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In a deal expected to spark an economic boon of more than 50,000 jobs, The Boeing Co. (NYSE: BA) last week was awarded a $35 billion contract to build a fleet of U.S. Air Force aerial refueling tankers.
After 10 years of controversy and haggling in Washington, Boeing was declared the "clear winner" over European Aeronautic Defense & Space Co. (EADS), the company that builds Airbus planes.
"We're honored to be given the opportunity to build the Air Force's next tanker and provide a vital capability to the men and women of our armed forces," Boeing CEO Jim McNerney said in a statement.
Deputy Defense Secretary William Lynn told Politico that Boeing won the contract on the strength of its bid price, how well each of the planes would meet military needs and the cost to operate them.
"This is one of the happiest days of my professional life," said Rep. Norm Dicks, D-WA, the ranking Democrat on the House Appropriations Committee. He added that a change he suggested to the method the Air Force used to evaluate the bids might have made the difference.
The Pentagon considered the cost to operate the planes over 40 years rather than 25 years, he said, and since Boeing's NewGen Tanker will burn 24% less fuel than the EADS A330 plane, Boeing had a big edge.
"The life cycle cost, I think, was decisive," Dicks said. "It's a great victory."
The contract provides Boeing with fresh momentum after the giant aircraft maker had stumbled badly in the past few years.
Earlier this month, the Chicago-based company announced yet another delay in the delivery schedule for its first 787 Dreamliner. Boeing pushed the initial delivery of the bellwether plane to the third quarter of 2011-marking the seventh time the aircraft has been delayed and putting it behind schedule by at least three years.
The contract announcement could be the final chapter of a decade-long battle that has featured intense back-and-forth lobbying, advertising slurs and scandal, as Washington lawmakers pushed to bring the project – and thousands of jobs – into their districts.
Two earlier awards were rescinded, with one forcing the resignations of several Air Force officials and landing a Boeing executive in jail. Another award to EADS and Northrop Grumman Corp. (NYSE: NOC) in 2008 was overturned after Boeing protested.
EADS can appeal the Pentagon's decision, but Pentagon officials said they were sure any protest would fail. Still, with jobs on the line, there is bound to be political pressure to overturn the decision.
The Pentagon is expected to provide both companies with detailed briefings soon. And members of Congress are expected to receive the full explanation next week, congressional and industry sources told Politico.
The chief executive of EADS, Louis Gallois, told Bloomberg News Friday that he was "disappointed" and "perplexed" by the Pentagon's decision.
The supertanker program will support more than 50,000 jobs and 800 suppliers spread across more than 40 states, Dennis Muilenburg, CEO of Boeing Defense, Space & Security said in a conference call with reporters.
That's good news for a country plagued by high unemployment. EADS had planned to assemble its tankers in Mobile, Alabama with non-union labor. Boeing plans to build its tanker in Everett, Washington, where it has assembled aircraft for decades with a strong union labor force.
"This decision is a major victory for the American workers, the American aerospace industry and America's military," said U.S. Sen. Patty Murray, D-WA. "At a time when our economy is hurting and good-paying aerospace jobs are critical to our recovery, this decision is great news for the skilled workers of Everett and the thousands of suppliers across the country."
The other side was clearly disappointed and promised to take a close look at the decision.
"I am deeply disappointed that the EADS team was not selected to build the next air refueling tanker for the Air Force," Sen. Jeff Sessions, D-AL, said in a statement. "In light of today's result, I intend to examine the process carefully to ensure it was fairly conducted."
Both Boeing and the North American unit of EADS submitted bids based on popular civilian aircraft. EADS's tanker was modeled on its A330 wide-body aircraft, while Boeing's successful bid used the older and smaller 767 jet.
Aerial refueling tankers allow the military to refuel aircraft in mid flight, greatly extending the range of smaller aircraft.
The contract calls for Boeing to build a total of 179 of the tankers to replace the aging Boeing KC-135 "Stratotanker," which first entered service in 1957. Approximately 100 of the old models have been grounded since 2006 due to age.
Originally designed and built to lengthen the missions of B-52 nuclear bombers, the Stratotanker morphed into a workhorse in Vietnam, where its use allowed small fighter bombers to strike targets that were previously unreachable. The tankers continue to play a large role in Iraq and Afghanistan.
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