Our Corporate Website has been updated for the week of August 19. Today we talk about--what else, these days--the USAF KC-X program.

With all the talk about the prospect of Boeing offering a tanker based on the 767-400 or 777-200F, we pull together thoughts about this and a table comparing the KC-135, KC-767AT, KC-30, a "KC-764," a KC-777 and the KC-10.

We also talk about the prospect of Boeing doing a "no-bid" in response to the Amended Draft RFP, or filing a protest against the Final RFP, which is expected this week. And there is more.

Byran Corliss of the business magazine Washington CEO (as in Washington State, not that "other Washington," as we say here on the West Coast) has a short commentary that is inflammatory to locals but absolutely true. He writes that Boeing doesn't need the tanker business. (Boeing has acknowledged that, financially, it would be small potatoes, but officials do want the business.) Corliss also comments on the current labor negotiations. Corliss used to cover Boeing for The Everett Herald before joining CEO.

In the meantime, Innovation Analysis Group/AirInsight has produced another podcast on the subject. This one features Amy Butler, the senior Pentagon correspondent for Aviation Week magazine, Addison Schonland and Scott Hamilton. Butler gives her on-the-spot observations about the prospect Boeing could no-bid this competition; the potential for a Boeing offering with a KC-777 or a "KC-764" (767-400);commentary about the Draft RFP, and more. This podcast is 24 minutes.

The Seattle Post Intelligencer has this column of interest, called "The tanker in mathematical terms."

Boeing is meeting with the Air Force Saturday to further discuss the Draft RFP, as detailed in this Bloomberg story. This means-obviously-the Final RFP won't be out today. The new FRFP timeline goal is next week, but we (and participants) think that's still ambitious.

Northrop's CEO Ron Sugar says Boeing "got what it wanted" out of the GAO protest, but is unhappy anyway. Here's this story.

Richard Aboulafia has this comment on "Back to Square One."

During the competition, Boeing often suggested the Northrop KC-30 was "gold plated." That is, yes, the plane carried more fuel, more troops and more cargo than the KC-767, but everything above the requirements set forth by the Air Force was mission creep, or gold plating. Therefore, we could not help but think of Boeing's position when we read this story. We think is aptly sums up Boeing's view about mission creep.

Update, 1145 AM PDT: We've been on the phone with reporters this morning discussing the tanker competition and what Boeing might do--the latter in the wake of the Aviation Week story that Boeing is considering adopting a no-bid position following the revised RFP that will give extra credit for extra fuel off-loading capability. We thought we'd recap our thoughts.

• First, we don't know what Boeing will do, but we think it will stick with the competition. We don't think Boeing will have come this far to simply fold its tent and go away. Boeing has nothing to lose (except the cash costs associated with the re-bid) and everything to gain, even if winning is a long shot.
• It's to Boeing's advantage to drag this out as long as possible, even if it loses. The longer Boeing can keep the contract from Northrop Grumman, the longer it stays out of EADS/Airbus hands. The longer the contract is denied Airbus, the longer before any US production facility is built. The longer no US production facility is built, the longer the pressure of the Euro-Dollar exchange rate hurts Airbus.
• The longer the contract is delayed, the more the likelihood the World Trade Organization rules on the US-Boeing complaint over so-called "illegal" subsidies to Airbus. Although this doesn't have a thing to do with the technical merits of the contract, an adverse ruling by the WTO (which is expected on at least some points) will become more political fodder for Boeing's supporters in Congress.
• The longer Boeing can draw this out, the better the chances in Congress. It's presumed the Democrats will increase their majority in Congress in the November elections; the new members take office in January. The labor unions associated with Boeing's bid are typically behind the Democrats, and the Ds are making the contract award to Northrop campaign issues for the presidency and in some critical Congressional races.
• From a stockholders' point of view (and we're one of them), Boeing is doing what it needs to do.

Update, 345 PM PDT: The Financial Times is reporting that Boeing is sticking in the competition, at least for now, after its meeting with the USAF. The FT reports that Boeing is continuing dialog with the Air Force to refine the Draft RFP for a final RFP. Here is the story, though a subscription may be required.

Reuters reports that Boeing remains "discouraged," however, in this story, citing defense analyst Loren Thompson.

Update, 800PM PDT: Business Week has this piece about Boeing staying in the competition, probably plans to ask the USAF to extend the timetable and some discussion about a "KC-777."

Update: 0840AM PDT: Boeing told us the Aviation Week piece is "news to us." Boeing (and Northrop) meet with the USAF Tuesday (Aug. 12) to review the Draft RFP. If Boeing has anything to say publicly, it won't be until Wednesday, we're told.

Update, 945AM PDT: The Pentagon has issued what amounts to a gag order on any statement by the USAF or DOD on the tanker competition. See the report here.

