Turmoil at Boeing may have turned Brits toward Airbus

The Boeing Co.’s defeat earlier this week in the campaign for a 27-year tanker contract with Britain’s Royal Air Force could be the result of all the recent turmoil at the top of the company, according to pundits in the United Kingdom.

Whether that’s true or not, it’s clear that an Airbus win in this competition will make all future competitions for U.S. tanker contracts more contentious.

On Monday, Britain’s defense minister, Geoff Hoon, announced that the department had picked an Airbus-led consortium to supply the Royal Air Force with tankers in a deal worth $23.6 billion.

For that, Airbus’ parent company EADS will supply tanker service to the RAF with a fleet of 16 modified Airbus A330s. EADS and its partners will own and operate the fleet, hire military crews to fly the planes and supply all the fuel for the life of the 27-year deal.

However, EADS has not yet won the contract. Monday’s announcement means the company and the Defense Ministry have agreed to enter exclusive talks toward a final agreement.

Assuming the contract is signed, it would be a huge win for Airbus, which has been desperately seeking defense contracts as a way to grow.

On one level, the decision was an upset victory. Boeing and its partners (including, oddly enough, BAE Systems, which owns 20 percent of Airbus), offered a fleet of 20 jets — used 767-300ERs acquired from British Airways.

Boeing also had the seemingly overwhelming advantage of being the only company with a proven aerial refueling system. Boeing and McDonnell Douglas built all the tankers now flown by the Western alliance. Airbus has yet to build a tanker or certify a refueling boom, a fact the U.S. Air Force cited in 2002 when it rejected a proposed tanker bid from the consortium.

But the Boeing/BAE partnership had its share of problems, too.

For starters, the Defense Ministry has been under fire in Britain for more than $5.5 billion in cost overruns on major weapons systems. One of the biggest offenders has been BAE, which has gone over budget on high-profile contracts for new submarines and, most-damaging, refurbished maritime patrol planes.

And then there were Boeing’s problems — the firing of chief financial officer Mike Sears and the resignation of chief executive Phil Condit, both related to ethics problems related to the KC-767 deal with the U.S. Air Force.

British officials insist that they went with the EADS-Airbus bid because it offered the best value for the money. But the belief is that problems at BAE and Boeing didn’t help.

"Boeing self-destructed late last year as the campaign reached the short strokes," political analyst Michael Harrison wrote in The Independent newspaper. "EADS, the majority shareholder in Airbus, only had to stay out of trouble to win the contest."

One factor definitely in EADS’ favor was jobs. The company committed to hiring 7,500 British workers to build parts for the Airbus planes and refurbish them if it got the contract.

So why does this matter in Everett? It sets up the A330 as a real competitor to the KC-767 in the worldwide tanker market.

Even before Monday’s announcement, The Guardian of Manchester reported that EADS was gearing up to fight for future U.S. Air Force tanker contracts. The Air Force will need at least 400 tankers to replace its aging fleet of KC-135s, and while it’s almost certain that Boeing’s contentious deal for the first 100 will get done someday, that still leaves 300 jets on the table.