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Pentagon aims for tanker award next month

By Jim Wolf

WASHINGTON (Reuters) - The U.S. Defense Department said on Monday it hopes in the next month or so to award a contract, worth roughly $35 billion, for 179 Air Force tanker aircraft, capping a saga that began almost a decade ago.

Chicago-based Boeing Co is vying for the deal against Europe's EADS, parent of Toulouse, France-based Airbus.

Last February, a senior U.S. military officer, outlining a rematch between the bidders at a Pentagon background briefing, cited a range of $25 billion to $50 billion for the deal's potential value.

"The contract is valued at approximately $35 billion," said a summary of the Defense Department's proposed 2012 budget as President Barack Obama sent his spending plan to Congress.

The department is seeking $900 million for new tankers in fiscal 2012, which starts October 1, and hopes "to make an award within a month or so," Robert Hale, the Pentagon's chief financial officer, told a briefing.

Hale said he did not expect any impact from a stopgap measure, known as a continuing resolution, that limits the government generally to previously approved spending levels. The current measure expires March 4.

He cited what he described as a previous budget's funding for the planes and said the Air Force, if the stopgap funding were to be extended, could "reprioritize" to pay for a contract.

The high-stakes deal has fanned transatlantic tensions as well as jockeying among U.S. lawmakers eager to bring jobs to their electorates.

Washington state and Kansas would gain if Boeing wins because the company would build its tankers and make final upgrades to them in those states.

Alabama and surrounding areas would benefit if the contract goes to EADS, which plans to build an assembly plant in Mobile if it gets the deal.

The new aircraft will replace about one-third of the existing U.S. tanker fleet, which is used to extend the reach of U.S. military power by refueling fighters, bombers and other aircraft during flight.

The Air Force has tried since 2001 to begin replacing its Boeing-built KC-135 tankers that now average more than 50 years old.

An initial $23.5 billion plan to lease and then buy 100 modified Boeing 767s as tankers, fell apart in 2004 amid a conflict-of-interest scandal that sent Boeing's chief financial officer and the Air Force's former No. 2 arms buyer to prison.

EADS, partnered with Northrop Grumman Corp, won a 179-plane deal in February 2008, only to have it canceled after government auditors upheld parts of a protest by Boeing.

(Reporting by Jim Wolf; Editing by Tim Dobbyn, Gary Hill)

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