Europe's Airbus to bid without U.S. partner for Air Force tanker

McClatchy NewspapersApril 20, 2010 

WASHINGTON — With the encouragement of the Pentagon, the European parent of Airbus said Tuesday that it will compete for a $35 billion Air Force contract to build aerial refueling tankers even though its American partner has withdrawn.

"We intend to win," said Sean O'Keefe, chief executive officer of EADS North America, the U.S. subsidiary of the European Aeronautic Defense and Space Co.

EADS' decision to bid comes amid allegations that the Pentagon bent over backwards to encourage competition with Boeing for the contract to replace the current Cold War-era tanker fleet.

Earlier, the Pentagon extended the bid deadline by 60 days to allow EADS time to decide whether to bid after its partner, Northrop Grumman, withdrew. Boeing also received a letter late last week in which the Air Force said it was amending its earlier request for bids.

The letter indicated the Defense Department had decided to modify procurement rules that would have barred EADS from having access to sensitive communications equipment. The Pentagon also decided to waive duties that would have applied to parts EADS would have to import to build its tanker in the United States.

Rep. Norm Dicks, D-Wash., chairman of the House Appropriations Committee's defense subcommittee, said he and others were briefed on the modifications to the bid request and had complained to the Pentagon.

"They are treating it as an inconsequential matter," said Dicks. "We didn't like it, we didn't like the timing. But we are in a competition now."

Rep. Todd Tiahrt, R-Kan., called the Pentagon's actions "outrageous," adding that the Obama administration and the Defense Department must "stop bending over backwards to pacify" the Europeans.

Loren Thompson, a defense analyst for the Lexington Institute, a Virginia-based national security research center, said he was aware of the changes in the bid request.

"It appears the Pentagon is bending the rules to accommodate the EADS bid," said Thompson. "Before we have even started, EADS received three concessions from the Pentagon."

Lawmakers from Alabama, where EADS says its tankers would eventually be assembled, said they were pleased EADS would bid but warned that the competition still favors Boeing.

"I remain concerned that this competition is already skewed toward a smaller, less capable airframe," said Sen. Richard Shelby, R-Ala.

Pentagon officials had no immediate comment, but had said earlier that a competition was needed to ensure the Air Force got the best tanker and taxpayers got the best price.

EADS officials dismissed the allegations that the Pentagon was changing the rules to accommodate their bid.

"We are an American company chartered in New York," O'Keefe said.

O'Keefe said EADS had enough experience to go it alone without a major U.S. partner.

Northrop Grumman had teamed with EADS but withdrew after the Air Force issued its request for bids. Northrop officials said the competition was stacked to favor Boeing's medium-size tanker. EADS then requested that the deadline for bids be extended to allow it time to decide whether to bid on its own.

The Pentagon granted a 60-day extension just a day after French President Nicolas Sarkozy discussed the tanker contract during a White House meeting with President Barack Obama.

The bids are now due July 9.

The tanker competition has stretched over more than nine years and has been marked by a major Pentagon procurement scandal and political maneuverings on Capitol Hill. Northrop-EADS had won the initial contract, but that award was overturned by government auditors.

The contract will be for 179 tankers, but the deal eventually could be worth more than $100 billion as the Air Force replaces its fleet of 600 or so tankers.

The Boeing tanker would be based on a 767 airframe built at its factory in Everett, Wash., and converted to military use at its Wichita, Kan., facilities. About 9,000 jobs are at stake in Washington state and roughly 1,000 in Kansas.

EADS will use an Airbus A330 airframe, initially built at the Airbus factory in Toulouse, France, and modified for use as a tanker at an EADS facility in Spain. Eventually, EADS has said it would build a factory in Mobile, Ala., to assemble the tankers, though construction on the new plant has not begun.

If EADS wins, said Ralph Crosby, chairman of the board of EADS North America, the first three tankers would be built in Europe while work on the Mobile plant is finished.

Crosby said the EADS tanker would meet all the 372 tanker requirements.

"It would be almost hypocritical for us not to compete," Crosby said. "When you have the best, you have to compete. This is a hell of an opportunity."

Though EADS has decided to proceed without a major U.S. partner, O'Keefe introduced top executives of a handful of U.S. companies that will be subcontractors on the tanker, including GE, Honeywell and Goodrich. Also introduced was Trent Lott, a former senator from Mississippi and Senate majority leader who is now on the EADS North America board of directors.

Boeing said in a statement that it remained confident it would win, but it again pointed out that the World Trade Organization had found that Airbus has received illegal subsidies from European governments for its aircraft, including about $5 billion to launch the A330.

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