Friday, May 28, 2010

DTN News: US House Votes Pro-Boeing In Tanker Contest

Defense News: DTN News: US House Votes Pro-Boeing In Tanker Contest
* Bill would force Pentagon to weigh illegal subsidies
* Marks Boeing victory in race with EADS for tanker deal
* Measure is adopted by lopsided 410 to 8 vote
Source: DTN News / Reuters By Jim Wolf
(NSI News Source Info) WASHINGTON, - May 28, 2010: The U.S. House of Representatives approved a Boeing Co (BA.N)-backed bill that would force consideration of illegal subsidies in the multibillion-dollar race between Boeing and Europe's EADS (EAD.PA) to sell refueling aircraft to the U.S. Air Force.
The lopsided 410 to 8 vote marked a victory for Chicago-based Boeing in its drive for a deal to build an initial 179 tanker aircraft potentially worth up to $50 billion.
Companion legislation must be passed by the Senate before it can be signed into law or vetoed by President Barack Obama.
Boeing and EADS, the corporate parent of Boeing's commercial archrival, Airbus, are locked in an increasingly bitter race over the U.S. Air Force deal.
Boeing earlier this week accused EADS of courting Iran and other countries at odds with the United States and said this should be taken into account in the tanker competition, too.
The measure passed by the House would require the Defense Department to consider any "unfair competitive advantage that an offeror may possess" in evaluating bids on major weapons systems.
The term "unfair competitive advantage" means a situation in which the cost of development, production, or manufacturing is not fully borne by the offeror for the contract, the amendment to a defense spending bill said.
A World Trade Organization (WTO) panel, in a final ruling in March, faulted billions of dollars of European subsidies to Airbus, including, according to U.S. lawmakers briefed on the matter, almost $5 billion used to develop the A330, EADS' tanker frame. [ID:LDE62M2OE]
A WTO panel is expected to make an interim ruling by the end of next month on a European Union counter-complaint that Boeing has unfairly benefited from U.S. federal, state and local subsidies.
It was not immediately clear how the legislation adopted late Thursday would apply to any WTO finding that Boeing also unfairly gained from subsidies. But any such final ruling may not come soon enough to figure in the tanker saga, which has dragged on for nearly nine years.
Bids are due July 9 and the Pentagon has told the bidders to be ready to start work by Nov. 12 if chosen for the deal.
This round of competition is the third time the Air Force has sought to start replacing its KC-135 tankers, which average about 50 years old.
The first, in 2004, would have been a lease-buy deal with Boeing, but it collapsed after two Boeing officials were convicted of conflict-of-interest violations, one of them the Air Force's former No. 2 arms buyer.
A team of EADS and Northrop Grumman Corp (NOC.N) won a 179-plane deal in 2008, but Boeing successfully protested the award, leading to the current round.
Rep. Jay Inslee of Washington, one of the measure's sponsors, said Republicans and Democrats could be united in a "simple proposition" as lawmakers considered the measure.
"We will never allow foreign competitors to steal American jobs by using illegal subsidies, then reward them by allowing the use of those illegal subsidies to win a contract worth tens of billions of dollars," said Inslee, whose state is home to the Boeing production line for the 767 wide body that would be converted into a tanker.
The Defense Department has maintained that it is barred from unilateral retaliatory action for violations of international trade rules.
"That is the purview of the WTO," Geoff Morrell, Defense Secretary Robert Gates chief spokesman, said May 13. "If we were to do so, we would then be in violation of WTO rules and subject to disciplinary action."
Boeing cheered the vote, saying it was entirely appropriate for lawmakers to take steps to prevent the U.S. defense industrial base "from suffering the same fate as the commercial aircraft industry, where illegal subsidies have contributed to the loss of tens of thousands of U.S. aerospace jobs."
"We fully support the efforts of all members of Congress who share our concern about the unfair competitive advantage that EADS/Airbus, a foreign company, gained from decades of illegal launch aid subsidies worth billions of dollars," a Boeing statement said.
EADS North American arm, which would be the prime contractor for its Airbus-based tanker, said it believed the Defense Department should be allowed to run "the fair and open competition to which it is committed."
"We leave it to the Department to comment on the extent to which this or any legislation impacts that objective," James Darcy, a company spokesman, said by email.
The Defense Department did not immediately respond to a request for comment.
The Defense Authorization bill, as approved by the House, also included a provision that would bar Pentagon fuel purchases from companies that have been sanctioned for doing business with Iran's energy industry.
(Reporting by Jim Wolf; Editing by Valerie Lee and Lincoln Feast)

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