Here are a couple of stories that capture the flavor:

The Seattle Times

The Seattle Post-Intelligencer

Mobile Press-Register

The Wall Street Journal

Having incorrectly called the competition once--we thought Boeing would win and were stunned when Northrop did--we're going out on a limb and predict Northrop is the favorite this round. (In this we are not alone, but we weren't last time, either.) But we have a somewhat different view than the hand-wringers over the revised RFP.

The original RFP contained a delivery timeline sought by the Air Force that was not challenged by Boeing in its protest and which the GAO didn't address. And this timeline isn't changed in the new Draft RFP, either. And that is the Air Force wants the "prototypes" (our word) of the KC-45 delivered in 2009.

Northrop already has two KC-30 platforms flying and two more on the way. Granted, these must be converted into tanker configuration. But Boeing doesn't have a flyable airplane nor is it likely to be able to have the KC-767AT prototype ready next year.

This is because the "AT" is a combination of elements from the 767-200ER, the 767-300ER, the 767-400 and the 777. Deemed a "minor modification" by Boeing--and the "Frankentanker" by Northrop--the process of integrating the parts and producing the airplane most likely will take longer than 2009 once Boeing received a contract, if it did.

Boeing's track record with the KC-767s for Japan and Italy doesn't inspire confidence, and these are straight-forward conversions of the 767-200ER.

The delivery timeline outlined in the original RFP also argues now, as it did then, against Boeing offering a tanker based on the 777. This production line is already at capacity of seven a month and with a backlog of 358 at June 30 (the latest data available), that's slightly more than four years before Boeing could deliver a prototype KC-777, even if 100% of the research and development were done and ready to go into production--which it probably is not.

Let's remember that the re-compete is about eight points identified by the GAO, but there are other criteria involved. The desired delivery schedule is the main reason we think Northrop has the edge; Northrop has a plane ready to go now; Boeing's airplane is in the computer.

As the press conference begins, here is a running synopsis:

• USAF plan and process as we go forward to have a week or so to discuss the details with Boeing and Northrop. Each side will have face-time to discuss details.
• A final RFP will be issued in a month. Proposals due by about October 1.
• From October 1 will evaluate proposals and have discussions with offerors, plus face time with each.
• Plan to have award by year end and debrief offerors in January.
• We've provided the offerors very clear and unambiguous insight into the relative order of importance of keep performance parameters (KPP) and provided a matrix to fully understand priorities.
• There are different ways to give consideration to extra credit for exceeding KPPs.
• The warfighter has said life cycle is 40 years (vs 25) so cost evaluation will be on 40 years.
• The key change to the RFP is to highlight and to make very clear the relative importance to each capability. We made sure we are going to evaluate in terms of fuel offload that we will recognize value of offload in excess of KPP.
• We will look at fuel cost, and cost of government ownership over 40 years.
• The Pentagon gives positive consideration for fuel offload above threshold, but it appears that not for cargo and troop capabilities above threshold.
• We are very measured and very specific to respond to GAO, but otherwise views the changes to be minor.
• The USAF is playing a significant role in new RFP, as are other services, comprised of all new members, along with an independent review team to review what the Source Selection team does.
• We won't be using any models to determine 40-year life-cycle costs; we'll use real cost analysis.
• Jobs and industrial base are not part of the RFP process but these are part of the overall plan to determine whether the industrial base exists to build the plane. But these are not part of the technical evaluation.
• In general, the way we're evaluating life cycle cost in terms of importance is unchanged from one RFP to the other RFP. The acquisition cost is a separate issue.

End of conference.

Our immediate take:

Both sides got something in the rebid:

• Size gets extra credit for fuel offload, but because Northrop's KC-30 has greater capability, this feature seems to favor Northrop.
• The life cycle cost is extended from 25 to 40 years, and this would seem to favor Boeing's KC-767. We discussed both elements Tuesday in our Commentary on our Corporate Website.

It didn't take long for Boeing's advocates to look for bias, according to this CBS News report. They've been advocating including the 40 year life cycle but excluding the extra credit, a position we find just plain stupid. If you alter the RFP to allow one, then you need to allow the other.

The question is whether Boeing will protest the changes; officials said at Farnborough that they might because they felt any changes to the RFP should reset the process from scratch.

Here is the Draft RFP, Part 1. 27 pages.

Here is the Draft RFP Part 2. 96 pages.

Here is Northrop's statement. (No response yet from Boeing.)

Here is a Seattle Times report, quoting a spokesman for US Rep. Norm Dicks (D-Boeing) already whining about the new RFP. No mention of the 40 year life cycle element by Dicks' office, which he advocated.

Update, 4:10PM PDT: Washington State's other Boeing advocates are quoted in this article and this one, all complaining about the extra credit for extra fueling capabilities. The hypocrisy is palpable. Some of them are behind legislation in the US House that would all but require an award to Boeing rather than the "fair" competition they advocate, and all seemed to favor changing the RFP to a 40-year life cycle on the assumption that this will guarantee a win for Boeing. Yet they object to the extra credit change. These politicians, and those from Kansas who rival Washington, aren't remotely interested in competition and all their rhetoric to the contrary is political pablum.

