Page last updated at 11:20 GMT, Tuesday, 9 March 2010

Boeing wins as EADS gives up mid-air refuelling battle

By Jorn Madslien
Business reporter, BBC News

Navy F/A-18 Hornet prepares to take on fuel from a US Air Force KC-10 while flying in 2001
Mid-air refuelling of fighter planes is both complicated and lucrative

Efforts to unseat Boeing from its top spot in US aerospace have come to nought.

US defence behemoth Northrop Grumman and Boeing's European arch rival EADS have failed in efforts to wrestle from Boeing a particularly mundane, albeit hugely lucrative, role as the lead provider of aircraft refuelling for military aircraft.

EADS chief executive Louis Gallois
We deeply regret that the United States Air Force will not get the best available airplane
EADS chief executive Louis Gallois

For a while it looked as if they had succeeded.

In February 2008, the EADS/Northrop Grumman joint bid was awarded a long-running contract for aerial refuelling tankers, which fill up military aircraft with fuel mid-flight.

At some $35bn to $40bn (£23bn to £27bn), the order for KC-30 Advanced Multi-role Tanker Transport planes was set to become the second-biggest US defence contract yet.

Indeed, at the time it was thought it could have risen in value to more than $100bn over the next 30 years, which would have made it the biggest by far.

But Boeing, which has been supplying the United States Air Force with KC-135 flying refuelling tankers for decades, fought back.

For starters, the US giant engaged in passionate patriot games, with full-page newspaper adverts playing the "American jobs" card.

The company also formally raised more than 100 protest points. In the end, US government auditors upheld eight of them and the Pentagon changed its mind and pulled the plug on the deal, inviting the rivals back for a new beauty contest.

Cross-subsidies?

Two years later, EADS and Northrop Grumman has now withdrawn from the competition, with EADS chief executive Louis Gallois declaring: "We deeply regret that the United States Air Force will not get the best available airplane."

Northrop Grumman stand at Paris Air Show
Northrop Grumman had wanted to oust Boeing as lead provider of military fuel

So in the end, it seems Boeing has won the day with its KC-7A7 project - featuring a vision rather than anything firm, as the company has yet to build its new tanker.

So far, all it has is a plan to modify one of Boeing's existing civilian freighter planes, such as the 767F or the 777F.

Such a plan to modify a civilian aircraft to deliver a military capability help provide ammunition for critics - including EADS and its subsidiary Airbus - which say Boeing's civilian and defence divisions cross-subsidise each other and thus enable them to undercut rivals.

Poisoned relationships

Losing the potentially lucrative tanker contract leaves EADS with a number of troubled projects that may well drain its resources rather than fill its coffers in the years ahead.

 

They include the A400M military transport plane project, which was saved from closure last week by an additional 3.5bn euros ($4.8bn; £3.2bn) from seven European governments, as well as the slow-selling A380 giant passenger plane and the costly-to-develop, smaller A350XWB.

But the company also has 9bn euros in cash reserves and it expects revenues this year to come in close to last year's 42.8bn euros.

So rather than focusing on EADS's ability to cope without the tanker contract, it may be more relevant to consider how the affair will have affected relations between it and Boeing, as well as between Europe and the US.

Suggestions that the Pentagon actively tailored its tanker criteria to fit the Boeing pitch have been refuted, though EADS and Northrop Grumman nevertheless insist their bid was never given a fair hearing.

The row leaves a bitter taste that may well poison cross-Atlantic relations for years to come.



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