Sat, Feb 26, 2011 - Page 10 News List

Boeing wins US aerial tanker contract

BEATING EADS:A US defense official said the US firm offered a far better deal on supplying 179 refueling planes at a time when defense budgets are under pressure

Reuters, WASHINGTON

Boeing employees, left to right, Art Duffy, Jeff Miller, Ken Gross, Kirk Miller and Kristina Nelms, celebrate at the Cactus Saloon in Everett, Washington, after work and minutes after the US Air Force awarded a US$30 billion contract to the plane maker.

Photo: Reuters WARNING: EXCESSIVE CONSUMPTION OF ALCOHOL CAN DAMAGE YOUR HEALTH

Boeing Co won a US$30 billion contract for 179 new US Air Force refueling planes on Thursday, trumping arch rival Airbus parent EADS in a fiercely contested competition that began nearly a decade ago.

It was the third effort since 2001 to start replacing 50-year-old Boeing-made KC-135 Stratotankers, built before man first stepped on the moon.

“Boeing was the clear winner,” US Deputy Secretary of Defense William Lynn told reporters at the Pentagon.

He said Boeing offered a far better deal at a time when defense budgets are under increasing pressure.

Boeing’s shares rose 3.9 percent in afterhours trading on the news, which gave the Chicago-based aerospace giant a solid win as it struggles to gets its ailing 787 Dreamliner commercial airplane program back on track.

EADS expressed disappointment and concern about the decision, but said the contract was just “one business opportunity among many” in the US.

EADS said last week it would only protest the contract if it saw egregious errors.

Boeing was “humbled” by the win, said Dennis Muilenburg, chief executive of Boeing’s defense unit. He gave no details on pricing, but said Boeing was able to cut costs by working more closely with its commercial wing and making substantial investments to improve its 767 production line.

Muilenburg added that the Boeing plane was smaller, used 24 percent less fuel and would result in less reconstruction costs for military airports.

US Air Force Secretary Michael Donley said the initial US$3.5 billion fixed-price contract would pay for design, development and delivery of 18 planes by 2017, but could be worth more than US$30 billion in coming years.

Previous Air Force efforts to buy new planes to refuel other aircraft during flight have been marred by an ethics scandal and selection errors.

The contest has sparked trans-Atlantic tensions and clashes among US lawmakers eager to bring high-paying aerospace jobs to their states.

Analysts were caught off guard by the contract, given predictions that EADS would aggressively underbid Boeing.

Teal Group’s Richard Aboulafia called the decision “a major surprise” and said if it holds, Boeing will have succeeded in blocking EADS’ biggest defense initiative.

Lynn said EADS could protest the decision, but said Pentagon officials were convinced the decision was fair.

“We think we’ve established a clear, a transparent and an open process and we think we’ve executed on that and it will not yield grounds for protest,” Lynn said

EADS is waiting until after a formal briefing by the Air Force, which is likely to occur on Wednesday, to decide what to do, but its statement appeared to look to future opportunities to do business with the US military.

EADS has 10 days to file a formal protest after a contract award and its congressional backers can also try to block the award legislatively.

EADS and Boeing, arch rivals in the market for passenger jets, have fought bitterly in public over the contest with expensive advertisements while their respective supporters have battled it out at dueling news conferences.

US defense officials, who kept the news under wraps until it was announced at the Pentagon, gave few details about the bids, saying only that the offers were more than 1 percent apart.

Documents from the previous competition showed an average price for the Airbus plane of US$160 million versus US$168 million for the Boeing plane, but analysts say the price could be 5 to 10 percent lower this time.

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