Here's a CNBC recap.

This just in from Boeing:

Boeing has received the amended Request for Proposals (RFP) for the KC-X tanker competition. Given the very narrow window for commenting on this draft, our team is focused on identifying and understanding any changes that may have been made to the original requirements and evaluation criteria. We also need to see how the document addresses the strong concerns the Government Accountability Office identified in sustaining our protest.

Despite the fact that the first competition appropriately addressed the aircraft's intended mission, until we receive the final RFP it is too early to offer any details about Boeing's path forward.

Boeing remains committed to providing the most capable tanker to the warfighter and the best value for the American taxpayer.

No comment on whether Boeing will protest the DRFP.

Steve Trimble of Flight Global has a series of short items in his blog. Rather than linking each one, here's the link to his home page--select the individual tanker items as you will.

There is no getting around the fact that the competition is where it is today because of improprieties of the 2001-2004 tanker award. But Boeing's Jim McNerney, in one of his early acts as the new CEO, stepped up and authorized a fine of more than $600 million to settle this scandal and the Lockheed Martin trade secret theft case, and declined to take the tax deduction that was permissible because it wasn't the right thing to do. These two actions are one reason we continue to have great respect and regard for McNerney's leadership.

Thus, with Boeing having settled this matter, it should not be an "issue" in this competition, factual history notwithstanding.

We've often been critical of Boeing's PR, advertising and political lobbying campaign over the tanker competition. We've thought that the campaign was ill-advised and sometimes distorted and had no place in the competition. We've also repeated called on Boeing and Northrop Grumman to tone down the rhetoric or ideally stop altogether. This "Alabamians to Build American Tankers" is a new low in this entire competition.

The pro-Boeing site Tanker War Blogs has a good synopsis and has some information about who's behind this trash.

Perhaps not surprisingly facing a large contingent of Europe press, the questions were tough, or in the words of one American journalist we connected with late, "brutal." Maybe we're jaded (some will say we're insensitive, but we won't pursue this train of thought), but we thought it was just a "tough" press conference with the questions one would expect under the circumstances.

The questions focused on alleged protectionism on the part of Boeing in filing the protest (Boeing previously denied such and did again); whether it will protest a redefined request for proposal, as officials have previously suggested (not directly answered in the 45 minutes we were present, but Boeing takes the position that a redefined RFP ought to result in starting the process over from Square One [our term]); and so on, along these lines.

Boeing, at last, clarified how it comes up with its assertions that the KC-30 of Northrop Grumman, based on the Airbus A330-200, will require $44 billion in fuel more than the KC-767 over 40 years, based on $200/bbl oil.

It was detailed and, for those uninitiated in the ways of airplane economics, rather arcane. To put it succinctly, and very simplistically, Boeing's paid consultant makes the calculation based on what in the aviation industry is termed "trip costs." This means how much fuel is burned from engine start to engine stop. On this basis, including other calculations, Boeing's consultant arrives at his opinion.

Boeing points out, correctly, that the A330 uses more fuel than the 767. Countering Northrop's long-held rebuttal, and in answer to a question at the briefing, Boeing says comparing the passenger operations of the two airplanes isn't applicable because the Air Force isn't concerned with what is known as seat-mile costs. This is the cost of operations divided by the number of seats on board to arrive at a cost-per-seat.

For passenger operations, the A330, larger than the 767, burns more fuel but has more seats so the seat-mile cost is lower. For the Air Force, the dynamics are obviously different, so Boeing contends that trip mile costs should be the relevant yardstick.

Northrop responds (obviously not at the Boeing briefing, though) that the Air Force analysis based on intended operations concluded that the KC-30 is 6% more efficient.

There was a great deal more to the briefing, but we think you have the gist of it.

For a report on who Dave Bowman is and why he is now heading the tanker program, The Seattle Post-Intelligencer's James Wallace has this story. The story raises the prospect of Boeing offering a tanker based on the very long 767-400. We asked a similar question of Bowman, only why not the 767-300? This would still be a "medium" plane as defined by the Rand Corp. Analysis of Alternatives (the 777 is a "large" plane, under the Rand AOA), and it would be closer in size to the KC-30.

Bowman essentially said anything is possible, but in response to a question from Steve Trimble of Flight International, Bowman said to avoid a tail strike with the refueling boom on takeoff, a long take-off roll and a shallower rotation would be required, which would potentially not meet the runway performance requirement (7,000 ft) of the RFP.

