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Reports Final Proposals Due Next Week for KC-X

Both Boeing (BA) and EADS NA (EADS:P) have met with the U.S. Air Force reportedly to discuss final changes to the KC-X RFP. The companies have until 11 February to submit their final revisions to their proposed solutions to the new aerial tanking requirement.

Boeing has said that they will update their proposal although EADS NA has said they may not. Swirling around all of this final burst of activity is the concerns by some in Congress, the media and at the bidders about the accidental release of information by the U.S. Air Force to each team as well as the two World Trade Organizations (WTO) rulings on both companies receiving illegal subsidies.

Some Boeing supporters in Congress are now saying that the data release gives EADS an advantage and that there should be deeper investigations. The Air Force “reassigned” two personnel as punishment and Congress did have hearings last week about the matter. Washington state, Illinois and Kansas legislators all from states that stand to gain work if Boeing wins sent a letter to the DOD IG asking them to look to see if the data released skewed the contest in EADS’ favor.

All of these conditions make it seem inevitable that there will be a protest to the contract award no matter who wins it. There will also be political pressure from supporters of both companies to review the contract and make sure that there favored winner was not treated unfairly.

All this adds up to further delays in replacing the KC-135 systems made during the Cold War. Once again this problem has been created by the disappearance from the U.S. industrial base of multiple suppliers of large aircraft. Currently only Boeing and EADS make aircraft acceptable to the Air Force to meet this requirement. If there is to be even a modicum of competition the two have to be involved which leads us to the current ugly situation of charges and counter charges of favoritism, jingoism and bias.

This will probably be the biggest contract awarded for the next decade by the Defense Department and is critical to both companies maintaining a foothold in the large military aircraft business worldwide which is leading us to the current situation which does not seem like it will end well.

WTO Report States Boeing Received Illegal Aid Effect on KC-X Undetermined

In the latest round of the back-and-forth at the World Trade Organization (WTO) between the United States and the European Union (EU) over airline development and sales the report on Boeing (BA) was leaked to the press and found that the Chicago based company received illegal subsidies from the U.S. Government and four states. In September this finding was also leaked as a preliminary to the completion of the final report.

Earlier last year the WTO had ruled in favor of the U.S. in their complaint about launch aid for EADS’ (EADS:P) Airbus products. Since that time there have been those in Congress trying to rewrite acquisition law and regulations so that the illegal aid to EADS would be taken into account in the upcoming KC-X new aerial tanker decision on which Boeing and EADS submitted bids for the initial $39 billion contract.

The findings by the WTO that both sides provided illegal aid that caused unfair competition to the other should lead to negotiations to settle the matter. The normal WTO punishment of having the losing company pay back the economic affect on the other will probably not happen due to the large amounts involved.

The two decisions may aid the Pentagon in deciding the KC-X contract as it possibly removes the issue from the competition and might limit some chances for a protest by the loser. The Pentagon has made clear for months that it cannot take into account the WTO rulings in their source selection and evaluation hence the attempts by Boeing’s supporters in the legislative branch to change the rules.

Now with both bidders confirmed to have benefited from illegal subsidies of some sort it hopefully will remove the issue and allow a competition based on merits and meeting the requirements as defined by the Air Force and Defense Department.

Congress Continues To Try And Micromange KC-X Process

In the latest move by Congress to try and get the U.S. Air Force and DoD to consider the WTO rulings on EADS (EADS:P) subsidies, legislation has been introduced that will require at least a report by the Pentagon on their affect on the competition.

Congressman Adam Smith (D-WA) (No shock there?) is trying to amend the 2011 Defense Authorization Act to require the Air Force to detail the advantage the subsidies gives EADS prior to issuing the contract. Since the DoD cannot consider the ruling in awarding the contract this at least gets a record out of the effect (if any) on the contest.

Congress Wants WTO Taken Into Account In KC-X Bidding

Kansas legislators in both the House and Senate are planning to introduce a bill that would require the Pentagon to take WTO rulings into account. The Department of Defense has maintained that in accordance with U.S. laws and regulations that those matters cannot be considered or punished in contract awards. If it did that would be a violation of the WTO itself.

The bill would allow price adjustments to be made in bids to reflect illegal subsidies rulings. The legislators, Senator Brownback (R-KS) and Congressman Tiahart (R-KS), claim it would be applicable to any defense contract but it is obviously targeted at EADS (EADS:P) and their KC-X bid. The legislators claim that without taking these subsidies into account the price of the A330 based tanker will be artificially low.

They would prefer the contract go to Boeing (BA) who would do substantial work in Kansas on their tanker program.

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