BusinessWeek reports that Defense Secretary Robert Gates is expected to make an announcement today about whether the Air Force will reopen the bidding for the $35 billion tanker program. Boeing Inc. (NYSE: BA) thought it had a lock on it but earlier in the year, the Air Force awarded the contract to EADS, parent of Airbus, and Northrop Grumman (NYSE: NOC). Boeing protested and last month, the General Accounting Office (GAO) reported that the award process was flawed.

That should come as no surprise. After all, Senator John McCain (R-AZ) was pushing for the European company to win the competition -- possibly since his then national finance chairman lobbied for that company. One of the sources I spoke with said that people suspect McCain arranged for a change in Tanker specifications to tilt the playing field in favor of EADS. This source also said that the Air Force neglected to notify Boeing of the change. Evidently, the GAO agreed that something was fishy here. It would be at least the fifth time that McCain had been influenced by lobbyists.

Now attention turns to Gates and Congress which hosts a battle between Senators from Washington, where Boeing has operations, and Alabama, where Northrop employs workers. BusinessWeek quotes Senator Patty Murray (D-Wash.), who introduced a Senate resolution on July 8, calling on the Pentagon to rebid the flawed tanker contract, as saying: "The GAO's decision was clear, and today we are reiterating that message so that the Pentagon knows there is no wiggle room. It's time to go back and hold a truly transparent competition that does our war fighters and taxpayers justice."

MOST NOTEWORTHY: BMC Software, Smart Modular and Entropic Comm were today's noteworthy initiations:

• Stanford initiated BMC Software (NYSE: BMC) with a Buy rating and $45 target. The firm highlights the company's broad product portfolio and configuration management database leadership and thinks margin expansion should continue.
  
• ThinkPanmure assumed Smart Modular (NASDAQ: SMOD) with an Accumulate rating and $5.50 target. The firm expects better DRAM pricing but expects SMOD to experience some headwinds with Hewlett-Packard (HPQ) losing share in the server market.
  
• Broadpoint expects Entropic Comm (NASDAQ: ENTR) to benefit from the adoption of applications that allow video through numerous devices, especially high definition and data content. Shares were started with a Buy rating and $6 target.

OTHER INITIATIONS:

• Banc of America initiated General Dynamics (NYSE: GD), Lockheed Martin (NYSE: LMT) and Northrop Grumman (NYSE: NOC) with Buy ratings and targets of $100, $120 and $80, respectively.
  
• Intercontinental Exchange (NYSE: ICE) was initiated with a Buy rating and $150 target at UBS.
  
• Intrepid Potash (NYSE: IPI) was assumed with a Buy rating at Merrill Lynch.

The Government Accountability Office has decided that the Air Force has done Boeing (NYSE: BA) dirty. It says that in the bidding process for a new air tanker, the Air Force should not have favored Northrop-Grumman (NYSE:NOC) for the project. NOC won the tanker deal several months ago.

The Wall Street Journal reports that the decision "effectively gives Boeing the chance to recapture its decades-long lock on the business of supplying planes that can refuel other planes in midair." The GAO said the Air Force analysts had made mistakes in some of their evaluation analysis.

The whole matter stinks. Boeing has been able to push its agenda in Washington by lobbying hard to keep jobs for the tanker in the US. The Northrop proposal would have had EADS, the European airplane maker, do some of the work. Several senators got behind the idea that Boeing should get another chance.

Was the GAO influenced by Congress? Who will ever know, but if Boeing, which is the incumbent for supplying the military tankers, can get into the position to bid again, something seems a bit off.

Douglas A. McIntyre is an editor at 247wallst.com.

Boeing may abandon plans to sell its aerial refueling tanker internationally if it loses its protest of a U.S. Air Force decision to buy $40 billion worth of tankers from a competitor, The Wall Street Journal reported Wednesday [subscription].

Boeing's Mark McGraw, the executive in charge of the program, told The Journal that Boeing had counted on the Pentagon to provide enough volume to make an international tanker business viable.