Here are some of the stories to come out of the air show on the tanker:

International Herald Tribune;

Reuters, including some further reporting on the fuel burn issue;

Finally, The Mobile Press-Register's JD Crowe once again has a biting anti-Boeing cartoon on the tanker. Boeing needs to get a cartoonist to get equal time.

Update: For those keeping a running tally, through Wednesday Airbus is leading in announced orders, 241 to 201, but 100 of the Airbus airplanes were announced last November at the Dubai Air Show; the paperwork was finally signed at Farnborough.

Will CSeries launch be met with Boeing response?

Is the air show this week about cancellations or orders?

Boeing and Northrop optimistic about winning tanker recompete.

This and more from Monday at the Farnborough Air Show.

For those looking for insight from Airbus and Boeing during the first day of the Air Show, you'll have to wait for Airbus. Much to the puzzlement of observers (and Boeing), Airbus canceled its press briefing and rescheduled it to Thursday.

Why, people asked?

Does super salesman John Leahy have something up his sleeve to reveal Thursday that will blow Boeing out of the orders order?

Will Airbus surprise everyone and accelerate the successor to the A320, especially with CFM launching the successor to the CFM56, or with the P&W Geared Turbo Fan about to go onto the A340 test bed?

As it happens, we know--having found out Monday--but we were sworn to secrecy before we were told.

So with this hanging out there, here's a recap of Monday's news outside of the usual order announcements.

Will GE/CFM engine launch accelerate 737/A320 single aisle replacement?

The question was logical and posed to Boeing Commercial President Scott Carson during Monday's Boeing briefing. The new CFM LEAP-X engine has a target certification date of 2016; Boeing previously said it plans to have a successor to the 737 ready to enter service in 2020. Might Boeing move this up to coincide with CFM's date?

Alas, Carson was ambiguous--he said the CFM timeline was consistent with Boeing's timeline. Not by our math, but nobody followed up on the inconsistency.

We suspect Airbus will be asked the same question Thursday.

Will CSeries launch be met with Boeing response?

It doesn't appear Boeing will accelerate the 737 replacement to match the launch of the 110-149 seat CSeries by Bombardier. Carson noted that the CSeries EIS is 2014 and Boeing's 737 line is sold out to the same period. But he added that Boeing is becoming less enamored with the smaller airplane as fuel costs, increasing air traffic congestion and aviation taxes in Europe all argue for larger airplanes. Boeing's new 20 year forecast increases airplane size by about 10-15 seats, he said.

So how small is too small? Where will Boeing draw the line?

Carson didn't say, leaving open speculation that Boeing just might cede the below 150 seat market to Bombardier and its emerging competitors in Japan and elsewhere. In fact, Japan is looking at the 100-150 seat market, too, as reported by Flightblogger. Boeing has close ties to the Japanese aviation industry. Is there a behind-the-scenes connection?

Is the air show this week about cancellations or orders?

Carson began his briefing with the quip, "Is this week about cancellations or about orders?"

The signs are it's about orders, even if far fewer than at shows in the recent past. Boeing (and Airbus through the media day of its parent, EADS, on Saturday) said that there have been very few cancellations or deferrals and for those that happened, others moved in to take up the positions. Both companies said that lessors will be perhaps principal in acquiring airplanes and "financing" (ie, leasing) them to airlines that can't afford planes as the credit crunch spreads to aviation. Airbus's Leahy, at a press conference for the Etihad order, specifically named ILFC, GECAS and Aviation Capital Group, as lessors who will fill this bill with new airplanes.

Boeing and Northrop optimistic about winning tanker recompete.

Boeing, Northrop, EADS and Airbus are all optimistic they will win the USAF tanker recompete. Isn't this lovely? And not unexpected?

More

Flightblogger and Flight Global provide running coverage, as do other specialist media. (We only get to it at the end of the day.) The links on the right will connect you.

Tuesday's big event will be the 787 Program Update with program chief Pat Shanahan. There's also an environmental briefing from Boeing's enviro officer, Billy Glover.

Plus more order announcements; we won't cover these as a matter of routine--plenty of others will do that.

The story headlines the prospect that Boeing may protest proposed changes to the forthcoming RFP in the tanker recompete. The Defense Department said that it plans to give extra credit for size, which will favor the Northrop Grumman tanker proposal, in the eyes of Boeing and its supporters.

Some highlights:

• EADS CEO Louis Gallois said EADS, one year after implementation of the Power8 restructuring program began, has made progress in becoming a more integrated company with transparent reporting lines. Airbus CEO Thomas Enders acknowledged, however, that there are still nationalistic tendancies between French and German employees and divisions that need to be overcome.
• Enders said that 26% of the A350 supplier sourcing has now been assigned to the US, compared with 4% for the A320 family. This represents a major shift toward diversifying from European sourcing and more of the remaining 74% of the A350 supply chain that has yet to be sourced will be outside Europe.
• Gallois, Enders and EADS North America COO John Young (no relation to the Defense Department's chief procurement officer of the same name) are confident Northrop Grumman will win the recompete for the tanker. Collectively, they said only a few of the seven items of the protest filed by Boeing are centered on Northrop's KC-30 bid, which is based on the Airbus A330-200; the other items had to do with the USAF process and analysis. The EADS officials believe that Boeing won't offer a plane different than the KC-767AT that lost the competition. Young opined that the Air Force recompete decision could come as late as March instead of the end of the year, simply because the timeline outlined by the Defense Department is probably too aggressive.
• Gallois declined to predict dates when EADS and Airbus will meet certain Power8 milestones. "We have been too straight-forward with dates [later missed]," Gallois said. "I admire Boeing for never giving dates. They never give any information!" adding that the last remark was a joke.
• Gallois repeated the previously disclosed goal that EADS wants to evenly divide revenues between Airbus and defense-related business. Airbus currently comprises between 60%-65% of the revenues, down from 80% only a few years ago.
• Although Gallois dismissed the premise that Northrop may lose the tanker recompete, he said that would not lessen the EADS desire to broaden its "footprint" in the US as a means of reducing exposure to the weak US dollar to the Euro.
• Further justifying the push to diversify from Europe, Galloius said that 75% of the aerospace engineers are located outside Europe; and that access [to sales] in certain markets supports diversification, similar to Boeing's production and resesearch model.
• Enders, however, said it will be years before the EADS/Airbus employee head count drops below 50% in Europe--though he hastily added that this figure is not the goal. The European head count currently represents 95% of the company's employees.
• Enders acknowledged that Airbus is "fighting" and "struggling" with the transition from Wave 1 to Wave 2 for the A380. Wave 1 is the first two dozen or so A380s that have to be hand-wired following the production snafus that resulted in the bulk of the two year program delay. Wave 2 is the automated industrialization plan to install wiring. Slow progress recently resulted in an additonal delay of three to five months.

More reporting from the Farnborough Air Show will continue throughout the week.

Live Internet streaming coverage of the DOD press conference at 1pm EDT will be available on this Mobile TV station.

The Mobile Press Register has this blog item.

Breaking News, 845 AM PDT: We're told that there will be a quick evaluation of the GAO concerns and that an award will be made by January.

Additional, 855 AM PDT: John Young at DOD replaces USAF's Sue Payton as the Source Selection Authority.

Update, 1000 AM PDT: The press conference is about to begin. As we wait, here are a couple of take-aways from what we know at this time:

• The quick turn-around keeps the contract under the Bush Administration, rather than a potential Democratic Barack Obama White House or one under John McCain, a Boeing nemesis.
• By narrowly recompeting the contract based on the GAO findings--instead of a full, start-from-scratch recompete--Boeing is limited to sticking with the KC-767 rather than offering a tanker based on the 777.

The conference begins.

Robert Gates, Secretary of Defense, says that DOD will review all eight of the GAO protest items. John Young, as we reported earlier, becomes the new Source Selection Authority. A new advisory committee will be appointed to oversee the new process, and completion of the process will be by year-end.

The new Air Force chief noted that there is a need to rebuild confidence in the procurement process. He noted that the USAF successfully defended itself in more than 100 protest items, and therefore he does not conclude that the underlying procurement process is fatally flawed. However, with eight protest items being sustained, it is essential for the USAF to maintain confidence in the process.

Sue Payton and her team have been directed to be sure the USAF understands the GAO's actions to position the Air Force for future competitions.

The rebid will not take into account the "industrial base" (jobs) or the WTO subsidy dispute between Airbus, Boeing, the US and the European Union.

Gates notes that this is the third time "we've gone at this." He expressed confidence in the acquisitions team.

The press conference now takes a side trip to today's Iranian missile test.

Back to the tanker:

Undersecretary John Young, who now will oversee the recompete, said the objective is to expedite the review. There will be a new draft Request for Proposals limited to the GAO points, and Boeing and Northrop will have the opportunity to submit requests for changes before a final RFP is issued.

Northrop's contract is withdrawn for now, Young says.

Young says the oversight team that monitored the source selection was added during the process and did find things that were addressed during the competition, inferring that some issues arose before the oversight team was in place.

Young generally favors fly-offs, but in this case is not requiring it.

Young added that the December timeframe is a goal--meaning that, given the history of this procurement--the schedule may slip into next year. "We would seek to change the minimum number of requirements" in the new RFP, with the GAO findings and taxpayer costs paramount. Contractors may bring up other issues that could affect timing.

Young, significantly, clarified that Boeing may elect to offer a tanker based on the 777.

Government procurement mechanisms and laws don't allow DOD to consider the WTO dispute.

Young hopes to issue to issue the draft RFP in late July or early August and make selection by end of year. Working against having two prototypes in a fly-off in this case isn't required because these are derivatives of commercial airliners, and the best use of taxpayers' money is to proceed along the route of an RFP in this case. Also, doing a fly-off would require reducing the budget and acquisition from 12-18 tankers a year to as few as six.

