grumman entrant would create thousands of American jobs and final assembly would occur at a plant in Alabama. Or that Boeing also outsources some of its parts and manufacturing capabilities to overseas suppliers. Congressional Democrats--and their Republican allies--have already made it clear: they want the next generation of Air Force tanker to be designed and built in the United States.

Fairly or unfairly, the A330 has been pegged as a "foreign" aircraft, and that brings us to the other element of Boeing's strategy--a threat threat to pull out of the competition, unless an extension is granted. With Boeing out of the picture, the tanker project would become a "single source" contract, based on an airframe that was designed in Europe.

Boeing doesn't think that a Democratically-controlled Congress would accept that arrangement. By "moving the goalposts" and stretching out the selection process, Boeing hopes to climb into the acquisition cat-bird seat --with a little help from its friends in Congress. By the contractor's calculations, a tanker decision in 2009 would favor Boeing, and that's why the company is pushing for a delay.

Besides, if you think Boeing is prepared to walk away from a $35 billion deal--in a soft economy--we've got a bridge in Brooklyn you might be interested in. The defense contractor's threat to exit the competition is nothing more than another ploy.

Of course, Boeing's approach does nothing to satisfy the ultimate goal of the tanker program--get new refueling planes in the hands of war fighters as soon as possible. Indeed, more extensions and delays could postpone the decision until the middle of 2009, creating further delays in the production and delivery of new tanker aircraft.

At one time, the Air Force hoped to introduce its new refuelers in 2013. On the current pace, it seems likely that tanker units won't get their new planes until 2014 or 2015--at the earliest. In the interim, Eisenhower-era KC-135s will soldier on, despite advancing age and mechanical problems.

Many industry analysts believe the Pentagon will grant a slight reprieve to Boeing, but not the four-month delay the company is asking for. We're not sure that Boeing even deserves a modest extension. For years, the defense contractor has been telling us that the 767 is the ideal choice for our next tanker. Boeing needs to make that case in the next round of the competition, instead of fretting about "changing requirements."

Even the Pentagon understands that Boeing is only trying to delay the selection process and take advantage of the post-election political conditions--an environment that may be more favorable to Boeing. That's why DoD should stick by its guns and demand near-term submissions from Boeing and its rivals. Extensions in the bidding process are nothing more than a political ploy, an attempt by Boeing to "game" the process for its advantage.

Our Air Force tanker crews, the war fighters they support--and the American taxpayer--deserve better.

No comments: