The U.S. Air Force failed to use a true competitive process to choose Boeing Co. over Europe's Airbus for a stalled $20 billion-plus plan to lease and buy refueling aircraft, according to a Pentagon-commissioned report.
The analysis by the Industrial College of the Armed Forces, obtained by Reuters on Wednesday, also says the Air Force appeared to have made "only limited use of considerable government buying power and leverage to obtain maximum discounts."
The report, which has not been officially released, is one of a series of studies requested by Defense Secretary Donald Rumsfeld to help decide the fate of the Air Force plan to lease 20 modified Boeing 767 tankers and buy 80 more.
A Defense Science Board task force has already said there is no compelling reason to rush to replace the existing KC-135 tankers and the Defense Department's inspector general has said the $23.5 billion project, as negotiated by the Air Force, could cost $4.5 billion more than necessary.
"Was a competitive process used?" asked the report by the Industrial College of the Armed Forces, part of the Pentagon's National Defense University.
"No," the report said. Instead, "it appears contractor selection was a foregone conclusion," based on a congressional mandate in the 2002 defense appropriations budget that directed the Air Force to negotiate with Boeing for the lease of tankers based on the 767 airliner.
A February 2002 request for information that went to U.S.-based Boeing and to European consortium EADS, which makes the Airbus, was not a competitive process, the study said. It added there had been "little expectation that Congress would allow leasing of Airbus aircraft."
The Pentagon declined to comment and an Air Force spokeswoman said the study had not yet been received.
Chicago-based Boeing, in response to media accounts of the study, said that it and the Air Force had pursued an innovative acquisition approach, as directed by the Congress, based on data and facts, with unprecedented taxpayer protection.
And Boeing Chief Executive Harry Stonecipher told investors on Wednesday that the tanker program "is not dead."
Stonecipher told institutional investors in New York that the Air Force still wants the 767. "The customer has not changed their mind one iota about the 767 tanker program."
Boeing plans to "raise the rhetoric" on Airbus's receipt of government aid, Stonecipher said, charging its European rival was sacrificing profits to build market share.
Rumsfeld halted negotiations with Boeing on Dec. 1 after the company fired its chief financial officer, Michael Sears, and Darleen Druyun, an executive who pleaded guilty last month to a conspiracy involving illegal hiring talks while she still was overseeing tanker negotiations at the Air Force.
The top U.S. weapons buyer, Michael Wynne, said last week he expected the deal to remain on hold until the Air Force completes a formal analysis of options for new tankers. The analysis would have to be wrapped up by Dec. 31 "to affect the budget" in fiscal 2006, which begins Oct. 1, 2005, he said.
Wynne left the door open to reopening a bidding contest that could bring in Lockheed Martin Corp., as well as Airbus, owned 80 percent by EADS and 20 percent by Britain's BAE Systems.
"I would expect that in the analysis of alternatives everything would be on the table — just like it should be in a major acquisition decision," he said.