In February, Northrop Grumman (NYSE: NOC) and partner European Aeronautic, Defence & Space (EADS), parent of Airbus, beat out Boeing, the Air Force's only supplier of the aircraft for half a century; the Air Force recently announced that it continues to support that decision. Boeing protested the award to the Government Accountability Office, which must make its recommendation to the Pentagon by Thursday.

Boeing's (NYSE: BA) shares were virtually unchanged on the news in Wednesday mid-day trading, gaining eight cents to $74.43. Northrop Grumman rose $1.03 to $72.09 and EADS fell 46 euro cents to 13.57 euros on the Paris Exchange.

Before the bell: Futures lower ahead of FedEx, Morgan results, oil supply

TD AMERITRADE Holding Corporation (NASDAQ: AMTD) said Tuesday its metrics -- including client trades per day and total client assets -- for May have improved, and that third quarter earnings are expected to be at or near the high end of the prior guidance range. Shares were up nearly 2% in after-hours trading.

Microsoft Corp. (NASDAQ: MSFT) said Wednesday it has acquired Navic Networks, specializing in emerging forms of television advertising technology, to optimize the delivery and placement of TV advertising. Terms of the deal were not disclosed. Meanwhile, China has begun an anti-monopoly investigation into Microsoft with possibility that lawsuits from local companies could follow.

According to The Wall Street Journal, Reliance ADA of India might provide high level executives at DreamWorks, including Steven Spielberg, with financing, enabling the media company to part ways with Viacom (NYSE: VIA)'s Paramount Pictures.

For the first time Monday I heard John McCain comparing Barack Obama to Jimmy Carter. I had heard this before in other arenas, but not from McCain. I guess that despite these two presidential candidates pledging to the American people to bring change and resist politics as usual, they are both, as usual as one could get.

Obama is being shaped by the pressures of running for office and to believe otherwise is delusional. I suppose one has to have hope but the effects of the campaign are becoming clear. Obama has been painting McCain as an extension of Bush, which is nonsense, and now in a typical tit-for-tat response, McCain is filling the air with Carter references.

Both McCain and Obama are wrong in their assessments of their opponents and they are becoming commoners to resort to the bottom of the barrel campaign techniques used in every campaign for most of our nation's proud history. Obama gave up the high ground too easily and McCain has decided he can sling mud with the best of them.

MAJOR PAPERS:

• Merger talks between UAL Corporation's (NASDAQ: UAUA) United Airlines and US Airways Group Inc (NYSE: LCC) have been put off for now, the Wall Street Journal reported. United is reportedly close to an alliance with Continental Airlines Inc (NYSE: CAL).
• Harris Corporation (NYSE: HRS) is for sale and the company has begun to hear from interested parties, the Wall Street Journal also reported. Harris is looking for $75 to $80 per share. Speculation about the bidders includes General Dynamics Corporation (NYSE: GD) and Northrop Grumman Corporation (NYSE: NOC).

OTHER PAPERS:

• The Charleston Gazette reported that Chesapeake Energy Corporation (NYSE: CHK) has decided not to build its Eastern Division headquarters in Charleston, West Virginia in the wake of a West Virginia Supreme Court ruling on May 22.

WEB SITES:

• AppleInsider reported that Apple Inc (NASDAQ: AAPL) is expected to announce a back-to-school deal soon that will encourage students to buy new Macs by offering some of the largest incentives in the history of the company.

Harris Corp. (NYSE: HRS) has had a nice run. Over the past five years, the stock price has gone from $14 to $59.

The company is a key player in communications and IT – with about 7,000 engineers and scientists. With the spread of terrorism and the wars in Iraq and Afghanistan, the company's skill sets are certainly "must haves."

But, trends do come to an end (especially in the defense industry). That may be the thinking with the folks at Harris. That is, according to a report in the Wall Street Journal (subscription only), it looks like the company is shopping itself for a potential sale.

