They cite the fact that Boeing executives basically promised the work would be done in Kansas if the contract was one creating thousands of jobs in that state.

The Mayor of Wichita, Carl Brewer, feels the same way. He claims Boeing has betrayed the city by their decision. Wichita has invested millions of the taxpayers money in the plant which has been open since the 1930′s and built bombers during World War II and the Cold War. Now in about 24 months it will stop work and the jobs will be eliminated or moved.

The decision by Boeing based the company claims on cost considerations alone highlight what may happen across the U.S. as the defense budget shrinks and programs are cut or eliminated. Similar scenes have happened before in the 70′s and 90′s as military spending has been reduced. Wichita may be the first of many cities this time around.

That, of course, does not make those who supported Boeing feel better but now they may join the Florida and Alabama representatives who tried to aid Northrop Grumman (NOC) and EADS North America, part of EADS (EADS:P) who worked for those companies to win the KC-X contract. The goal for them of course was investment and jobs in a time when manufacturing ones are hard to find.

As government spending is cut back there will be many other politicians crying foul.

They are now reporting that the way the current contract is structured the Government and Boeing would share in the first $1 billion increase beyond the target price of $3.9 billion for the EMD contract which will also deliver 18 tankers. The original contract value was about $3.6 billion.

Once the price gets beyond $4.9 billion Boeing would be responsible for all costs. Up to that they would pay 40% and the government 60 or $600 million. The reports last month had Boeing predicting that they would spend at least $4.2 billion.

This was the third attempt by the Air Force to award the new tanker contract since 2001. An attempt to award a sole source lease to Boeing was derailed by fraudulent activity by Air Force acquisition chief Darleen Druyun and Boeing’s CFO. In 2008 EADS teamed with Northrop Grumman (NOC) won a contest that was overturned on protest by Boeing. This latest contract is the result of the new competition held due to Boeing’s successful protest. EADS was not able to match the price that Boeing offered which is now seemingly controversial due to the reported cost increases.

Revenue in 2010 was over $60 billion and the company earned a profit of around $1.5 billion. The company has also been able to increase its cash holdings dramatically with an eye on expanding U.S. defense business through acquisitions.

Boeing and EADS unlike other large defense contractors do have the commercial aviation market to help temper ups-and-downs in military spending. They are though soon to be facing more competition from companies like China’s CAI who especially want to enter there own domestic airline market.

EADS has carefully looked at different potential acquisitions in the U.S. to help grow its nascent defense work there. Certainly they now have the necessary funds to do even a rather large one although something like buying Northrop Grumman’s (NOC) shipbuilding group would seem a little too large and ambitious. EADS will most likely target a medium sized defense contractor who provide services or limited hardware.

In their public statement the company is non-committal about the chances of filing a protest with the Government Accountability Office (GAO). They say “EADS North America officials today expressed disappointment and concern over the announcement by the U.S. Air Force that it had selected a high-risk, concept aircraft over the proven, more capable KC-45 for the nation’s next aerial refueling tanker.” but they also say ““Though we had hoped for a different outcome, it’s important to remember that this is one business opportunity among many for EADS in the United States,”. So read into that what you may.

At a minimum the filing of an unsuccessful protest would delay the initiation of the contract for about 100 days making the delivery of any new tankers to the Air Force even later then they will be after an almost ten year process to build a new one.

The new KC-46A will be based on Boeing’s 767 airliner design.

The Secretary of the Air Force, Mr. Michael Donley, stated that the decision was based on “mission effectiveness in wartime and life cycle costs as embodied in fuel efficiency and military construction costs”. This might be a hint that the larger KC-30 aircraft from EADS might have required more investment in new and bigger facilities then the smaller 767 tanker.

The contract has been very political with states that stand to gain thousands of jobs from the program using their Senators and Representatives to push for the respective bidders.

EADS does have the right to protest the decision as Boeing did in 2008 when the contract was awarded to Northrop Grumman (NOC) and EADS. They will have to wait until their debrief by the Air Force before making any decision about that.

Even an unsuccessful protest may delay the start of the program for several weeks and the Air Force plans on receiving the first 18 aircraft in 2017. The new KC-46A will replace Cold War era KC-135R tankers some of which have been flying for fifty years.

Cross posted at Defense Procurement News.

Mr. Donley also made it clear that there is a potential for a protest of the award by either Boeing (BA) or EADS NA (EADS:P) if they don’t win and that the Air Force and the Defense Department are prepared to deal with it.

This is the third attempt to award this contract with the last contest won by Northrop Grumman (NOC) and EADS in 2008 overturned on Boeing’s protest. Due to the size, importance and the conflicts between the U.S. contractor and its supporters and the European aerospace giant this may continue to be an messy, extended affair.

For now everyone must wait until the decision is announced which could occur as early as tomorrow after 5:00 Eastern.

EADS and Boeing (BA) are trying for a second time to win the new tanker for the U.S. Air Force that will replace the aging KC-135R aircraft. In 2008 EADS which was teamed with Northrop Grumman (NOC) won the last contest which was overturned on protest by Boeing. The two companies submitted their final proposals last week.

Boeing has not provided such details but has previously stated that their smaller KC-767 aircraft has better fuel efficiency and maintenance costs that will save the Air Force money over the long run.

In recent testimony the Secretary of Defense, Robert Gates, indicated that the award announcement will be made in a few weeks following up on the Air Force’s budget document which indicated prior to April 1st.

EADS did win the contest two years ago teamed with Northrop Grumman (NOC) only to have it overturned on protest by Boeing. The Government Accountability Office (GAO) ruled that the Air Force had not applied its own criteria properly in evaluating those bids.

This time around EADS bid by itself and proposed basically the same aircraft. Boeing bid a modified version of their 767 tanker incorporating parts of the new 787 cockpit and other improvements.

Last month the Air Force had to admit it sent information to the two bidders about the others after mixing up the CD’s with data.

In Thompson’s analysis the data showed the Air Force favoring the EADS aircraft. Of course Boeing will have a chance to protest if they really do lose this contract.

In another piece of this very complicated puzzle this latest development may have serious affects on the latest attempt to replace the KC-135 Cold War era tankers.

U.S. Aerospace is protesting the fact that the Air Force said their proposal was received late and will not be considered in the competition. The service has made clear that only the EADS and Boeing ones were received by the deadline of 2:00 PM on 9 July.

The upstart bidder says that their proposal was at the site thirty minutes prior to that time but that Air Force personnel deliberately delayed the courier preventing delivery until five minutes after the deadline. The Air Force is standing by its decision.

The KC-X has been an on-again-off-again program for most of this decade. The initial plan of a lease of 767 based aircraft from Boeing was thrown out amid convictions of U.S. Air Force and Boeing personnel for corruption. The second attempt as mentioned above was lost on protest. This third try looked fairly smooth once EADS committed to bid on their own until late June when the U.S. Aerospace proposal emerged. Now a source selection that is supposed to be complete in early November is facing a potential hiccup depending on how the GAO rules on U.S. Aerospace’s protest. The addition of a third proposal to evaluate may cause delays in the selection and award process.

KC-X just gets more interesting as time passes.

This only makes sense as it allows Airbus to deliver a A330 aircraft or tanker to a U.S. facility to do the integration of the military equipment such as radios and defensive equipment. EADS is planning to do this with Lockheed Martin (LMT) on the Army’s new attempt at buying an Armed Reconnaissance Helicopter (ARH) and should do this for KC-X. Lockheed planned the same thing with Augusta Westland on the failed VH-71 program. By using an American company to do this sort of work it helps with security and technology transfer issues. It is also the reason that EADS North America exists.