Looking long-term, Young says that he wants competition for the KC-Y follow-on program with "aggressive pricing." He also said that in this rebid on the KC-X, perhaps Northrop and Boeing will sharpen their pricing even further.

Bottom Line:

We think it unlikely Boeing will offer only the 777, but it would be interesting to offer a mix of the KC-767 and KC-777. At the same time, since the USAF previously was clear that it wants to have only one airplane type for the KC-X competition, we believe that in the end Boeing will stick with the KC-767. That's where all the money has been invested and all the effort and analysis made. Furthermore, Boeing has spent years saying the KC-767 is "right sized," fits on the tarmac, is better for runway weights and so on. To change now would undermine everything that it has said up to this point.

It's worth remembering that the USAF wants a "medium" tanker. According to the Rand Corp. Analysis of Alternatives, the KC-767 and KC-30 are medium tankers; the 777 is a "large" tanker.

But the rebid doesn't mean that Boeing has any particular advantage. This is going to be a tough competition and, unfortunately, we expect more of the public and political campaigns (which we largely considered unseemly) to resurface. It would be nice if both sides would reign it in and just work with the USAF quietly.

Update, 300 PM PDT: Boeing had this to say about the DOD action:

"We welcome the decision by Defense Secretary Robert Gates not to proceed with the contract award to Northrop Grumman/EADS and to reopen the KC-X tanker competition. However, we remain concerned that a renewed Request for Proposals (RFP) may include changes that significantly alter the selection criteria as set forth in the original solicitation. As the Government Accountability Office reported in upholding our protest, we submitted the only proposal that fully met the mandatory criteria of the original RFP.

"We look forward to working with the new acquisition team as it reopens the competition, but we will also take time to understand the updated solicitation to determine the right path forward for the company.

"It's encouraging that the Defense Department intends to take steps to ensure a fair and open competition that, among other things, fully accounts for life-cycle costs, such as fuel, to provide the most capable tanker at the best value for the American taxpayer."

Northrop was more subdued:

"Northrop Grumman Corporation applauds Defense Secretary Gates and Under Secretary Young for recognizing that the acquisition of replacement refueling tankers for the Air Force should be put on a path toward quick closure. We are reviewing the decision to ensure the re-competition will provide both companies a fair opportunity to present the strengths of their proposals.

The United States Air Force has already picked the best tanker, and we are confident that it will do so again. Our men and women in uniform deserve nothing less.

The Northrop Grumman KC-45 tanker is needed now and is ready now."

Murray, along with Sen. Maria Cantwell (D-WA) and two other Senators, wrote Commerce on May 9 asking the Department to confirm--or debunk--Northrop's claim of 48,000 jobs. The Senators correctly noted that Northrop claimed 25,000 jobs prior to the February 29 contract announcement and upped this a few weeks later, after the award, to 48,000 jobs.

The question was indeed a fair one, and one that we raised as well in this column on our Corporate website. We questioned the nearly doubling of jobs creation as well as how Northrop's KC-30, with a stated US content of 58%, could generate more direct and indirect jobs than Boeing's KC-767, with a stated US content of 85%.

Northrop, in our report, explained itself--something that Boeing never did--until a liberal think tank did a 15 page study we linked to in a previous report on this website. The think tank interviewed Boeing but not Northrop and came to the conclusion that both Boeing and Northrop overstated the jobs creation but that Northrop did a greater job of overstating than did Boeing.

Of all the jobs data we've seen, we tend to believe the think tank's analysis more than any other, even if the report is open to criticism for failing to talk to Northrop.

That being said, Murray's gambit to have Commerce debunk Northrop's claim failed. Why is this significant? Because Murray has long challenged a 2003 Airbus claim that its US-sourced work supported 100,000 direct and indirect jobs. In 2003, Murray asked Commerce to verify the claim and, according to Murray, Commerce could not--inferring, if not outright suggesting, that Commerce studied the matter and could not confirm the Airbus claim.

The facts appear to be somewhat different.

In Murray's May 9 letter, she refers to her 2003 inquiry of Commerce. Commerce, in its reply, acknowledges the 2003 inquiry and writes:

"As the Department stated in its 2003 letter..., estimates of the total job impact require a variety of assumptions about the direct and indirect impacts of production performed in the United States. Predicting the full impact...is extremely complicated.... Therefore, the Department of Commerce is not in a position to investigate the assumptions...especially when those claims are made in connection with the award of a US government contract by another Department."

The correspondence between Murray and Commerce may be found here (Murray-Commerce), a three page PDF file.