I doubt they will have much trouble finding suitors. After all, the sector is full of major operators looking to bulk things up, such as Raytheon (NYSE: RTN), BAE Systems PLC (NASDAQ: BAESY) and Northrop Grumman (NYSE: NOC).

Moreover, the fundamentals still are intact at Harris. According to its Q1 report, revenues increased from $1.07 billion to $1.33 billion. Net income came to $108 million, or $0.78 per share.

So far in today's trading, the shares of Harris are up about 9%.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

Teledyne Technologies (NYSE: TDY) manufactures sophisticated electronic components, instruments and communications products. These include defense electronics, data acquisition and communications equipment for airlines and business aircraft; monitoring and control instruments for industrial and environmental applications; and subsystems for wireless and satellite communications. The firm also provides systems engineering and information technology services for defense and space applications; manufactures general aviation and missile engines; and makes on-site gas and power generation systems. Clients include Boeing (NYSE: BA), NASA and the U.S. Air Force. Lockheed Martin (NYSE: LMT), Northrop Grumman (NYSE: NOC) and Raytheon (NYSE: RTN) are competitors.

The company pleased investors last week, when it announced Q1 EPS of 77 cents and revenues of $451.8 million. Analysts had been looking for 66 cents and $424.6 million. The CEO noted that it was the twenty-fifth consecutive quarter of year-over-year earnings growth. Management also guided Q2 EPS to 72-74 cents (74 cent consensus) and FY08 EPS to $2.98-$3.06 ($2.93 consensus).

John McCain is famous for many things. One of those is the McCain-Feingold Act designed to limit the role of corporate money in politics. But his actions suggest an eagerness to accept corporate money as a means to his political ends.

Here are three:

• Protects campaign contributor from S&L regulators costing government billions. In the 1980s, McCain intervened to keep regulators away from Charles Keating, a Savings & Loan operator, who contributed to McCain's campaign and let McCain's wife co-invest in a real estate deal. Keating's Lincoln Savings and Loan ultimately failed, costing taxpayers $3.4 billion.
• Sways $100 billion U.S. Air Force contract to European company. In February the Air Force awarded a $100 billion contract for refueling Tankers to EADS, the parent of Airbus, and Northrop Grumman (NYSE: NOC). As I posted, McCain's campaign finance chair was a lobbyist for EADS who arranged to send much of this contract to non-U.S. workers. McCain now employs the people who lobbied for EADS on his own staff. EADS retained The Loeffler Group to lobby for the tanker deal in 2007. Loeffler Group lobbyists on the project included Tom Loeffler, who lobbies for EADS and serves as McCain's national finance chairman and Susan Nelson, who left Loeffler and is now the campaign's finance director. EADS employees donated $14,000 to McCain's presidential campaign, more than any other member of Congress this election cycle; and

MOST NOTEWORTHY: Northrop Grumman, Phase Forward and Celestica were today's noteworthy upgrades:

• Cowen upgraded Northrop Grumman (NYSE: NOC) to Outperform from Neutral following the Q1 report based on accelerating growth. Shares were also upgraded at JP Morgan to Overweight from Neutral.
  
• Friedman Billings upgraded Phase Forward (NASDAQ: PFWD) to Outperform from Market Perform following the solid Q1 report and views guidance as beatable.
  
• CIBC raised Celestica (NYSE: CLS) to Sector Outperformer from Sector Performer following Q1 results, citing end markets that look stable.

OTHER UPGRADES:

• JP Morgan upgraded the Consumer Discretionary Sector to Overweight from Underweight.
  
• Wendy's (NYSE: WEN) was raised to Neutral from Sell at Goldman.
  
• Progenics Pharmaceuticals (NASDAQ: PGNX) was upgraded at Citigroup to Hold from Sell.
  
• Merrill Lynch raised Wal-Mart (NYSE: WMT) to Buy from Neutral.

Bear Strearns has downgraded Ford (NYSE: F) to "underperform" from "peer perform," according to MarketWatch.

