It's shaping up to be one of the largest military contracts of the next 25 years, and it's Boeing's to lose. The aerospace giant is considered...

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CHICAGO — It’s shaping up to be one of the largest military contracts of the next 25 years, and it’s Boeing’s to lose.

The aerospace giant is considered the favorite to win an initial $40 billion contract to replace 179 Eisenhower-era tankers for the U.S. Air Force. But analysts still aren’t counting out the competition — a team led by Northrop Grumman and European Aeronautic Defence & Space (EADS), parent of Boeing rival Airbus.

The Air Force could announce its selection as early as Monday, when a panel that signs off on major programs for the Defense Department is to review the bids and approve initial funding.

The winner likely will have an advantage in bidding for two big follow-on orders as all 530 tankers in the government’s fleet are eventually replaced. The money at stake for the entire fleet overhaul, including parts and maintenance, could top $125 billion, estimated Loren Thompson, a defense analyst with the Lexington Institute, a public-policy think tank.

But the Air Force emphasized Friday that later tanker contracts would be decided independently.

“We have three separate buys as our acquisition strategy at this point,” said Lt. Gen. Donald Hoffman, the Air Force’s top uniformed acquisitions official.

The second and third competitions could involve splitting purchases between companies, Hoffman told reporters at the Pentagon.

Specifications for the second competition won’t be compiled until at least 2010, he said. “I suspect it’s a couple years of work to get through all that before we are even ready for a request for proposals,” Hoffman said.

Still, the initial contract will have a clear winner. In an interview Friday, Air Force spokeswoman Lt. Col. Brenda Campbell said it will not be split between Boeing and Northrop/EADS. “We cannot afford a split buy,” said Campbell. Operationally it’s a lot more expensive.”

A tanker win will provide a cushion to protect either Boeing or Airbus for decades in case of a downturn in the highly cyclical market for commercial aircraft.

Both proposals involve retooling jetliners late in their commercial life-cycles, either the Boeing 767 or Airbus A330, into rugged military freighters built to haul fuel and cargo around the globe.

Picking either option, the U.S. Air Force would keep a production line running at full capacity into the foreseeable future that would otherwise be shuttered. The net gain to the winner: about $1.4 billion, after tax per year, estimated aerospace analyst Howard Rubel of Jefferies & Co.

Boeing is “cautiously optimistic” about its chances, said Mark McGraw, vice president for tanker programs. “We’ve gotten good feedback from the Air Force,” he added. “In the end, they were pleased with it.”

Paul Meyer, a senior vice president with Northrop Grumman, relishes his team’s underdog status. “I’d say we’re very, very competitive,” he said. “We’ve given them room for pause. It will be down to the wire.”

A Boeing victory would offset the negative headlines garnered, from the recent arrest of a former engineer on spy charges to the delay of its vaunted 787 Dreamliner.

Still, Boeing’s shares aren’t expected to soar on the news, analysts said. It is such an overwhelming favorite that the contract win is already factored into its stock price.

“The stakes are higher for Boeing than for Northrop,” said David Strauss, U.S. aerospace and defense analyst for UBS Investment research.

EADS, known for aggressive pricing, has run a spirited campaign with Northrop Grumman, and the team is still considered in the race.

The European defense contractor says it will assemble the tanker as well as the A330 freighter at a plant it will build in Mobile, Ala., if it wins. It has even shown off an A330, fresh off the assembly line in Toulouse, France, that it plans to convert into the first tanker.

“I would have to give Northrop and EADS high marks for coming up with every marketing tactic imaginable,” said Thompson.

The Air Force’s decision will likely come down to a determining whether the A330’s larger capacity or the 767’s greater versatility and efficiency best meet its needs, analysts say.

Boeing won an earlier version of the program that was scrapped amid an ethics scandal. Analysts think Air Force planners still likely favor the 767 because it is similar in size to the military’s half-century-old KC-135 tankers, but with the latest technological advances.

“If bigger is better, the Air Force would’ve specified that in their request [for proposal] documents,” said Boeing’s McGraw.

Because they’re smaller and require less runway, Boeing’s tankers could be deployed from airstrips in Africa or Central Asia, while the EADS version would likely be based in Europe, analysts say.

The Air Force likely would have to reinforce existing runways to handle the heavier A330 and also redesign storage facilities to accommodate the jet’s wider wingspan.

Boeing claims its jet, the KC-767, would save the Air Force $15 billion in fuel over the life of the program, while costing 22 percent less than its rival to repair and maintain.

Northrop agrees that its larger KC-30 aircraft would cost more to operate.

“We do burn more fuel. We are a bigger airplane. So it has attendant higher maintenance or operating costs over the life of the fleet,” Northrop’s Meyer conceded in a January briefing. “We’re probably equivalent on a unit price [per airplane] and in the total program, slightly higher.”

But Meyer argued that economics still work in the KC-30’s favor because it provides the Air Force a greater capability, especially in its much larger capacity for troop and supply transport — ancillary to the jet’s primary refueling mission.

The KC-30 holds 250,000 pounds of fuel, 24 percent more than the Boeing jet; and 104,000 pounds of cargo, a 21 percent increase.

“We see cargo as an inherent advantage to us,” Meyer said. “When it’s not performing a tanker mission, we want the ability to rapidly turn and perform alternate missions.”

The Northrop-EADS team also sees an edge in “past performance,” one of five criteria the Air Force will use to weigh its decision. It notes that the first two Boeing tanker contracts, for the governments of Italy and Japan, are running years behind schedule.

Boeing’s response: The U.S. will benefit from “lessons learned” from the early versions. After overcoming performance problems during flight tests, the first Japanese tanker is expected to be delivered within days.

Analysts expect the losing team to contest the Air Force decision, supported by members of Congress whose states stood to gain jobs.

But ultimately, some think Boeing, as the U.S.-based contestant, has the stronger political hand.

“It points to Boeing,” said Rubel. “But everyone was favoring the Patriots, too.”

Seattle Times aerospace reporter Dominic Gates reported the remarks by Col. Campbell and the January briefing by Paul Meyer. Bloomberg News reported the remarks by Lt. Gen. Hoffman.