U.S. auditors bash Air Force over refuelling tanker

By Jim Wolf

WASHINGTON (Reuters) - U.S. auditors urged the Air Force Wednesday to rerun its competition for a $35 billion refuelling-aircraft order, upholding a protest by losing bidder Boeing (BA.N) and breathing life into a Pentagon fiasco.

The Government Accountability Office found the Air Force made "a number of significant errors that could have affected the outcome of what was a close competition."

The contract was awarded on February 29 to a team made up of Northrop Grumman (NOC.N) and Europe's EADS (EAD.PA), corporate parent of Boeing's passenger-jet maker rival Airbus.

GAO, a non-partisan arm of Congress that reviews federal contract bidding disputes, faulted the Air Force for seven specific reasons, including "misleading and unequal discussions with Boeing."

The GAO's ruling is a recommendation to the Air Force, which has 60 days to respond. It was an uncommonly harsh rebuke to the service, which lists the tanker as its top acquisition priority.

Sue Payton, the Air Force's top weapons buyer, said the service was reviewing the decision and would spell out its response as soon as possible.

"The Air Force will do everything we can to rapidly move forward so America receives this urgently needed capability," she said in a statement. "The Air Force will select the best value tanker for our nation's defence, while being good stewards of the taxpayer dollar."

The GAO criticism may give Boeing another chance at what is likely to be one of the biggest contracts in Pentagon history, potentially swelling to $100 billion with follow-on orders.