In this paper, we describe the category of bi-equivariant vector bundles on a
bi-equivariant smooth (partial) compactification of a reductive algebraic group
with normal crossing boundary divisors. Our result is a generalization of the
description of the category of equivariant vector bundles on toric varieties
established by A.A. Klyachko [Math. USSR. Izvestiya, {\bf 35}, No.2 (1990)]. As
an application, we prove splitting of equivariant vector bundles of low rank on
the wonderful compactification of an adjoint semisimple group in the sense of
C. De Concini and C. Procesi [Lecture Note in Math. {\bf 996} (1983)].
Moreover, we present an answer to a problem raised by B. Kostant in the case of
complex groups.Comment: Final version. Improved Exposition. to appear in Crelle's J. 43page