Tuesday, May 25, 2010

REFILE-UPDATE 2-Boeing cites Iran in tanker battle with EADS

* Boeing says national security could be hurt

* Pentagon rises to defense of EADS North America

* EADS says Boeing is seeking to divert attention

(Adds Pentagon comment, quotes, background)

By Jim Wolf

Defense News: WASHINGTON, May 25 (Reuters) - Boeing Co (BA.N) accused rival EADS (EAD.PA) of having courted Iran and other countries at odds with the United States and said this should be taken into account in awarding a potential $50 billion U.S. Air Force refueling plane contract.

EADS, headquartered in Paris and Munich, "continues to do business with countries that are not friendly to the United States," Timothy Keating, Boeing's vice president of government operations, told a small group of reporters.

U.S. national security could be undercut by relying on EADS, a company over which the United States lacks as much "leverage" as it does over Boeing from which it buys much more, he added.

The Defense Department rose to the defense of EADS, saying it did not want to get involved in the "political sparring that is clearly taking place here" and would confine its response to a "statement of fact."

"We would not have welcomed EADS North America's participation in this important competition unless they were a company in good standing with the Department of Defense," Geoff Morrell, the Pentagon press secretary, said by email.

Boeing and the corporate parent of Boeing's commercial archrival, Airbus, are locked in an increasingly bitter race to sell the Air Force an initial 179 tankers used to refuel other planes in mid-air.

Keating cited a marketing effort by EADS subsidiary Eurocopter at an Iranian air show at a time the United States was pushing European allies to get tougher on Iran over its nuclear program. The event took place in 2005, said Boeing officials, who supplied a link to an NBC television report at the time.

"We have not seen any indication that EADS no longer has an interest in marketing their military products to countries like Iran," a U.S. foe, Daniel Beck, a Boeing spokesman, said in a follow-up telephone interview.

A laminated card newly distributed by Boeing on Capitol Hill described EADS and its Airbus subsidiary as "foreign government owned." It added that they were free from such laws as the U.S. Foreign Corrupt Practices Act, which outlaws bribes and improper payments to win contracts overseas.

The card's flip side said the United States, "for reasons of national security," had never bought a critical military system "developed or produced by a foreign owned or controlled company -- including aerial refueling tanker aircraft."

France, Germany and to a lesser extent Spain have considerable sway over EADS, which was formed in 2000 through a merger of aerospace assets, but they have no say in day-to-day decisions or strategy.

The French government owns 15 percent, but its hands are tied by a shareholder pact giving control over nearly all issues to the industrial founders: French media group Lagardere (LAGA.PA) and German car company Daimler AG (DAIGn.DE). The pact was designed to allay German concerns about any French state interference.

EADS North America was chosen in 2006 to supply a new light utility helicopter for the U.S. Army, with a potential total "life-cycle" value of more than $2 billion.

A spokesman for EADS North American arm, James Darcy, said Boeing was trying to make the tanker competition "about anything other than getting the best tanker for the Air Force."

Boeing officials said the national-security implications of any EADS tanker contract were more serious now that Northrop Grumman Corp (NOC.N), EADS's partner in a previous tanker competition, had dropped out.

Northrop withdrew in March, complaining the contest was unfairly slanted to favor Boeing's smaller 767 wide-body derivative over its tanker based on a modified Airbus A330.

The Northrop-EADS partnership won the deal in 2008 only to have the award withdrawn after the Government Accountability Office ruled in favor of a Boeing protest that the Air Force had failed to follow its own bid-evaluating rules.

Boeing now says it fears EADS plans to low-ball its bid in an attempt to boost its toehold in the lucrative U.S. market. It is pushing a bill in Congress that would force the Pentagon to adjust EADS' bid by the value of illegal European subsidies as determined by a final World Trade Organization panel ruling in March.

"Only with a heavily and illegally subsidized price could their much bigger airplane cost less than than Boeing's 767 tanker," Keating told reporters. "We simply believe that the unfair advantage of those subsidies needs to be considered."

A European counter claim that Boeing has benefited from improper U.S. federal, state and local subsidies is due for an interim ruling by the WTO by the end of next month. A final ruling may not come in time to be factored in under the legislation introduced by lawmakers from Kansas, where Boeing's tanker would undergo final assembly and militarization.

Keating said the U.S. government would lack leverage to make sure of an uninterrupted flow of spare parts, for instance, for any Airbus tanker in case of a policy difference with France andGermany, which opposed the U.S.-led invasion of Iraq in 2003.

"What leverage does the United States have over EADS North America" the unit that would be the prime contractor, he asked.

"A lot less than they would have over the Boeing Company" which does a lot more business with Washington, he responded.

In an NBC television report that aired on Feb. 23, 2005, an EADS representative, Michel Tripier, said his company was emphasizing its civil helicopters at the air show on the Iranian island of Kish.

"As a European company, we're not supposed to take into account embargoes from the U.S.," he said on camera at the time.

EADS' Darcy said Tripier had not been authorized to make that statement "and his comments were both incorrect and inappropriate.

"He was removed from his position and ultimately left the company," Darcy added.

The only arms sales to Iran banned under three U.N. Security Council resolutions passed since December 2006 were those that might contribute to Tehran developing nuclear weapons. However, sanctions now under consideration by the council would bar sale of many categories of heavy weapons to Iran. (Reporting by Jim Wolf; additional reporting by Tim Hepher in Paris and Patrick Worsnip at the United Nations; editing by Tim Dobbyn and Andre Grenon)

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