Air Force won't factor WTO ruling in tanker competition

McClatchy NewspapersSeptember 24, 2009 

WASHINGTON -- As it seeks new bids on a $35 billion contract to start replacing its fleet of aging aerial refueling tankers, the U.S. Air Force has decided not to consider a World Trade Organization ruling that a European aerospace company received billions of dollars in illegal subsidies for other aircraft.

The competition is expected to be a rerun of an earlier showdown between Boeing and a team of Northrop Grumman and the European Aeronautic Defense and Space Co., the parent company of Airbus.

The decision not to take into account a recent interim WTO ruling that Airbus received $5 billion in illegal "launch aid" from four European governments for the A330 and billions more for other aircraft wasn't unexpected.

The Air Force is aware of the WTO case and its interim ruling, but Undersecretary of Defense Ashton Carter said that the ruling could be appealed and that there was a counterclaim pending filed by the European Union alleging that Boeing has received illegal subsidies through military and NASA contracts.

"The final resolution of these cases is many years away," Carter said.

Still, lawmakers from states where Boeing jobs are at stake lashed out at the Air Force's decision.

"We argued and argued and argued," Rep. Norm Dicks, a Democrat from Washington, where Boeing would manufacture the planes, said after a briefing for lawmakers. "I think it's a mistake."

Rep. Todd Tiahrt, a Republican from Kansas, where Boeing would convert the planes into tankers, said he remained concerned that the Air Force hasn't even acknowledged the WTO decision.

"Somehow we need to get their attention," Tiahrt said. "These subsidies significantly affect the cost of the planes. They need to change this, otherwise there will be a protest."

Sen. San Brownback, R-Kan., said he was concerned that the request for bids not only failed to take into account the trade dispute, but also the Foreign Corrupt Practices Act and the U.S. International Trafficking in Arms regulations.

"These omissions will leave the Air Force and the Defense Department open to further criticism of the tanker selection process," Brownback said.

However, Republican Sen. Richard Shelby of Alabama, where the Airbus team plans to build a plant to manufacture its tankers said the Air Force made the right call.

"After initial review, the Air Force has made the fair and just determination to not include provisions that would irresponsibly penalize one competitor based on unfounded results of an interim World Trade Organization report," Shelby said. "This is the right decision."

Carter emphasized that the Pentagon had learned from the problems of the previous tanker competition.

"This is not a rerun of the previous competition," he said.

He and others emphasized that while price will be a factor in the competition, it won't be the only factor.

"We have tried to play this right down the middle and haven't favored anyone but the taxpayer and the war fighter," said Deputy Secretary of Defense William Lynn.

The actual Air Force draft request for bids will be released Friday, but lawmakers and reporters were briefed Thursday by Air Force Secretary Michael Donley and other top Pentagon officials.

Lawmakers from states with Boeing plants said after the briefing that the Air Force apparently has fixed the problems that led congressional auditors to overturn the earlier award of the contract to Northrop-EADS.

"It's a preliminary look, but it appears much fairer," said Rep. Adam Smith, D-Wash., adding that while he thought the subsidies unfairly helped Airbus and the Northrop-EADS bid, he thought it would be "dicey" for Congress to get involved.

Dicks said the draft included several factors, including the costs to operate, maintain and base the planes over 40 years, which should favor Boeing.

"That's all to Boeing's advantage," he said.

The tanker contract eventually could be worth $100 billion, as the Air Force needs to replace the 600 or so mostly Cold War-era tankers in its fleet. The initial order would be to replace 179 tankers.

Boeing is expected to offer the 767 or the 777, and Northrop-EADS the A330.

The Boeing planes would be built in the company's Everett, Wash., plant and converted into tankers at its Wichita, Kan., facility. About 9,000 jobs are at stake in Washington state and about 1,000 in Kansas.

The Northrop-EADS tanker initially would be built in Airbus' plant in Toulouse, France, though plans have been announced for a new facility in Mobile, Ala. Work hasn't started on the Mobile facility.

While the WTO decision involving the illegal subsidies remains confidential and isn't final, the U.S. in its complaint alleged the governments of France, Germany, the United Kingdom and Spain had provided $5 billion to Airbus to develop the A330 and a companion aircraft, the A340.

The U.S. complaint said the subsidies covered 60 percent to 90 percent of the development costs of the planes and came with below-market or zero-interest loans that wouldn't have to be repaid unless the planes were successful.

Airbus made clear at the time that it wouldn't be able to launch the A330/A340 unless the four governments agreed to provide the needed funding, the U.S. complaint said.

The contract will be awarded next summer and the first tanker delivered in 2015.

MORE FROM MCCLATCHY

Refueling in midflight, even on simulator, is no easy task

Trade ruling adds fuel to aerial-tanker contract fight

WTO rules Airbus got subsidies illegally, damaging Boeing

Boeing victory: GAO calls for new bids for Air Force tanker

European leaders lobbied Bush on tanker contract

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