The US Defense Department re-opened its bidding process for a new generation of Air Force tankers and indicated that it would take a decision by New Year’s. this puts Boeing, one of the main contenders of the $35 billion contract at a significant disadvantage. The other contender for the major defense contract is Northrop Grunman.

The Pentagon has chalked up a speedy timetable for awarding of the contract. It intends to open discussions next week on the requirements of the deal and then ask bidding companies to submit their proposals by October 1. by the end of November or early December, the Pentagon would ask for the best and final offer from all competitors and then hand over the contract by beginning of 2009.

Two factors in Pentagon’s proposals go against Boeing; one is the hasty schedule and the other is the demand for a tanker from which a larger quantity of fuel which can be off-loaded. The latter will significantly favor the bigger A330 airbus from Northrop instead of Boeing’s 767 commercial jets. While Boeing has raised objections to the Pentagon’s plans and has even hinted at taking the matter to the Government Accountability Office, Northrop has predictably welcomed the news.

-Kalyani Mookherji