UPDATE 3-Boeing may offer US Air Force two tankers

Published: 25 Sep 2009 10:04:14 PST

* Boeing considers offering versions of both 767 and 777

* Northrop Grumman defers comment on its plans

* Air Force publishes detailed draft bidding rules

* Senior official: may be worth up to $50 bln (Recasts lead; adds comments from Pentagon briefing, further analyst comment)

WASHINGTON, Sept 25 - Boeing Co said it might offer a choice of its aircraft against a rival Airbus model in a renewed trans-Atlantic tussle to build a multibillion-dollar refueling fleet for the U.S. Air Force.

The Chicago-based aerospace giant said on Friday it was deciding whether to stick with its modified 767 tanker, which lost a previous, canceled competition to an Airbus A330 model, or go with a larger 777-based tanker -- or offer both.

Boeing is vying against a partnership of Northrop Grumman Corp and Europe's EADS, parent of Airbus. The Air Force and the Defense Department jointly spelled out on Thursday how the winner of the deal would be picked. ID:nN24469923

The detailed draft bidding rules were published Friday by the Air Force for a contest now said by a senior military official to be potentially worth as much as $50 billion.

"We want to understand how requirements will be defined and prioritized and how the proposals will be evaluated," William Barksdale, a Boeing spokesman, said in a statement. "That information will help us decide which plane to offer or whether to offer both planes."

Northrop Grumman, prime contractor for the rival team, is deferring public comment until it has completed a review of the draft request for proposal, said Randy Belote, a company spokesman.

The companies have 60 days to comment on the draft before final bidding specifications are released.

The Air Force plans to award a contract by the end of June, for an initial batch of 179 tankers, which refuel other planes in mid-air. The new aircraft would replace KC-135 tankers with an average age of 50 years.

The plan calls for delivery of tankers to start in 2015, with the first ones to be operational in 2017. Two successive competitions would take place in the decades to come to complete a fleet renewal expected to cost more than $100 billion for up to 600 new tankers.

A year ago, the Pentagon scrapped a tanker deal awarded to Northrop and EADS after the U.S. Government Accountability Office, the audit arm of Congress, upheld a protest by Boeing. The GAO found the Air Force failed to follow its own rules in evaluating the bids.

AIRCRAFT SIZE

Air Force Secretary Michael Donley told a Pentagon briefing Thursday he expected the new deal to be worth about $35 billion over the next 15 years, the estimated value of the previous, botched, award.

A senior military official, at a Pentagon background briefing Friday on the draft solicitation, estimated the program could be worth as much as $50 billion.

Asked about the possibility of a choice of Boeing aircraft, a senior defense official told reporters the bidders were free to make offers.

"They will need to make their own decision about ... what airplane they want to offer and whether they want to offer more than one airplane," this official said on condition that he not be identified by name.

He repeated the Pentagon position that it would be much more costly to buy two types of refueling aircraft, citing the cost of twin development programs and maintenance chains.

Under the draft bidding rules, the Air Force's requirements are fundamentally unchanged, the officials told the briefing.

"What the size of the aircraft is going to be is really up to the contractors in terms of their interpretation of our requirements," one official said. Cargo-carrying ability and fuel offload requirements are based on the KR-135R that is being replaced, the senior military official added.

SPLIT BUY?

In Congress, the competition pits Boeing backers from Washington state and Kansas, where the company would do much of its tanker work, against lawmakers from Alabama, where the Northrop-EADS team would do final assembly of its planes.

Boeing, the Pentagon's No. 2 supplier by sales, ahead of third-ranked Northrop, is eager to prevent archrival Airbus and EADS from obtaining a strategic foothold on U.S. soil. With a plant in Mobile, Alabama, EADS could take advantage of foreign exchange and labor rates on either side of the Atlantic.

Teal Group aerospace expert Richard Aboulafia said the rules looked simpler this time. "But all the ingredients are in play for politicians to keep interfering in this program."

Rob Stallard, a defense industry analyst at Macquarie (USA) Equities Research, predicted the Air Force would end up buying tankers from both Boeing and Northrop.

"The Boeing and NOC/EADS camps on this are so entrenched that the administration would create a lot of disgruntled congressmen if they were to pick either team over the other," Stallard said in an email to Reuters.

An initial U.S. attempt to award a tanker contract collapsed in 2004 amid a scandal that sent a former top Air Force weapons buyer and Boeing's former chief financial officer to prison for conflict-of-interest violations.