Boeing wins a round in the Air Force tanker dispute

By Thomas Lifson

The Air Force decision to source its next generation tanker fleet from a Northrop-Airbus consortium did not go down well with a wide-ranging group of people. Boeing filed a protest over some of the assumptions used to generate Northrop-Airbus's lifecycle operating cost estimates, and now appears to have won a point. Andrea Shalal-Esa of Reuters writes a clear account of the intricacies of the finding.

The U.S. Air Force has conceded that Boeing Co's proposed KC-767 aerial refueling tanker would cost less over time than the winning plane offered by Northrop Grumman Corp and its European subcontractor EADS, Boeing told auditors reviewing its protest against the Air Force decision.

This sounds pretty fundamental, as if it turns out that the Air Force didn't take the low bid.

But lifecycle costs are totaled in with other project costs, such as design and development costs, where N-A has an advantage. The operating cost estimate was essentially tied, and swung $34 million in Boeing's favor. Shalal-Esa makes the point that on a 1.08 billion deal, that's 3/100 of a percent.

There are also issues of capability in the Air Force's decision. Boeing claims that the rules were changed midstream to its disadvantage.

The outlook for the airliner business has gotten much grimmer thanks to oil prices. The value of this tanker contract to the two rivals is if anything bigger than before. Stay tuned, Boeing is fighting the decision and will press forward on multiple fronts. Many Americans worry about protecting our domestic producer, Boeing.