Pentagon loathe to consider Airbus subsidy-Gates

* Gates says thinks barred from weighing WTO ruling

* No decision on EADS' request for bidding extension

* Lawmaker urges against accommodating EADS (Adds quotes, background, analysis, byline)

By Jim Wolf

Defense News: WASHINGTON, March 25 (Reuters) - Defense Secretary Robert Gates said he thought the Defense Department was barred by law from considering subsidies in weighing a potential EADS bid for a multibillion-dollar U.S. Air Force refueling fleet.

Gates also told the Senate Appropriations Committee on Thursday that no decision had been made yet on the request by Airbus parent EADS for an extension of a May 10 bidding deadline.

Airbus image

Chicago-based Boeing Co (BA.N) is the only other known contender for the potential $50 billion deal for 179 tankers, aircraft used to refuel others in mid-air.

Sen. Sam Brownback, a Republican from Kansas, where Boeing would assemble and militarize its tanker, urged against pushing back the date for Europe's EADS to bid.

"I see no reason to concede this to the Europeans," he told Gates.

On Tuesday, a World Trade Organization panel ruled that Airbus had benefited from illegal subsidies, including ones to develop the A330 wide-body it might pit against a tanker based on Boeing Co's (BA.N) 767.

Brownback asked whether Gates understood current law to bar the Defense Department from addressing the subsidy issue "or are you saying that no provision requires DoD to account for illegal subsidies?"

"I think that we are prohibited but let me get you an accurate answer for the record," Gates replied.

On Wednesday, Gates had cited his lawyers as saying "that the WTO case gives us no basis on which to make a judgment."

If the United States were to take some kind of retaliatory action outside of the WTO process, it would most likely be in violation of the rules to which it agreed to adhere, Geoff Morrell, the Pentagon press secretary, added in an email to Reuters late Wednesday.

Together with Northrop Grumman Corp (NOC.N), EADS bested Boeing for a 2008 contract to start replacing 1960s-era KC-135 tankers, only to have the award canceled after Boeing lodged a formal protest. U.S. auditors found the Air Force had failed to follow its own judging rules.

Northrop said on March 8 it was withdrawing from the planned rematch. The Pentagon's final tender "clearly favors" Boeing's smaller 767-based tanker over the larger Airbus A330, Northrop's chief executive, Wes Bush, said at the time.

EADS is seeking up to three months to prepare a bid as its own prime contractor, including to study classified sections of the Pentagon's complex specifications. That information had gone to Northrop only because it was to have been prime contractor on the EADS team.

Some Boeing backers oppose giving EADS three more months for fear that the U.S. congressional elections on Nov. 2 could give Republicans a stronger hand in Congress. Such a reversal of fortunes in turn could boost southern states that would benefit from EADS plan to assemble its tankers in Mobile, Alabama. (Reporting by Jim Wolf; Editing by Steve Orlofsky)