This item published in American Spectator is another in a series of op-ed pieces originating with the Center for Security Policy, which bills itself as a non-partisan think tank. The Center has consistently opposed the Northrop Grumman KC-30 in the competition and the subsequent award. None of the op-ed pieces has disclosed previous ties to Boeing. According to the 2005-2006 Annual Report (published every two years, so the 2007-2008 report isn't out yet), a couple of Boeing officials served on the advisory boards to the Center. This taints the op-eds and the perceived independence of the Center. (Tanker War Blog is written by an employee of the Center, and while this blog doesn't disclose the Boeing connection in its "About Us," the blog has never made any pretense of objectivity.) The writings often have interesting and valid points--but the Center is not as independent as the image would have readers believe.

Human Events published this piece by former Gen. John Handy. Handy also supports the Boeing KC-767. It turns out that Handy's name appears in a series of e-mails in connection with the 2002-2004 tanker scandal. He was one of many internal Air Force recipients copied on correspondence. The emails emerged when Sen. John McCain, now the presumptive Republican nominee for president, was investigating the first procurement.

Alabama Sen. Richard Shelby (R-Northrop) moved to block a bill introduced by several Members of Congress who are closely tied to Boeing that would all but guarantee a contract to Boeing. This item in The Mobile Press-Register explains the issue.

This analysis in the same newspaper takes a broader look at the Air Force procurement process. The tanker wasn't the only example (in 2004 or 2008 ) of the Air Force muffing a procurement.

Update, 345PM PDT: Here's an update to the Reuters story with much more information. This story, in CQ Politics, takes a look at the GAO, its history of protests, and what makes for a successful protest. Buried in this piece by Seattle Post-Intelligencer columnist Bill Virgin are some thoughts about foreign ownership issues for the tanker obscuring more relevant issues--like which airplane is better.

Update, Wednesday, July 1, 700 AM PDT: We missed this item dated June 27 from Defense Tech; it's about a meeting between members of Congress, the GAO and the USAF over the tanker.

Flashback, February 29, 2008: Here's the transcript of the USAF announcement of the contract to Northrop Grumman.

A non-partisan tanker cartoon generates from our favorite tanker cartoonist, JD Crowe from The Mobile Press-Register. He gives us this one that even Boeing people can appreciate.

BE Aerospace, down 12.13%, $3.69 to $26.74

Spirit AeroSystems, down 8.63%, $2.04 to $21.60

Boeing: down 6.9%, $5.15 to $69.64.

and so on....

Interestingly, Northrop Grumman was up 1.62%, $1.12, to $70.37 despite the GAO report detailing the rationale and findings of the decision to uphold the Boeing protest.

Update, 1215 PM PDT: We've completed a quick read of the GAO decision. In it, the GAO found--as previously reported--for Boeing on a number of key elements. The GAO also rejected Boeing's protests on far more complaints than were sustained, but only a small number of these are discussed in the report. Some of these were key elements in Boeing's public relations campaign. But that's neither here nor there--the elements detailed by the GAO in sustaining the protest are enough.

The GAO report also makes it clear that in defending the decision, on occasion neither the Air Force nor Northrop Grumman provided information for the record that refuted Boeing's complaints--thus leading the GAO to side with Boeing.

It is clear from our reading of the report that a rebid, correcting deficiencies outlined in the GAO report, is indeed warranted. The news report we posted earlier today suggesting that the Air Force may proceed with the award as issued without a rebid is an unwise course of action.

Among the key points in the GAO report is the conclusion that Boeing's KC-767 did indeed score better than the KC-30 in the more important criteria identified in the USAF RFP, while the KC-30 outscored the KC-767 in criteria that was less important to the requirements of the aircraft. While the GAO sides with the Air Force that the KC-30 does offer "more" as the Air Force stated when announcing the award, the GAO concludes that the RFP doesn't allow for the extra credit that was awarded for this extra capability--yet this was the key to the USAF's decision announced on February 29.

The GAO also sides with Boeing about the "survivability" assertion that the KC-767 scored better. Furthermore, the GAO says the record calls into question the KC-30's ability to maneuver safely in emergency break-away situations, largely because neither the Air Force nor Northrop provided adequate documentation or analysis for the record to enable the GAO to conclude otherwise.

A fair reading of the GAO decision leaves room for no other conclusion: the USAF process was fatally flawed. A recompete is necessary.

We will be re-reading the report in greater detail and may update our report here in the coming days.

Update, 230 PM PDT: Teal Group analyst Richard Aboulafia opines on the tanker mess in his monthly newsletter. Catch it here: Our long national nightmare.

Top OSD Officials Think Tanker Deal Can Go Ahead

Senior Pentagon and Air Force officials who have read the full 67-page report about the tanker bid by the Government Accountability Office think they can still grant a contract before the end of the Bush Administration. John Young, the Pentagon’s acquisition czar, has reportedly drafted a letter for the four congressional committees that oversee defense spending and policy informing them of the Pentagon’s decision to go ahead and award the contract to Northrop Grumman.

