In major upset, Boeing wins lucrative Air Force tanker contract

In a major surprise, the Pentagon on Thursday gave Boeing a $35 billion contract to replace the Air Force's aging fleet of airborne refueling tankers, a lucrative deal that caps years of controversy and is certain to fuel a renewed lobbying battle on Capitol Hill.

If the deal makes it through Congress, Boeing will be well positioned to sell the Air Force hundreds of additional tankers for up to $100 billion more. The Air Force's planned purchase of an entirely new fleet of tankers -- its existing planes date back to the Eisenhower administration -- represents one of the richest deals in Pentagon history. The contract is an especially coveted prize because defense spending -- after a decade of explosive growth -- is scheduled to begin falling in coming years.

The decision to award the initial purchase to Boeing was unexpected, as the European defense conglomerate, EADS North America, had been widely expected to win the contract. It is likely EADS will contest the decision.

The announcement comes almost three years after the Air Force initially selected EADS for the contract to build 179 refueling tankers. But subsequently, the Government Accountability Office upheld a protest filed by Boeing and the Pentagon ultimately decided to cancel the contract and reopen the competition for the tankers, which has become a decade-long saga and one of the most hotly contested awards in Pentagon procurement history.

Last fall, the Air Force mistakenly sent to both Boeing and EADS the other company's Integrated Fleet Aerial Refueling Assessment (IFARA), in addition to the information the firms were supposed to receive.

Both companies returned the information to the Air Force. But in an attempt to level the playing field, the Air Force released to both firms a screen shot of the other's IFARA, one of several criteria used to evaluate a bid.

But Boeing boosters in Congress -- including the Washington state and Kansas delegations -- contended that EADS had an unfair leg up on the competition and requested an inspector general investigation.

Boeing plans to build its tanker, based on a 767 airframe, at its plant in Everett, Wash., with military modifications completed in Wichita, Kan. EADS had planned to build its tanker, an Airbus A330, at a new facility in Mobile, Ala.