Boeing's rivals urge US alter tanker-purchase plan

Boeing's rivals urge US alter tanker-purchase plan
Fri Jun 9, 2006 4:38 PM ET

By Jim Wolf

WASHINGTON, June 9 (Reuters) - A transatlantic team made up of Northrop Grumman and EADS urged the Pentagon Friday to drop a requirement that might favor Boeing's rival drive to sell aerial-refueling tankers to the U.S. Air Force.

Under the plan, all competitors for the potential $20 billion-plus contract would have to spell out any government subsidies they receive as well as their possible impact on the lifetime cost of the new aircraft.

The competition will pit Chicago-based Boeing Co. <BA.N> against the team of Los Angeles-based Northrop Grumman Corp. <NOC.N> and EADS <EAD.PA>, the majority owner of Airbus and Europe's largest defense contractor.

Lockheed Martin Corp. <LMT.N>, the Pentagon's biggest supplier, said Friday it had decided not to bid for the project as a deadline expired for a show of interest.

Bethesda, Maryland-based Lockheed "didn't feel we had the right offering for the tanker opportunity," said Thomas Jurkowsky, a company spokesman.

The Northrop Grumman-led team, in a statement, said that a long dispute between Boeing and Airbus over alleged unfair subsidies should not enter into the contest.

"We feel that it is a government-to-government matter that should be excluded from the tanker competition," said Randy Belote, a spokesman for Northrop, which would be prime contractor for the team proposing a modified Airbus 330.

The United States filed a World Trade Organization case in 2004 challenging repayable French, German, British and Spanish government loans or "launch aid" to Airbus.

The European Union, for its part, contends Boeing benefits from indirect subsidies ranging from state tax breaks to government research and development contracts.

In its invitation for feedback from would-be tanker suppliers, the Air Force also had asked about the impact of any retaliatory duties that could be imposed by the WTO.

"Incorporating the WTO issue into the upcoming tanker ... acquisition process is unprecedented," said Belote, the Northrop spokesman.

Boeing declined to comment on the Northrop-EADS request that WTO-related matters be stripped from the competition.

In responding Friday to the Air Force's feeler, Boeing left open the possibility that it might propose to modify an aircraft other than its 767, the Air Force's original choice to start replacing its aging fleet of 531 KC-135 tankers used for mid-air refueling.

Further Air Force feedback "will allow us to select the platform that provides the best value for the U.S. government and U.S. taxpayer," said Kerry Gildea, a Boeing spokeswoman.

The Northrop-EADS submission is based on modifying the Airbus A-330 which, if chosen by the Air Force, would be assembled and modified in Mobile, Alabama.

Analysts have said the Pentagon's plan for replacing the tankers would put Airbus, 80 percent owned by EADS, in a bind, forcing it to yield information that could be used against it in the WTO complaint.

The Air Force has said it expects to award a contract in the summer of 2007. Some estimates have put the potential market as high as $100 billion over coming decades.

The Air Force's tanker project has been in the spotlight since 2004, when Congress killed a $23.5 billion plan for the Air Force to lease and buy 100 Boeing 767s. Lawmakers took action after the convicted former No. 2 Air Force acquisition official, Darleen Druyun, admitted inflating the price as a parting gift to Boeing before taking a job with the company.