Page last updated at 11:34 GMT, Tuesday, 9 March 2010

Northrop and EADS withdraw US air tanker bid

Air-to-air refueling
The race to win the deal has faced a number of twists and turns

Northrop Grumman and its European partner EADS have pulled out of bidding for a $35bn (£23bn) US defence deal.

The move should clear the way for Boeing to win the contract to supply the mid-air refuelling aircraft.

But the European Commission has queried the tender process, amid concerns that foreign companies were being excluded.

The EC said in a statement that it would be "extremely concerned" if the "terms of the tender were such as to inhibit open competition."

Jorn Madslien
By Jorn Madslien, Business reporter, BBC News

There is nothing graceful about EADS and Northrop Grumman's withdrawal from the competition to deliver planes that refuel US fighter jets mid-air.

Winning the contract would have bolstered the two stalking horses' coffers with much needed cash.

Instead, this saga may well have soured cross-Atlantic relations for years to come.

The two clearly feel that favouritism by the Pentagon has dashed their hope of wrestling the US Air Force contract from Boeing and, in the process, unseating the giant from its top spot in US aerospace.

Many European policy makers agree.

Northrop Grumman and EADS had won a contract in February 2008, but this was then cancelled following a Boeing appeal.

At the time, there was substantial political opposition in Washington to the involvement of EADS, which owns Airbus, the European rival of US-based Boeing.

Meanwhile, Boeing had been awarded the contract in 2003, only for it to be cancelled after an ethics scandal that saw a US Air Force official convicted of criminal conspiracy.

The Pentagon said it regretted Northrop's decision.

The US Air Force is seeking to replace its ageing fleet of 1950s-built KC-135 air tankers, which refuel fighter jets in mid-air.

European concerns

The European Commission, which has been involved in a long-running trade dispute with Washington over alleged subsidies to Airbus and Boeing, voiced concerns about the tender rules.

"It is highly regrettable that a major potential supplier would feel unable to bid for a contract of this type," said European Union Trade Commissioner Karel de Gucht.

"Open procurement markets guarantee better competition and better value-for-money for the taxpayer," he said.

A further statement from Brussels added: "The European Commission would be extremely concerned if it were to emerge that the terms of tender were such as to inhibit open competition for the contract."

'Favours Boeing'

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Northrop and EADS planned to build a tanker plane based on the large capacity Airbus A330 aircraft, while Boeing is proposing to use its smaller 767 aircraft.

Northrop said the US defence department's latest air tanker proposal requirement was unfairly geared towards a smaller aircraft such as the 767.

Wes Bush, Northrop's chief executive said the request "clearly favours Boeing's smaller refuelling tanker and does not provide adequate value recognition of the added capability of a larger tanker, precluding us from any competitive opportunity".

Northrop said that while it had "substantial grounds" to make a complaint, it would not, as it did not wish to further delay the tanker replacement programme.

'No slam dunk'

It and EADS had planned to assemble the tanker planes in Alabama, where 300 new jobs would have been created.

Alabama Senator Richard Shelby said the competition had been wrongly "structured to produce the best outcome [for Boeing]".

"The air force had a chance to deliver the most capable tanker possible to our war fighters and blew it," he added.

However, Senator Patty Murray from Washington state, where Boeing has its main assembly base said "today's news is by no means the end of the line, and this contract is no slam dunk [for Boeing]".

Analysts said EADS could theoretically now launch a solo bid, but that this was unlikely to be forthcoming given the antagonism in Washington to the European firm winning the contract.

In the red

News of the withdrawal came as EADS announced that it made a net loss of 763m euros ($1bn; £692m) last year, against a profit of 1.57bn euros in 2008, and said 2010 may be "volatile".

In the three months to December, the Airbus parent company also said it had lost 1.05bn euros.

Shares in EADS were down 5%, or 0.8 cents, to 15.08 euros in early Tuesday trading in Paris.

The firm scrapped its dividend as it was hit by financial charges on its A380 superjumbo, adverse currency fluctuations, and cost overruns on its delayed A400M airlifter.

"The A380 continued to weigh heavily on the underlying performance," EADS said in a statement, adding that it had also suffered from exceptional foreign exchange effects.

Last year Airbus beat rival Boeing in aircraft production, delivering a record 498 aircraft.

Airbus said it hoped to deliver the same number of aircraft this year as last year, and to secure 250 to 300 new gross orders.

But it warned that it saw the economy this year as "improving but still volatile".

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