Boeing Dropping Out Of Tanker Battle?

NEW YORK (Reuters) - Boeing Co is "strongly considering" not bidding on the upcoming competition for a $40 billion U.S. Air Force refueling tanker contract, Aviation Week, the aerospace industry magazine, reported on Monday, without identifying its sources.

The No. 2 Pentagon contractor has not commented on the issue publicly, but some of its backers in Congress have argued that the revised terms of the competition, issued by the Pentagon last week, favor Northrop Grumman Corp and its European partner EADS.

Boeing officials are "strongly considering the option of not submitting a proposal," according to the report on the magazine's website, citing "multiple sources familiar with Boeing's internal discussions."

Boeing declined comment on the report, saying that it had responded to the initial request for proposal and was set to meet Pentagon official on Tuesday to discuss it. Any decision on the competition before that would be "premature", said Boeing spokesman Dan Beck.

The company's shares were down 1.8 percent at $66.61 on the New York Stock Exchange.

The Pentagon last week reopened the tanker contract contest with a draft version of its requirements, and will spend the next week or so discussing the criteria with bidders. A final request for proposal is expected in mid-August, with a deadline of Oct. 1 for submission of bids.

The prospect of having only one bidder for the contract would be embarrassing for the Air Force and the Pentagon, which have gone out of their way to demonstrate that the competition is open and fair.

The Northrop/EADS team won the contest in February, but government auditors subsequently found errors in the way the competition was run. Prior to the competition, the Northrop/EADS team also vacillated about entering the competition, raising questions about fairness.

Last week, Boeing backers bristled at the terms and timetable of the Pentagon's new tanker competition.

The new criteria "appear to favor a tanker larger than any real-world scenarios would require", said Rep. Norm Dicks, a Washington state Democrat and Boeing backer last week, implying that it would favor the larger plane offered by Northrop/EADS.

Sen. Patty Murray, another Washington state Democrat, said the new documents raised some "red flags," and the timetable for new submissions was "simply unrealistic."

Boeing, which has traditionally built tankers for the U.S. Air Force, had a deal to supply a new fleet of tankers but the arrangement was scrapped in 2004 after it came to light that Boeing offered a job to a top Air Force procurement officer.