There have been reports that the GAO ruling on the tanker contract could add two years or more to the contract award, something that has greatly concerned Air Force leaders eager to start building new tankers after almost a decade of trying.

"Their finding is that the full document is quite different from the summary," issued last Wednesday, said a source familiar with the issue. The source said Air Force leaders believe much of what was challenged is “procedural” and can be resolved without rebidding the deal.

The 69-page report is expected to become public today.

The GAO said in its summary that it found “a number of significant errors that could have affected the outcome of what was a close competition between Boeing and Northrop Grumman” and recommended that the bid be reopened. By law, the Air Force has 60 days to inform the GAO of how it will respond to the recommendations.

Any Air Force decision to press ahead with the contract award to Northrop Grumman is likely to spark outrage on Capitol Hill among supporters of Boeing, who include Rep. Norm Dicks (D-Wash.), the Nr. 2 member of the House Appropriations defense subcommittee, as well as Washington’s two senators and lawmakers from Kansas.

New, at 1035 AM PDT: The Hill has this article about the USAF and the tanker.

Meantime, fired Air Force Secretary Michael Wynne said the USAF "leaned over backwards" to be sure Northrop Grumman remained in the competition for the tanker. Here is the full story from Military.com.

The Wall Street Journal, a conservative newspaper now owned by right-winger Rupert Murdock, has this editorial on the tanker. It's tone is far more moderate than one would think would come from The Journal on the issue.

Government Executive opines that the Air Force might follow a quaint rule: Do as you say. You may read this piece here.

The media in Alabama reports that it's possible EADS, the parent of Airbus, might decide to proceed with a plan to move A330 freighter production to Mobile even if the USAF contract for the KC-30 is overturned in a rebid. Readers will recall that Airbus and EADS announced plans to assemble three or four A330-200Fs in Mobile, contingent upon the tanker award. Although the companies, and Northrop, profess confidence that the award will be sustained in a rebid, EADS and Airbus officials are considering what to do if it's not.

We're told there is a contingent in Airbus that thinks the company should go ahead and assemble the tankers in Mobile. This would help mitigate the dollar-Euro problem facing Airbus. But a new financial analysis is necessary for the capital costs and economics without the tanker before any decision can be made to proceed.

As readers know, we were in Washington, DC, when the GAO announced its decision upholding the Boeing protest of the award to Northrop Grumman. We've been told by a Boeing partisan of something that, if true, will create a procurement scandal if not quite equal to the illegal activities surrounding the first tanker award to Boeing in 2004 will at least rock the Air Force to its procurement core. This may or may not come out in the 69-page GAO report that is being sanitized for proprietary information before its release, perhaps as early as this week. If what we're told is true and it's not in the report, it should be, or certainly should become the subject of Congressional investigations of the thoroughness and aggressiveness undertaken by McCain following the Boeing tanker award in 2004.

If what we were told is true, not only was the process examined by the GAO flawed but it was outright subverted.

Meanwhile, fired Air Force Secretary Michael Wynne, on his last day in office, said a rebid is likely and suggested that a fly-off between Boeing and Northrop might be worthwhile. This Reuters story may be found here.

New, Monday, June 23, 1030 PDT: An interesting twist to the GAO decision. Readers will recall that we've previously mentioned that there was a "shadow group" looking over the shoulder of the Air Force the whole way during the evaluation process. It turns out that the GAO was a member of this shadow group. Now if one presumes that the role of the shadow group was to keep the USAF on track and not to simply look over the shoulder and not say anything or raise questions about whether there were irregularities, then one has to ask: just where was the GAO itself during this process? Perhaps the 69-page report will say.

New, Monday, June 23, 315 PM PDT: Loren Thompson has a fresh commentary on the tanker fiasco here.

New, Tuesday, June 24: Politico reports the Air Force is considering a KC-767/KC-30 flyoff. The Hill reports the Defense Department acquisition group may take over the rebid process from the Air Force in this report.

New, Tuesday, June 24, 945 AM PDT: Here's an amusing piece from the United Arab Emirates about the tanker program. It's amusing because it takes a shot at CNN's Lou Dobbs, a once-fine financial reporter who has gone off the deep end on anything not US. The piece also has some interesting facts in it.

In the meantime, JD Crowe, the cartoonist with the biting wit for The Mobile Press-Register, inked this one today:

The Press-Register's Washington reporter has this look at the current situation in the wake of the GAO protest.

We stated our position long ago: if Boeing lost the protest, it should accept the GAO decision. On the other hand, if the Air Force lost, then the service and Northrop should accept it.

This means the deal, in our view, should be rebid as recommended by the GAO.

As for what should happen, we've been clear about that for a long time: double the production and appropriation and split the order between Boeing and Northrop. Then everyone can get on with their lives and be put out of collective misery over this interminable saga.