Boeing wins $35B Air Force tanker contract

[February 25, 2011]  SEATTLE (AP) -- Washington state and Kansas are celebrating a decision to award Boeing Co. a $35 billion contract to build nearly 200 airborne refueling tankers, one of the biggest defense contracts ever that will add tens of thousands of jobs to the struggling economy and bolster regional air industries for a generation.

But Thursday's announcement that the Air Force chose Chicago-based Boeing over a bid by European Aeronautic Defence and Space Co. drew deeply disappointing reactions in Europe, where the aircraft manufacturer promised to discuss the decision with the U.S. military.

It also came as a severe setback to the Gulf Coast and to Alabama, where EADS had planned to assemble its aircraft at a former military base in Mobile.

The contract to replace the half-century-old KC-135 tanker fleet is a major boost for the Puget Sound region and Wichita, Kan., where the planes will be built and modified.

But it came as a surprise to many after defense analysts, politicians, factory workers and even company executives had expected EADS to win the decade-long battle with Boeing, which had been marked by delays, missteps and bitter accusations.

So expecting the worst, there were no big rallies were planned in Washington state and union halls quiet on a day when snow buried much of the state.

Boeing machinist Jason Redrup was riding with friends in his car when he heard Rep. Norm Dicks, D-Wash., say Boeing had won.

"Frankly, I didn't believe it when he said it," Redrup said, adding that a companion told him, "Well, we better wait until we hear from the Air Force."

At Boeing's huge Everett factory where the planes are built, workers who had gathered around TVs and computer screens shook hands and high-fived at the news, said worker Steve Morrison.

"You could hear little blocks of cheers throughout the factory," he said. Outside, car horns blared during a shift change.

"I'm going to celebrate with my wife tonight," said Rashaud Emperado, a 767 inspector, adding: "I will be celebrating this weekend. This is not just one day."

Air Force Secretary Michael Donley said the contract "represents a long overdue start to a much-needed program."

"What we can tell you was that Boeing was a clear winner," Deputy Defense Secretary William Lynn said.

Lynn said the losing bidder can appeal, but he believes the process was fair and there will be no grounds for a protest.

EADS said in a statement Friday that it would go over the issue with the Air Force, but said nothing about a formal appeal.

"This is certainly a disappointing turn of events, and we look forward to discussing with the Air Force how it arrived at this conclusion," EADS North America Chairman Ralph D. Crosby, Jr. said.

The company said it was sending a letter to its employees explaining that the decision does not mean the end of EADS' efforts to expand in the United States.

German Foreign Minister Raider Bruederle said "we assume that the decision will now be analyzed closely by EADS North America and its American partners and that possible further steps and consequences will be considered in that." Bruederle did not elaborate.

Lawmakers from Alabama were bitter and suggested politics played a role.

"I'm disappointed but not surprised," Republican Sen. Richard Shelby said. "Only Chicago politics could tip the scales in favor of Boeing's inferior plane. EADS clearly offers the more capable aircraft."

Republican Rep. Jo Bonner vowed to get a full accounting of why the EADS bid was rejected.

"This competition has been challenged before and it's not unlikely it will be challenged again," Bonner said.

The tankers, basically flying gas stations, are crucial for the military, allowing jet fighters, supply planes and other aircraft to cover long distances. The last Boeing-built KC-135 was delivered in 1965, and the Air Force is struggling to keep them in flying shape.

Boeing has built 767-based tankers for Italy and Japan, but many components will be different in the U.S. version. As a result, production and the plane's first flight are not expected until 2015, said Jean Chamberlin, vice president and general manager of the tanker program.

Pentagon leaders said Boeing and EADS met all the mandatory requirements for the contract. Because the difference in price between the two bids was greater than 1 percent of the total, cost essentially was the deciding factor.

Dennis Muilenburg, president and CEO of Boeing's defense business, declined to say how much Boeing cut its anticipated profits with its final offer.

"Clearly we've been focused on affordability," he said, adding that Boeing will be able to make the plane more cheaply because it will use the same production line as its civilian version.

The award gives Boeing the initial $3.5 billion for engineering, manufacturing and development of the first four aircraft, with 18 planes to be delivered to the Air Force by 2017. The $35 billion contract for 179 planes could be a first installment on a $100 billion deal if the Air Force decides to buy more.

Boeing will have to move fast to get the plane ready, at a time when its commercial aircraft division is still trying to deliver the new 787 and a new version of the 747. The company is completing a new 767 assembly line in Everett to provide more room to make the long-delayed 787, but also in hopes of a contract win.

Boeing has 49 unfilled orders for 767s, the initial versions of which first flew in the early 1980s, and plans to be making two planes a month later this year.

The contract will support about 50,000 total U.S. jobs with Boeing and some 800 suppliers in more than 40 states, the company says. For Washington state alone, Boeing has said it would mean 11,000 jobs and $693 million in annual economic benefits.

It will bring 7,500 new jobs and an estimated $388 million to Kansas "at a time when the aviation industry and our nation needs them the most," said Sen. Pat Roberts, R-Kan.

"I'm in the middle of a blizzard but it's all blue skies," he said.

"This is good for America. This is good for our community. What more can we ask for?" said Wichita Mayor Carl Brewer, a former Boeing engineer.

Dicks called Thursday "the happiest day of my professional life."

Union leaders said the contract will mean long-term stability for aircraft workers. Redrup said it also means older workers will be able to pass along critical skills to a new generation. That knowledge, he said, "gives us a huge advantage."

Over the years, efforts to award the contract have been thwarted by Pentagon bungling and the criminal conviction of a top Defense Department official.

The Air Force at first planned to lease and buy Boeing planes for tankers, but that fell through. It later awarded a contract to Northrop Grumman Corp. and EADS, but in 2008 the Government Accountability Office upheld Boeing's protest.

The Air Force reopened bidding last year, only to be embarrassed again as it mistakenly gave Boeing and EADS sensitive information that contained each other's confidential bids.

Boeing promoted its "American-made" tanker, though both companies had planned to build their planes in the United States.

EADS, which bases its tanker on its Airbus A330 passenger jet, has 11 of its tankers in production and 28 more on order for countries including Australia and Britain.

The two companies have bickered over whether they received unfair subsidies from the governments in their home countries. Last month, the European Union said the World Trade Organization found U.S. aid to Boeing Co. violated international rules. Last year, the WTO ruled that trade rules were broken by Europe's "launch aid" to Airbus, including virtually risk-free loans as well as other support.

Boeing's share price jumped $2.44, or about 2.5 percent, to $73.20 on the news.

[Associated Press; By GEORGE TIBBITS]

Associated Press writers Donna Cassata, Lolita C. Baldor, Chris Rugaber and Ben Evans in Washington, D.C., Bob Johnson in Mobile, Ala., Josh Freed in Minneapolis, Roxana Hegeman in Wichita, Kan., and Molly Rosbach in Olympia, Wash., contributed to this report.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.