EADS opts to compete against Boeing in US air tanker deal

European aerospace giant EADS announced on Tuesday it will bid on a lucrative deal to supply the US Air Force with new aerial refueling tankers, taking on its archrival Boeing.

EADS, the parent of Airbus, will make an offer as the lead contractor, having lost its US partner Northrop Grumman six weeks ago, officials said.

Chief executive officer Louis Gallois said the company wanted to expand in the American defense market, long dominated by Boeing and other US firms.

"We want to increase our presence in the United States," Gallois said.

EADS had faced a dilemma after Northrop Grumman dropped out of the competition, amid speculation executives had tried but failed to line up another American partner to take Northrop's place.

Other US firms, including General Electric, Honeywell, Hamilton Sunstrand and Goodrich, would serve as sub-contractors for EADS, officials told reporters in Washington.

"At no point, do we envision going it alone. We've got a substantial number of teammates and partners that we're in pursuit here with," said Sean O'Keefe, CEO of EADS North America.

"EADS had tried to line up another major American partner but decided to go ahead with a bid, with the help of American subcontractors, when it could not," The New York Times reported Wednesday citing unnamed industry officials.

Ralph Crosby, chairman of EADS North America, said he believed EADS would prevail in the contest because it had the best aircraft, a version of the Airbus 330, arguing the plane is already flying and in production.

"When you've got the best, you've got to offer it," said Crosby, adding in a jab at Boeing that its plane existed only "on paper."

The move revives a long-running contest between EADS and Boeing for the high-stakes deal, which has been plagued by scandal, intense lobbying in Congress and transatlantic tensions.

The decision came after the US Defense Department said it would extend a May 10 deadline for bidding by 60 days if EADS formally entered the contest.

EADS had asked for a 90-day extension after Northrop Grumman bowed out, saying the contract requirements favored Boeing's smaller plane.

The Pentagon, which had faced the prospect of Boeing being the sole bidder, welcomed Tuesday's announcement.

"We have consistently supported competition for the Air Force KC-X tanker replacement program," it said.

Crosby said the Pentagon's willingness to extend the deadline for proposals was an "important" factor in the firm's decision.

Boeing reacted by vowing to prevail in the contest, and repeated criticism of the Pentagon for offering to postpone the deadline for proposals.

"While we are disappointed in the bid submission delay, we hope for a fair and transparent competition free of any additional changes intended to accommodate a non-US prime contractor," it said.

US Air Force commanders see the planned KC-X aircraft as crucial to reinforcing American air power and are anxious to replace the older Boeing KC-135 Stratotankers that date back to the 1950s.

Industry analysts said EADS faced long odds in trying to beat out Boeing, which could offer a lower price with its smaller plane.

But by choosing to compete, EADS could ensure solid relations from the Pentagon in the future even if it lost the tanker contract, analysts said.

One European source close to the negotiations said EADS entered the contest also because it wanted to "prevent Boeing from running up huge margins" as a sole bidder.

The Northrop-EADS team originally won the contract in February 2008, but the deal was cancelled after Boeing successfully appealed the decision to Congress.

In 2003, the Pentagon awarded an air tanker contract to Boeing but later suspended the deal after an ethics scandal involving a company executive and an Air Force official. The Air Force official was later convicted of criminal conspiracy.

In the last competition, EADS and Northrop offered a modified Airbus 330, while Boeing proposed an altered 767.

Members of Congress have lobbied heavily on behalf of the rival firms, hoping to secure coveted jobs in their states.

EADS officials stressed that if it won the contract, the company and its US sub-contractors would generate tens of thousands of jobs at a plant in Alabama and elsewhere.

Lawmakers from states that are home to Boeing operations, including Washington, vowed to fight to defeat EADS's effort and criticized the Pentagon for extending the deadline for proposals.

The winner of the lucrative contract to supply 179 planes is expected to be declared by "early fall," according to the Pentagon.

Source: AFP

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