Boeing beats out EADS to win air tanker contract

McClatchy NewspapersFebruary 24, 2011 

WASHINGTON — Boeing won a $35 billion aerial tanker contract from the U.S. Air Force, defeating its European rival.

"To the men and women of our Air Force, today's announcement represents a long-overdue start to a much-needed program," said Air Force Secretary Michael Donley.

In a major victory for Washington state and Kansas, the Air Force announced that Boeing's bid was chosen over the company's longtime nemesis, the European Aeronautic Defense and Space Co., or EADS.

Donley said that the selection process "took into account mission effectiveness in wartime and lifecycle costs as embodied in fuel efficiency and military construction costs," adding that both bidders met all the requirements.

Chicago-based Boeing said the company is prepared to create 11,000 jobs in Washington state and 7,500 jobs in Kansas. Overall, the project will support 50,000 jobs with more than 800 suppliers in more than 40 states, Boeing said.

Had it won, EADS, the parent company of France-based Airbus, planned to build the airplanes at a new plant in Mobile, Ala.

In recent weeks, politicians from Washington state and Kansas had stepped up their lobbying by contacting President Barack Obama and Defense Secretary Robert Gates, saying it would be wrong to give such a lucrative contract to a foreign company, particularly at a time of high unemployment in the United States.

It's unclear what will happen next. EADS could appeal the decision, or its allies in Congress could try to withhold funding for the project.

The announcement by the Air Force is an attempt to end a decade-long saga over the aerial refueling tankers. The contract calls for producing 179 new tankers. But the deal eventually could be worth more than $100 billion as the Air Force replaces its fleet of 600 or so Eisenhower-era tankers.

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. At first, the Air Force planned to lease the tankers from Boeing, but that would have cost more than buying the planes outright. When the contract was put up for bidding, EADS teamed with U.S.-based Northrop Grumman to win the contract. But the Government Accountability Office upheld a protest filed by Boeing and overturned the contract.

That led to last year's rebidding, which again was marked by controversy.

Boeing's congressional allies had complained that the competition was unfair. They said EADS could underbid Boeing with the help of billions of dollars it received from European governments in market-distorting subsidies.

In June, the World Trade Organization ruled that four European governments had provided illegal subsidies over the past 40 years for every jet Airbus has launched and that Boeing and the American aerospace industry paid a steep price for the unfair competition. The Air Force, despite strong objections from Boeing's supporters on Capitol Hill, did not take the subsidies into consideration in deciding on the tanker contract.

The WTO later ruled that Boeing had also received illegal government subsidies, but not to the degree that Airbus did.

Then in late January, at a hearing of the Senate Armed Services Committee, senators from both parties loudly criticized the Air Force after military officials acknowledged that they'd accidentally disclosed secret data to Boeing and EADS before the companies had submitted their final bids.

Boeing has large manufacturing facilities in Washington state, Kansas, Missouri and another plant slated to open this year in South Carolina.

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, the company has said the first three tankers would be built in Europe while work on the Mobile plant is finished.

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