14:29 GMT, September 10, 2008 Today, the U.S. Department of Defense (DoD) notified the Congress and the two competing contractors, Boeing and Northrop Grumman, that it is terminating the current $35 billion tanker competition. This move is expected to be good for Boeing, which was asking for more time to develop a new offer while Northrop Grumman and its European partner EADS had offered the same plane that originally won the competition (defpro.daily reported at September 4).

The Pentagon immediately commented its decision with the following press release:

Defence Secretary Gates, in consultation with senior Defence and Air Force officials, has determined that the solicitation and award cannot be accomplished by January. Rather than hand the next Administration an incomplete and possibly contested process, Secretary Gates decided that the best course of action is to provide the next Administration with full flexibility regarding the requirements, evaluation criteria and the appropriate allocation of defence budget to this mission.

Gates stated, “Over the past seven years the process has become enormously complex and emotional – in no small part because of mistakes and missteps along the way by the Department of Defence. It is my judgement that in the time remaining to us, we can no longer complete a competition that would be viewed as fair and objective in this highly charged environment. The resulting “cooling off” period will allow the next Administration to review objectively the military requirements and craft a new acquisition strategy for the KC-X.”

In making this decision, it was concluded that the current KC-135 fleet can be adequately maintained to satisfy Air Force missions for the near future. Sufficient funds will be recommended in the FY09 and follow-on budgets to maintain the KC-135 at high-mission capable rates. In addition, the Department will recommend to the Congress the disposition of the pending FY09 funding for the tanker program and plans to continue funding the KC-X program in the FY10 to FY15 budget presently under review.


--- UPDATE: The competitors reactions---

EADS:

The company's CEO Louis Gallois stated on the tanker competition:

“We are disappointed by this decision from the U.S. Department of Defense. We believe that the KC-45 is the best tanker for the US warfighter and we remain steadfastly behind our prime partner Northrop Grumman. We have not received any detailed direction from the Air Force or Northrop Grumman. However, we have a contract and will seek an appropriate conclusion to that contract. It is important to recognize that this decision will not have an impact on EADS sales or EBIT, as it has not been included in our plans.”

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Northrop Grumman:

Northrop Grumman published a statement by Randy Belote, vice president, Strategic Communications, in response to today's DoD decision:

"We are extremely disappointed at the decision to terminate the current tanker competition, especially on behalf of our men and women in uniform who will now be denied a critically needed new tanker for years. The Department of Defense, as recently as last week, stated the urgency to replace the Eisenhower-era fleet of refueling tankers. With this delay, it is conceivable that our warfighters will be forced to fly tankers as old as 80 years of age. Northrop Grumman entered this competition in good faith and proposed the most modern, most capable tanker available, at the best value to the American taxpayer. While we understand, we are greatly concerned about the potential future implications for the defense acquisition process."

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Boeing:

Boeing issued a statement Wednesday saying it welcomes the Defense Department’s decision and believes that it will best serve the warfighter by giving the appropriate time to conduct a thorough and open competition. The company said “This will assure delivery of the right tanker to the Air Force and serve the best interests of the American taxpayer.”

In the meantime, Boeing said it looks forward to working together with the the U.S. Air Force and then offering a next-generation tanker that meets the long-term requirements of the men and women who will fly this aircraft in future missions. In the meantime, the Boeing team will continue to support the Air Force in keeping the current KC-135 fleet flying its missions safely and reliably.

- More to come -