UPDATE 2-US arms buyer shoots down dual-source tanker idea

(Adds analysis, quotes, background)

By Jim Wolf

WASHINGTON, Feb 5 (Reuters) - The Pentagon's top arms buyer rejected on Thursday fresh calls to divide a stalled multibillion-dollar aerial-refueling aircraft order between rival designs from Boeing and Europe's Airbus.

"If you split this buy now, you have to pay two sets of development costs," said John Young, undersecretary of defense for acquisition. "That totally wipes out the competitive aspects of this."

Boeing Co (BA.N) and Northrop Grumman (NOC.N), which has partnered with Airbus parent EADS (EAD.PA), have waged a politically charged fight to sell the U.S. Air Force an initial 179 tanker aircraft valued at $35 billion. Two additional planned subsequent procurement phases could boost the purchase to more than $100 billion.

Defense Secretary Robert Gates halted the competition in September saying it had grown too heated, needed a "cooling off" period and should be left to the next U.S. administration to decide.

He acted after the Government Accountability Office upheld a Boeing protest of a contract award that had gone to Northrop last February. Boeing said it had been treated unfairly. The GAO agreed and the Pentagon had prepared to hold a fresh bidding round last year.

Gates, the sole holdover from President George W. Bush's cabinet, told Congress last month the Pentagon could restart the contest this spring, with a winner chosen in early 2010. He, too, has said splitting the buy from the start would be the worst outcome for taxpayers.

"I would agree totally and go beyond that," Young told a small group of reporters at the Pentagon. A dual-source approach, he said, risked costing "significantly more up front and in the long term."