U.S. reopens contest to build aerial tankers

By Andrea Shalal-Esa and Jim Wolf

WASHINGTON (Reuters) - U.S. Defense Secretary Robert Gates on Wednesday reopened a bitter $35 billion (17.6 billion pound) aerial tanker contest after the selection process that picked Northrop Grumman (NOC.N) and EADS (EAD.PA) over Boeing (BA.N) was found to be flawed.

The contest will now be overseen by John Young, the Pentagon's chief weapons buyer, not the Air Force, and Gates hoped a decision could be reached by December since the current process had already "gone on far too long."

"The GAO sustained eight of the slightly more than 100 issues protested with this contract. We will address all of these in the new solicitation, and we will request revised proposals from industry," Gates told reporters.

The Air Force contract award in February for 179 new aerial refuelling tankers prompted an immediate protest by Boeing and vows of congressional intervention by its backers in Congress.

Last month, the Government Accountability Office said it found "significant errors" in the Air Force selection process, and urged the service to redo the competition.

The Air Force had been given until mid-August to announce its plans, but Gates rushed forward with a decision to reopen the competition -- given the advanced age of the current KC-135 tanker fleet -- which is used to refuel warplanes in mid-air.

Boeing had been expected to win in February with its tanker based on the 767 airliner but the Air Force opted for the larger Northrop entry based on the A330 airliner that is built by EADS's Airbus unit, the European archrival to Boeing.

Young said he hoped to issue a new draft request for proposals in late July or early August that would address the issues raised by the GAO and give bidders time to submit fresh bids, possibly with even lower cost estimates.