EADS will challenge the Boeing Co. for a multibillion-dollar Air Force tanker contract, despite the fact that most analysts say the deck is stacked against the European company.
However, officials for EADS, the parent company of Airbus, like their chances.
“When you’ve got the best, you’ve got to offer it,” Ralph D. Crosby Jr., chairman of EADS North America, said in a press conference Tuesday.
EADS will compete for the $35 billion contract without the support of a major U.S.-based aerospace company after Northrop Grumman, its original partner, dropped out. Although Northrop thought the tanker requirements were written to favor Boeing’s smaller 767 tanker, EADS officials said Tuesday that the determining factor in the Air Force’s decision will be that of price.
EADS’ Sean O’Keefe said the company has a “pretty good sense” of how to mitigate its jet’s higher fuel cost and the construction cost at Air Force bases to accommodate the larger size of its offering.
Still, analysts such as Scott Hamilton, with Issaquah-based Leeham Co., believe EADS’ chances are slim for winning the contract to supply the Air Force with 179 aerial refueling tankers. Hamilton didn’t rule out the potential of EADS submitting a bid below its costs of production just to gain entry to the U.S. defense market.
But “that’s a heck of a gamble,” he said.
EADS already has two programs — the A400 military aircraft and Airbus’ A380 superjumbo jet — that pose a huge financial drain on the company. But after spending the last five years on the U.S. Air Force competition, EADS has little to lose in bidding for the contract, Hamilton said. Even the costs associated with bidding are “pennies” compared with what EADS has spent so far.
Northrup had estimated its costs at $100 million.
Ray Stephanson, mayor of Everett, where Boeing’s 767 jet is built, said he’s dismayed at EADS’ return to the contest.
“Are they willing to submit a bid that’s substantially under the cost to produce it?” he asked.
The Pentagon is extending the bid deadline by 60 days, to July 9, to accommodate EADS’ bid. This is the Air Force’s third attempt to replace its Eisenhower-era KC-135 tankers. Pentagon spokesman Bryan Whitman told the Associated Press that the department welcomed the EADS announcement and that it believes “any company that is interested and qualified to participate in this important program should do so.”
Boeing responded to EADS’ announcement Tuesday afternoon, saying the Chicago-based jet maker’s NewGen tanker will meet all of the government’s requirements at the lowest cost to the taxpayer.
“We are confident in the superior value and capabilities of our NewGen Tanker and intend to present a compelling case for it in our proposal,” Boeing said in a statement. “While we are disappointed in the bid submission delay, we hope for a fair and transparent competition free of any additional changes intended to accommodate a non-U.S. prime contractor.”
EADS’ Crosby said his company is not seeking a major U.S. contractor as a partner. Instead, he pointed to their long list of “formidable” U.S. suppliers as their tanker’s support base. EADS also has had the last five years to perfect its tanker, based on an Airbus A330 jet. EADS’ tanker, which is in production and has been certified by aviation regulators, bested Boeing’s 767-based tanker in several international competitions.
“It’s our view that the Air Force shouldn’t be forced to buy a tanker that only exists on paper,” Crosby said.
Although Boeing has been building 767-based tankers for the governments of Japan and Italy, the 767 tanker configuration it’s proposing for the Air Force hasn’t been built yet.
As it planned with Northrop, EADS will assemble its tanker in Mobile, Ala. EADS’ announcement, therefore, drew support from Alabama politicians.
“A sole-sourced contract would have served only Boeing’s interest. The presence of a competitor better serves the interest of our warfighters and American taxpayers,” said Sen. Richard Shelby, R-Ala., in a statement.
Boeing supporters like Sen. Patty Murray from Washington state, where Boeing’s 767 is built, said the Pentagon is bending over backwards to accommodate EADS. They continued to express concerns that the Air Force isn’t taking a trade ruling against Airbus into consideration on the tanker.
“For years, Airbus has gone to any length to gain U.S. market share and undercut American workers. … Whether it’s extending deadlines, threatening to drop out if the rules aren’t changed in their favor, or receiving billions in illegal, trade-distorting subsidies, no ploy is spared,” Murray said.
Analyst Hamilton thinks Boeing and its supporters are on slippery ground with the subsidy argument, given that Boeing may well lose a counter complaint against it brought by Airbus.
“Why not just shut up and go ahead and bid?” Hamilton said.
What’s next
July 9: The Boeing Co. and EADS will submit bids.
Autumn 2010: Air Force to announce winner
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
