LITTLE ROCK — Boeing Co., the sole supplier of aerial refueling tankers to the U.S. Air Force since 1948, beat European Aeronautic Defence and Space Co. on Thursday for a $35 billion program to build 179 new tankers, the Pentagon said.
It was the Chicago-based company’s third try at the contract since Congress and the Air Force first proposed the tanker-replacement program in late 2001.
Boeing will manufacture basic 767-model aircraft in Everett, Wash., and convert them into tankers in Wichita, Kan., during the first stage of a three-part Air Force program stretching decades to replace its tanker fleet. The initial contract was valued at $3.5 billion. The entire first phase covers 13 production lots through 2027. The Pratt & Whitney unit of United Technologies Corp. will provide the engines.
The Air Force’s large tanker fleet consists mostly of 415KC-135R aircraft that first entered service in 1956; the last was delivered in 1964.
Boeing and European Aeronautic Defence and Space, or EADS, were assessed on how well their respective aircraft met 372 mandatory war-fighting requirements in a “best value”evaluation that took account of the aircraft’s basic price as well as “total life cycle cost,” including fuel efficiency, combat mission refueling effectiveness and military construction expenses.
EADS had been bullish about winning the order, saying its A330 airliner-based model offered greater capacity than Boeing’s 767 model because it was larger.
EADS’ Airbus unit has already beaten Boeing in bids to supply the U.K. and Australia with refueling planes. It also won aircraft contests in Saudi Arabia and the United Arab Emirates, while Boeing was selected in Japan and Italy.
The victory came amid moves by Boeing to redesign its 767 production line to cut costs in an attempt to outbid EADS, saying its aircraft would have lower overall production and maintenance expenses.
“Boeing’s victory was a major upset, and not at all what the industry was expecting,” said Richard Aboulafia, a military aircraft analyst with the Fairfax, Va.-based Teal Group.
“The low ownership cost message clearly had its appeal in these budget constrained times,” he said. “But EADS’ supporters will do their best to try to stall this contract.”
The consensus was that EADS would win, said Byron Callan, a defense analyst with Capital Alpha Partners LLC. “With the win, Boeing erases the market share it has lost in recent years to Airbus in global tankers,” he said.
Deutsche Bank aerospace analyst Myles Walton in a note Tuesday to clients said “Boeing seems to be presenting itself as the underdog, which is either managing expectations or they are the underdog and want to ensure political supporters they are preparing to fight a loss.”
“In either case, we expect stock reaction could be a couple dollars upside on a win and a modest downside move on a loss,” Walton said.
Asked during a Dec. 1 interview about the relative value of the tanker program to Boeing’s defense business, Dennis Muilenburg, chief of Boeing’s Defense, Space and Security unit said, “in terms of our overall business base, it’s not a needle-mover for us. It’s important to us, but it’s not something we are dependent on.”
Boeing’s first attempt at the contract was derailed in 2004 by a scandal involving former top Air Force procurement official Darleen Druyun and then Boeing Chief Financial Officer Michael Sears.
Sears was sentenced to four months in prison for offering Druyun a job in October 2002 during the initial tanker negotiations. She was hired in January 2003. Druyun was sentenced to nine months in prison.
The second attempt was postponed by Defense Secretary Robert Gates in September 2008 to review the competition’s criteria and leave the decision to the next administration.
Business, Pages 27 on 02/25/2011