Pentagon hands tanker tangle to next president
By Andrea Shalal-Esa and Jim Wolf

WASHINGTON (Reuters) - The U.S. Defence Department has ended for now a $35 billion (19.9 billion pound) transatlantic aerial-refuelling competition, handing a nagging seven-year headache to the next administration and boosting Boeing Co's (BA.N: Quote, Profile, Research) hopes to keep Airbus planes out of the Air Force fleet.

Defence Secretary Robert Gates told Congress on Wednesday the Pentagon was dropping plans to pick between revised tanker proposals from Boeing and Northrop Grumman Corp (NOC.N: Quote, Profile, Research) by January 20, when President George W. Bush leaves office.

The Air Force in February awarded the $35 billion, 179-plane program to a team of Northrop and Europe's EADS (EAD.PA: Quote, Profile, Research), parent of Boeing commercial archrival Airbus.

After Boeing protested its loss on procedural grounds, a congressional umpire found the Air Force made "significant errors" in evaluating the rival bids.

The Pentagon responded by preparing for a new round, spelling out more clearly the expanded fuel-carrying capabilities it was seeking, among other things.

Boeing, sole supplier of tankers to the U.S. Air Force for 50 years, is seeking to curb EADS' penetration of the rich U.S. military market. Also at stake are EADS plans to move production of A330 freighters from France to Alabama, partly to cash in on exchange rate fluctuations.

The tanker bidding has been complicated by lawmakers' efforts to bring home jobs and a renewed "Buy America" debate about protecting key aerospace manufacturing capabilities.

The Air Force calls acquiring new tankers its No. 1 acquisition priority. The new fleet would phase out Boeing-built KC-135 tankers, which have an average age of 47 years. Tankers are used to refuel other planes in mid-air, a critical component of projecting U.S. power around the globe.

Rather than hand over "an incomplete and possibly contested process," Gates said he wanted to give the next administration a free hand to determine the military requirements, funding levels and how to weigh the bids.

PRESIDENTIAL POLITICS

Democratic presidential candidate Sen. Barack Obama of Illinois, where Boeing is headquartered, believes the competition "will benefit from a fresh review," said Wendy Morigi, an Obama campaign spokeswoman.

Obama "will work to ensure that this review puts our national security and the American taxpayer first," she said in an e-mailed response. "Senator Obama is committed to getting this important contract right and to making sure that we are providing our men and women in uniform with the equipment and support they need."

Representatives of Republican presidential hopeful John McCain did not immediately respond to a request for comment.

As a member of the Senate Armed Services Committee, McCain led a drive in 2003 to kill an initial $23.5 billion Air Force plan to lease and buy 100 modified Boeing 767s as tankers.

McCain of Arizona denounced the original no-bid, sole-source plan as a taxpayer "ripoff" and sweetheart deal for Boeing, then reeling from drops in demand for commercial airliners after the September 11, 2001 attacks.

The proposed lease-purchase deal collapsed in 2004 amid a scandal that sent two Boeing executives, including the Air Force's one-time No. 2 arms buyer, to prison on conflict of interest charges.

MISTAKES AND MISSTEPS

"Over the past seven years the process has become enormously complex and emotional -- in no small part because of mistakes and missteps along the way by the Department of Defence," Gates told the House Armed Services Committee while discussing the wars in Iraq and Afghanistan.

"It is my judgment that in the time remaining to us, we can no longer complete a competition that would be viewed as fair and objective in this highly charged environment," he said.

What Gates called a "cooling off" period was a big gain for Chicago-based Boeing. It had threatened to withdraw from the now-cancelled competition unless given six months to prepare a new bid. It said the Air Force had made clear it was now seeking a larger plane than the modified 767 it originally offered.

Boeing cheered Gates' decision, calling it in U.S. forces' best interest to give "the appropriate time for this important and complex procurement to be conducted in a thorough and open competition."

Northrop Grumman, on the other hand, said it was extremely disappointed, "especially on behalf of our men and women in uniform who will now be denied a critically needed new tanker for years."

