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For almost a decade, the U.S. Air Force has tried to replace the aging fleet of tankers it uses to refuel warplanes in midair. The bidding process has been mired in controversy and politics. Now, a major defense contractor is threatening to pull out of the competition.

NPR's Debbie Elliott has more.

DEBBIE ELLIOTT: Northrop Grumman and Boeing have been in a heated competition for the lucrative Air Force contract worth at least $35 billion dollars in the first installment and potentially worth a $100 billion over the long term. Los Angeles-based Northrop teamed with the European parent firm of Airbus and would assemble the new tankers in Mobile, Alabama. Boeing would make them in Washington state. But now, Northrop may withdraw from the bidding war. Northrop spokesman Randy Belote says the Pentagon has changed its rules to favor Boeing's aircraft.

Mr. RANDY BELOTE (Northrop Spokesman): If the Pentagon is clearly asking for a smaller tanker, as we believe that they are, the question that Northrop Grumman is asking itself is, why should we compete? The answer is we cannot compete.

ELLIOTT: This is the third time the military has tried to replace the Eisenhower-era tankers. A 2004 deal with Boeing collapsed amid an ethics scandal. And last year, the Pentagon canceled the contract with Northrop Grumman after Boeing challenged it. Some defense analysts say Northrop is now posturing to pressure the Pentagon for more favorable terms. Boeing spokesman William Barksdale says it's a tactic used before. He says Boeing also has some concerns.

Mr. WILLIAM BARKSDALE (Boeing Spokesman): For us, it's all how you go at it. We feel like we want to go through the process behind the scenes, and not play this out publicly, where we're threatening to go ahead and not bid unless we're catered to.

ELLIOTT: But Northrop supporters in Alabama, like Mobile Mayor Sam Jones, believe Boeing is the firm being catered to because the new rules are so different from the last round.

Mayor SAM JONES (Mobile, Alabama): They muscle their way into defense contracts, and this is really another muscle job, as far as we're concerned. In Alabama, all we ask for is a level playing field. And now the playing field has been changed. And you know, they know we can compete on a level playing field. That's why the playing field has changed all of a sudden.

ELLIOTT: The dispute is getting attention on Capitol Hill.

Senator JEFF SESSIONS (Republican, Alabama): Mr. Secretary, I regret that...

ELLIOTT: Alabama Republican Jeff Sessions put Defense Secretary Robert Gates on the spot during a Senate Armed Services hearing on Afghanistan last week.

Sen. SESSIONS: Do you believe that competition is important in this aircraft for the Defense Department and the war fighter?

ELLIOTT: Secretary Gates replied that the competition has been fair and even-handed, and is ongoing.

Secretary ROBERT GATES (Department of Defense): We believe that both of the principal competitors are highly qualified, and we would like to see competition continue in this process.

ELLIOTT: Arizona Senator John McCain has questioned the new requirement, and powerful Pennsylvania Congressman John Murtha favors splitting the contract so that both firms could build their version of the refueling plane. But the bipartisan Senate tanker caucus says the Air Force should move ahead with Boeing, even if Northrop Grumman pulls out. Washington state Democrat Patty Murray agrees.

Senator PATTY MURRAY (Democrat, Washington): We have to keep moving forward. And nobody should be whining and taking their ball and going home.

Mr. LOREN THOMPSON (Military Analyst): I've never seen a competition quite as politicized as this one.

ELLIOTT: Military analyst Loren Thompson is with the Lexington Institute, a think tank that receives money from Boeing and Northrop Grumman. He says the prolonged tanker battle is an example of how politics can introduce risky delays in the nation's defense acquisitions.

Mr. THOMPSON: The tankers the Air Force uses for aerial refueling on average are already 50 years old. And yet it's going to probably take 20 or 30 years to replace all the tankers we have. So the arithmetic is starting to get a little worrisome.

ELLIOTT: The Pentagon is expected to put out its latest tanker requirements next month.

Debbie Elliott, NPR News.

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