Lehman Bros. has started Lowe's (NYSE: LOW) at "outperform," according to the AP.

Credit Suisse upgraded Aetna (NYSE: AET) from "underperform" to "neutral," according to Briefing.com. The news service also reports that JP Morgan upgraded Northrop Grumman (NYSE: NOC) to "overweight" from "neutral."

Douglas A. McIntyre is an editor at 247wallst.com.

Despite excellent earnings from Boeing Co. (NYSE: BA) yesterday, a bit of a shadow still hangs over the company. That's because in February the Air Force awarded a $100 billion contract for in-flight refueling craft -- known as tankers -- to EADS's Airbus and Northrop Grumman (NYSE: NOC). Boeing is currently challenging this award. But an interview I did for my book on Boeing suggests that Boeing will not win this contract because George W. Bush and John McCain want to award the contract to Bush's new friends: France's Nicolas Sarkozy and Germany's Angela Merkel.

I got this theory from a veteran Wall Street analyst who covers the aircraft industry. He suggested that Boeing lost the Tanker bid because John McCain -- who is ranking member on the Senate Armed Services Committee -- had the Air Force change the specifications for the tanker bid so Airbus and Northrop would be able to field a competitive bid. My source noted that the one problem with the change was that the Air Force did not inform Boeing about it.

After the bid was awarded to Airbus, it became clear that the original specifications had changed from a small, 767-sized craft to a medium-sized 777 one. During the review process, my source contends that Boeing asked the Air Force if the 767-sized craft was what it wanted. Boeing also told the Air Force that it would be happy to bid with a different model if the Air Force wanted. But the Air Force told Boeing that it still wanted the 767-sized craft.

Boeing Co. (NYSE: BA) gets a mixed report card this morning. Its earnings were up 38% in the first quarter but it lost a $3.74 billion deal to Northrop Grumman (NYSE: NOC). The Wall Street Journal [subscription required] reports that Boeing earned $1.62 in the first quarter, beating analysts' estimates by 27 cents a share. But Bloomberg News reports that Boeing lost another contest with Northrop -- this time for a spy plane, specifically a drone.

First, the good news for Boeing. The Journal reports that its net income of $1.21 billion, or $1.62 a share, increased 43% from $877 million, or $1.13 a share, a year earlier, while its revenue climbed 4.1% to $15.99 billion. Also important, Boeing reiterated its boosted guidance for earnings of $5.70 to $5.85 a share on $67 billion to $68 billion in revenue. Analysts' latest mean estimates were $5.93 and $68.95 billion, respectively. Even better, it raised its earnings projections for 2009 to between $6.80 and $7 a share on strong production-program performance and declining research-and-development and pension expenses. Analysts were expecting $6.87.

Now, the bad news. Northrop's Global Hawk drone beat Boeing's aircraft for the 68 plane order, after in February, Boeing already lost an Air Force competition for refueling tankers. Northrop, which had never built a refueling aircraft, faced a Boeing team that supplied the Air Force for more than half a century. Northrop won that $35 billion program by offering a larger jet with more fuel capacity than Boeing. Is Boeing's lack of competitive vigor on the defense side a sign of deeper management problems?

Investors don't seem concerned. Boeing stock is up over 2% in early trading.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He is writing a book about Boeing and has no financial interest in the securities mentioned.

LaBarge (AMEX: LB) designs, engineers and manufactures electronic, electro-mechanical and interconnect systems for the broad industrial market. The firm's printed circuit boards, cables and electronic assemblies are used primarily in military communication systems, commercial aircraft, satellites and oil drilling equipment. Customers include Lockheed Martin (NYSE: LMT), Northrop Grumman (NYSE: NOC) and Schlumberger (NYSE: SLB).

The company pleased investors last month, when it guided fiscal Q3 EPS to 23-24 cents and Q3 revenues to $70-$72 million. The Street had been expecting 21 cents and $65.47 million. Management also predicted that Q4 results will be at least as strong as those achieved in Q3.