EADS had no immediate comment. Northrop's tanker would use an Airbus A330 airframe that would be assembled in Mobile, Alabama.

HANDICAPPING THE NEXT STAGE

The A330s are currently put together in Toulouse, France, using mainly French, German, British and Spanish parts. The Pentagon issued a stop-work order on Northrop's contract after Boeing challenged the choice. Boeing has been considering substituting its bigger 767-400 or even the 777 aircraft, in place of its 767-200ER model.

"Given McCain's history in regard to this program, one might handicap a slight advantage to Northrop/EADS should he be elected," said Harry Nourse of Bank of America Securities.

"If Obama wins, you could see some implementation of the 'Buy America' philosophy, which might favour Boeing," he said.

(With additional reporting by Bill Rigby in New York and Tim Hepher in Paris; editing by Tim Dobbyn)

© Thomson Reuters 2008 All rights reserved.
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The volatility in aviation turbine fuel (ATR) has triggered GMR Hyderabad International Airport (GHIAL) to change gear from aero to non-aero operations.

Currently, revenues from aero operations contribute to three quarters of us total revenues. The rest comes turn non-aero operations. GHAIL is looking at reversing this ratio to offset the turbulence in global ATF prices. It is trying to emulate best practices adopted by some of the leading international airports in the world such as Memphis airport, which get a large chunk of their revenues from non-aero operations.

As part of its new strategy, the airport is exploring a tie-up with Agriculture and Processed Food Export Development Agency (APEDA) and freighter companies to enhance revenues from this segment according to a senior official in GMR.

“Our teams have gone to Memphis airport In the US, the global cargo centre, to study the cargo operation models. They will submit a detailed report after studying other airports in the US and Europe in the coming three months. We will rope in a consultant to design a plan to take the idea forward,” he said. With the presence of Federal Exchange and the largest cornea bank in the world, Memphis airport is the nerve centre of cargo operations across the world. For instance, 5,000 faulty laptops are brought to Memphis each day and airlifted overnight after repair at the airport. The GHIAL is exploring such a model here.
The airport will also open a separate website to facilitate banking transactions and cargo operations online. The Greenfield airport in Hyderabad has seen a drastic dip in air transport movements (ATM5) during the last few months due to the volatility in prices of aviation turbine fuel (ATF).

The airport had 260 to 270 ATMs a day in Jun-08. This has dropped to 210-220 in August, leading to a dip of 50 ATMs a day. Several airlines planning to start new trips have also defined their plans. “British Air for instance, has postponed new trips from Hyderabad from October to December this year said a GMR official

‘According to him, the airport expects a 15% increase in passenger traffic this year against 35% last year “ATF sale volumes have also come down from 800-850 kilo liters a day to 500 kilo liters a day in August” he said. Although the state-owned oil marketing companies cut ATF prices by over 16% on Sunday, this may not translate into cheaper airfares. The airport currently records eight million passengers a year and it is forecast to reach l2 million by20l0.

(c) Centre for Asia Pacific Aviation.

Jet Airways, announced, they will re-introduce their daily operations on the Pune-Bengaluru-Pune sectors, becoming the only airline to offer its passengers a same day return service between the two cities, effective September 11, 2008

Jet Airways will commence daily operations on the sector with Boeing 737 aircraft, complementing the airline’s existing (six days a week) service on the sector.

Flight 9W 460* (Pune-Bengaluru) will depart Pune at 0620 hrs, arriving in Bengaluru at 0740 hrs. On the return leg, flight 9W 459 (Bengaluru-Pune) will depart Bengaluru at 2100 hrs, arriving in Pune at 2220 hrs.

With the launch of these new, daily flights, Jet Airways will offer passengers an early morning departure from Pune and arrival in Bengaluru. The airline will also operate the last direct service out of Bengaluru to Pune, offering business travellers a full day to complete their work and return home, without the bother of an overnight stay.

*Subject to Government Approvals