After a long delay sparked by a protest from the losing bidder, the US airplane manufacturer Boeing, The Pentagon announced it was cancelling a USD 35 billion contract that had been awarded to the team of the European company EADS and American Northrop Grumman. It was to build the next generation of US Air Force tanker refuelers.

The Defence Department notified Congress of the plans to scrap the competition after Defence Secretary Robert Gates determined it was too politically charged and cannot be completed before President George W Bush’s administration ends in January. Gates issued a statement acknowledging the Pentagon’s mistakes in managing the lengthy competition that was thrown into disarray in June, when a congressional oversight agency upheld a Boeing protest and ruled the Air Force erred in awarding the contract to Northrop- EADS. The next administration will be better suited to handle the contract objectively, Gates said. “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.
The congressional Government Accountability Office (GAO) in June concluded the Pentagon should start a new competition after determining the Boeing proposal was not fairly reviewed when the contract was awarded. In July, Gates announced he had accepted the GAO’s findings and would rehold the competition to build the 179 KC-X tankers. The contract was the first of three that when combined could reach a value of USD 100 billion over 30 years. The contract was the focus of intense political scrutiny from members of Congress who opposed handing the contract to a European firm at a time when the US economy was struggling.
Congressional battle lines were drawn between members whose districts would have benefited from a Boeing award and those aligned with Northrop-EADS. EADS planned on building a factory in Alabama to assemble the aircraft from components manufactured in Europe. “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,” Gates said. “The resulting ‘cooling off’ period will allow the next administration to review objectively the military requirements and craft a new acquisition strategy for the KC-X,” he said. EADS officials said they were disappointed. “We have a contract and we are striving for an appropriate fulfillment of this contract,” EADS chief Louis Gallois said of his company’s plans to deliver a KC-45 tanker he said was the better version.
Saying that EADS had not been given any detailed information from the US Air Force or Northrop-Grumman, Gallois said the contract for the planes was still valid and should be fulfilled. The EADS chairman said the announcement by the Pentagon would not have any ramifications on the company’s operating result because the contract was not included in the planning. Gates had originally planned to announce a new winner in December through an expedited process to replace the Air Force’s aging fleet of KC-135 refuelers, which has been a top priority for the Pentagon. Boeing had reportedly complained the timeframe was too short for submitting a new proposal. Northrop spokesman Randy Belote said his firm was “extremely disappointed” by the cancellation.
The average age of the refueling flight is approaching 50 years in some cases. “With this delay, it is conceivable that our warfighters will be forced to fly tankers as old as 80 years of age” before the new planes are ready, Belote said. “Northrop Grumman entered this competition in good faith and proposed the most modern, most capable tanker available, at the best value to the American taxpayer.” Boeing welcomed the decision, saying it provides more time to ensure the Air Force receives the best possible plane. “This will assure delivery of the right tanker to the Air Force and serve the best interests of the American taxpayer,” Boeing said. The GAO ruled the Air Force overlooked key aspects of the Boeing proposal that could have tilted the contract in the aerospace giant’s direction, and failed to inform Boeing it was interested in a larger plane before selecting the Northrop-EADS bid.
While the GAO decision was not binding, a failure by the Pentagon to embrace the decision could have brought fresh scrutiny from congressional lawmakers who control the defence budget. The GAO auditors found Boeing offered to meet more nonmandatory requirements than Northrop and that the Boeing version could have come at a cheaper price over the life cycle of the programme. EADS is the parent company of Boeing rival Airbus, the chief rival to Boeing in producing commercial airliners as well.