GAO Denies U.S Aerospace’s Protest

The third bidder for the KC-X tanker contract, U.S. Aerospace (USAE) and its Ukrainian partner Antonov, had their protest denied yesterday by the Government Accountability Office (GAO).

The company had filed the protest because the Air Force had said their proposal was delivered past the deadline for submission. U.S. Aerospace claimed that their courier was deliberately delayed and should have been allowed to make the delivery on time.

This decision leaves only the Boeing (BA) and EADS (EADS:P) bids as being considered for the contract. The Air Force had previously said that a decision would be announced around the middle of November but there have been reports that this might slip.

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Can U.S. Aerospace and Antonov Win?

The KC-X new aerial tanker program Request for Proposals (RFP) attracted a third bid this time around. U.S. Aerospace submitted one based on the Ukrainian made Antonov transport. The question that immediately comes to mind is can this team win, or will it be Boeing (BA) or EADS (EADS:P)?

Realistically the chances of this bid being selected are low. The companies had asked for a sixty day extension to work on their proposal. The Air Force already slipping the contract deadline one month to accommodate EADS refused the further two month slip. This would have pushed award into 2011 with the current planned date of mid-November this year already late enough. The U.S. has been trying to get a replacement tanker for the aging KC-135 since 2001.

U.S. Aerospace and its partner obviously felt their proposal could be improved with the extra two months but did go ahead an turn one in that they feel meets all of the Air Force requirements. At the same time in a recent filing with the Securities and Exchange Commission (SEC) U.S. Aerospace makes clear that the Air Force could easily reject them.

The company writes “For any or all of these reasons, the Air Force may not select our bid, may disqualify our bid, or may refuse to consider it on the merits, or at all,” based on myriad factors. These include not meeting requirements, not having qualified sub-contractors, not having necessary facilities or capabilities and even missing the deadline. They didn’t do that turning one in on time.

Of course all of this could be standard “Forward Looking Statements” meant to make clear to anyone investing in their stock that they are being conservative in their estimates. The stock was trading at 18 cents at the close on Friday.

Certainly they have offered a cost effective approach. The Air Force must consider if it meets their requirements and they have the ability to produce the systems to the necessary schedule. Certainly stranger things have happened in defense contracting.

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Boeing and Antonov Follow EADS and Submit KC-X Proposals

Boeing (BA) submitted their proposal for the KC-X aerial tanker program a day after rival EADS (EADS:P) did. Today was the day it was formally due, EADS coming in a little early. The Boeing proposal stresses their cost and size benefits over competing EADS with their larger A330 based aircraft. Boeing is basing their bid on a modified 767 airliner with advanced avionics from the yet to enter service 787.

Also U.S. Aerospace and Antonov submitted their competing proposal after losing a bid to delay things sixty days. There total cost is under thirty billion for a contract the Air Force has estimated at $37.5 billion based on an aircraft cost of only $150 million each.

The Air Force plan is to award the contract in four months. The three bids may make the competition’s source selection last longer and may also raise the chance of a protest.

If the U.S. Aerospace / Antonov team wins it might get very interesting.

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Antonov Team Request Delay in Proposal Deadline

As reported last week U.S. Aerospace and Antonov intend to submit a proposal to the Air Force for the KC-X aerial tanker. Because the actual proposals are due this week supposedly the new team will ask for a sixty day delay to accommodate them. The deadline has already been moved once from June to July to allow EADS (EADS:P) and its team to bid.

The current schedule is for a contract award in November and this new extension would probably push that into 2011 due to the time it will take to evaluate a third bid. U.S. Aerospace did say that they will submit this week if no extension is granted.

A third proposal will make the contest more interesting especially as the Antonov will be very price competitive.

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Boeing Restates Intent To Bid

Following reports last week that Boeing (BA) was considering not submitting a bid for the KC-X contract the company reiterated its interest today. The previous reports said that Boeing was concerned with the fixed price aspects of the contract but now the story is that the company believes EADS (EADS:P) due to its subsidies could assume more risk in their proposal.

It would be almost impossible now for the company not to bid due to all of the support it has gotten for getting the contract.

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Boeing Statement On EADS Bid

Boeing (BA) issued a press release last night in response to EADS’ (EADS:P) decision to bid on the contract. In part it reads:

“We are confident in the superior value and capabilities of our NewGen Tanker and intend to present a compelling case for it in our proposal. While we are disappointed in the bid submission delay, we hope for a fair and transparent competition free of any additional changes intended to accommodate a non-U.S. prime contractor.

We also remain deeply concerned about the ability of a heavily subsidized Airbus/EADS to accept levels of financial risk that a commercial company such as Boeing cannot. We regret that these concerns will not be addressed in the bid evaluation, even when the U.S. government has proven in a world court that those subsidies are illegal and directly distort competition between Airbus and Boeing.”

It will be an interesting competition.

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EADS To Consider Extension

EADS North America released a statement last night about the sixty day extension granted for KC-X proposals. They stated:

“Since the Department of Defense indicated their interest in EADS’ participation as prime contractor in the KC-X tanker competition, the company has carefully assessed the many requirements necessary to participate. We have firmly indicated that a 90-day extension would be the minimum time necessary to prepare a responsible proposal for this $40 billion program. We will consider the Department’s decision to offer a 60-day extension.”

This seems to indicate that EADS may still have given themselves an option not to participate by claiming the need for ninety days vice sixty.

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Reports of Other Bidders for KC-X Emerge?

Over the weekend it was reported that the Russian state owned aircraft company, United Aircraft, might be interested in bidding on the KC-X proposal. With Northrop now planning on not participating with EADS only Boeing was left as a confirmed bidder. Russia was about the only other country that had the capability to submit a proposal as they have already made tankers for themselves, India and other users. The thought though of Il-76 based tankers fueling F-22 is sort of hard to imagine. Documents provided to the Seattle Times show that United Aircraft would team with a World Aviation Maintenance to form a new company to bid. The proposal would be based on the Il-96 airliner rather then the older transport tanker already in service.

At the same time there are reports that EADS may submit a bid with themselves as the prime. Earlier this month the company said that it was not confident of being able to do this. EADS-North America could certainly be used as a prime contractor. The time needed for the company to prepare a proposal of this magnitude is why there is talk of extending the deadline three months.

It would be good for the U.S. Defense Department and Air Force to have some form of competition in the latest attempt to award this contract. Whether the Russian or EADS based bids would be viable is another matter. It is going to be difficult though to award what amounts to a sole-source contract with the mood in Congress of many Northrop and EADS supporters.

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Reports That Northrop Won’t Bid

It is being reported that Northrop Grumman (NOC) will not submit a proposal in response to the new KC-X RFP released at the end of last month. Supposedly the announcement will be made after the markets close. Northrop had written to the DoD in December saying they most likely would not without changes in the RFP to make it fairer to the Airbus 330 based aircraft.

There is no word on whether EADS will find another partner or bid by themselves for the $35 billion contract.

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Boeing Will Submit Proposal Based on K-767

As it did in the last contest two years ago Boeing (BA) plans to submit a 767 based tanker. This is similar to the ones they are already building for Japan. To differentiate it from previous versions they are calling it a “NewGen” aircraft. Boeing will upgrade the basic 767 design with a new fueling boom and parts of the 787 cockpit technology.

There is still no formal word from Northrop Grumman (NOC) or EADS (EADS:P) if they plan to submit a proposal this time around.

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