Irish Investor Hopes To Make Big Mark On US Tanker Market By Rebecca Christie Of DOW JONES NEWSWIRES July 13, 2006 WASHINGTON (Dow Jones)--A pair of well-heeled Irish investors are taking on big defense companies in the race to sell flying gas stations to the U.S. Air Force. Irish investor Ulick McEvaddy has little U.S. name recognition, but he is one of the richest men in Ireland and a well-known developer there. He and his brother Des are active in Irish politics - sometimes controversial - and were recently involved in efforts to build a new terminal at Dublin International Airport. The brothers also own Omega Air. Officially based in the U.S., the company owns a fleet of cargo, passenger and military aircraft, including a Boeing Co. (BA) 707 tanker on lease to the U.S. Navy. Last month, they announced plans to make a bigger play for U.S. business with a pledge of up to 60 modified DC-10s. Ulick McEvaddy says he doesn't see Omega in direct competition with Boeing Co. and Northrop Grumman Corp. (NOC), which want to sell the Air Force new planes. Instead, Omega wants to offer fuel by the gallon as an "interim solution," and free up military-owned aircraft for other missions. Air Force officials have been skeptical that civilian-owned aircraft can fit in with a combat force. But Omega already has bought 20 DC-10s for the project, in a gamble that its terms will be too good for the Pentagon to refuse. "We're building it on risk. If they like it, we think they'll use it," McEvaddy said during a recent visit to Washington. Omega's business model is to buy, own and operate its tankers, and it aims to sell the Air Force tanking services for at least a decade. The planes would be dedicated to the Pentagon, avoiding the complications of part-time use, and Omega plans to hire ex-Air Force pilots and crew. Air Force Concerns However, senior Air Force officials say they have yet to see how the planes would save money. Air Force Secretary Michael Wynne said the Air Force should weigh whether hiring tanker services could hurt the military's flexibility and training opportunities. McEvaddy says the Air Force's concerns are misplaced and that the Omega DC-10s will be very similar to its own larger KC-10 fleet, and that it would have the option of using its own pilots and crew. Citing a Defense Science Board study, McEvaddy said he expects the Air Force would pay about $10 to $12 per gallon for Omega's tanking services, compared to the $17.50 per gallon cost of using military crews. Many of Omega's ex-Air Force staff may choose to stay in the Air Force's reserves and could be called up as needed without even changing planes, McEvaddy said. He said the planes could support combat missions even using civilian personnel. "The old bogey is always how do we know we can rely on you in war?" McEvaddy said. "Nations don't go to war without the public anyway. If you look at the historic scenarios - Vietnam, Korea - there were as many civilians in theater as there were soldiers." To illustrate this point, McEvaddy recalled a phone call from his brother, an accomplished lawyer and pilot who never served in the military, during the first Gulf War. When queried on how to handle an incoming scud missile attack, McEvaddy offered the following advice: "I said, make sure the airplanes aren't in the same place on the ramp and get into the bunker, Des!" Unsolicited Bid Omega has significant experience with the unsolicited bid. The company won its Navy contract after volunteering a proposal, and it also has offered planes to the U.K. in case the Ministry of Defence's main tanker plan doesn't work out. Industry insiders say the company has even approached U.S. intelligence agencies about tanking services for detainee transfers, to reduce dependence on foreign air fields. McEvaddy wouldn't discuss any rendition-related overtures. But he did serve as an intelligence officer during 10 years in the Irish Army. Omega Air established itself by dealing in used Boeing 707s, a passenger plane that is a close cousin of the Air Force's aging KC-135 fleet. But McEvaddy has been planning a tanker push for many years, based around the idea of a cargo plane that could load fuel pallets when needed and head off to war. The first Omega DC-10 tanker is scheduled to make an appearance at next week's Farnborough International Airshow in England. In the long run, McEvaddy hopes Omega's tanker services will appeal to the NATO alliance and other U.S. allies, but the planes can be converted back to cargo planes if there aren't takers. McEvaddy has been courting the Pentagon steadily. The company sold the U.S. military used 707s for its Joint Surveillance Target Attack Radar System, a Northrop Grumman Corp. (NOC)-designed spy plane commonly known as Joint STARS. Also, the U.S. Navy recently announced plans to renew the tanker-services contract it launched with Omega five years ago. Navy pilots say the Omega plane has been reliable and easy to work with, and Omega is now preparing a second plane to join the project. To make further inroads, McEvaddy has met with staff from Sen. John McCain's office to discuss the tanker project. McCain, R-Ariz., has been a longtime critic of the Air Force's tanker hopes, and his approval is seen as an essential element of any successful tanker plan. When the Air Force asked aerospace companies for tanker information in late April, in the first stage of seeking bids, it invited a wide variety of proposals. The Air Force solicitation asked for information on new planes, tanker services and also possible overhauls of the existing fleet. U.S. Alliances Omega and U.S. engine-maker Pratt & Whitney, part of United Technologies Corp. (UTX), have said they could join forces on a re-engineering proposal for the Air Force's current tanker fleet. Pratt & Whitney acknowledges the alliance, but says it is willing to work with the Air Force on its own as well. "If Omega does get into the tanker business, we would be interested in working with them, depending on what airplanes and what engines they need," said Bill Begert, a retired four-star Air Force general who is now Pratt & Whitney's vice-president for business development and international programs. While Begert says there aren't any teaming arrangements at present, Omega and Pratt & Whitney do have a standing relationship. The two companies hope to secure a long-sought contract to re-engine the 19-plane Joint STARS fleet, and it won an initial competition. The project was shelved during a budget debate, but the team now appears on track to secure its victory at long last. The Air Force wouldn't name its prospective winner, but a spokesman said the service has a candidate in mind and will offer a sole-source contract this summer unless it receives another proposal at the last minute. If the Air Force warms to Omega's tanker offering, the company will buy another 40 DC-10s to add to its bid. Financing won't be an issue, McEvaddy says, citing the brothers' long-term banking relationships. The brothers also aren't overly concerned about short-term returns on their aircraft investments. "We don't have shareholders to worry about where the bottom line is the most important thing. We can take long-term views," McEvaddy said. (Archives)