Pentagon hands tanker tangle to next president

By Andrea Shalal-Esa and Jim Wolf

WASHINGTON (Reuters) - The U.S. Defence Department has ended for now a $35 billion (19.9 billion pound) transatlantic aerial-refuelling competition, handing a nagging seven-year headache to the next administration and boosting Boeing Co's (BA.N) hopes to keep Airbus planes out of the Air Force fleet.

Defence Secretary Robert Gates told Congress on Wednesday the Pentagon was dropping plans to pick between revised tanker proposals from Boeing and Northrop Grumman Corp (NOC.N) by January 20, when President George W. Bush leaves office.

The Air Force in February awarded the $35 billion, 179-plane program to a team of Northrop and Europe's EADS (EAD.PA), parent of Boeing commercial archrival Airbus.

After Boeing protested its loss on procedural grounds, a congressional umpire found the Air Force made "significant errors" in evaluating the rival bids.

The Pentagon responded by preparing for a new round, spelling out more clearly the expanded fuel-carrying capabilities it was seeking, among other things.

Boeing, sole supplier of tankers to the U.S. Air Force for 50 years, is seeking to curb EADS' penetration of the rich U.S. military market. Also at stake are EADS plans to move production of A330 freighters from France to Alabama, partly to cash in on exchange rate fluctuations.

The tanker bidding has been complicated by lawmakers' efforts to bring home jobs and a renewed "Buy America" debate about protecting key aerospace manufacturing capabilities.

The Air Force calls acquiring new tankers its No. 1 acquisition priority. The new fleet would phase out Boeing-built KC-135 tankers, which have an average age of 47 years. Tankers are used to refuel other planes in mid-air, a critical component of projecting U.S. power around the globe.