Europe Plays Down Setback In U.S. Tanker Bid

Team Infidel

Forum Spin Doctor
New York Times
June 20, 2008 By Matthew Saltmarsh and Leslie Wayne
PARIS — Seeking to avoid a new trans-Atlantic trade clash, the European Aeronautic Defense and Space Company and European politicians played down on Thursday a report that might jeopardize a $35 billion United States military contract awarded to EADS in partnership with Northrop Grumman.
Boeing, which was EADS’s rival for the contract to build a new generation of Air Force refueling tankers, appealed the Feb. 29 decision, and a review issued Wednesday by the Government Accountability Office found flaws in the process that it said warranted reopening the bidding.
“Everyone on this side of the Atlantic is extremely disappointed,” said Alexandra Ashbourne, who heads Ashbourne Strategic Consulting in London, an aerospace analysis firm. “There was the very firm belief that the Northrop-EADS plane was the right solution for the Air Force.”
Boeing’s appeal was supported by members of Congress who argued that important military contracts should not be awarded to foreign companies like the French-German EADS, the parent of Airbus.
EADS officials dismissed the accountability office’s conclusion, maintaining that the bidding process had been open. But the company and European politicians appeared eager to avoid opening a new rift as the United States heads into a presidential election in which jobs and a stumbling economy are at the forefront of the debate.
France, which has clashed with the United States in a separate dispute between Airbus and Boeing over aircraft subsidies, gave an officially muted response. The office of President Nicolas Sarkozy declined to comment.
But Bernard Carayon, a member of Mr. Sarkozy’s ruling center-right UMP party, said the decision sowed the seeds of a potential clash with the United States, which he said was practicing economic nationalism. “The challenge to the air-refueling contract by the U.S. Government Accountability Office is a blow to our trans-Atlantic relations,” he said in a statement.
“The defense by the Americans of their economic interests is more important than choosing the best and cheapest military plan,” he added. “It’s not the first time that national interest has superseded market logic.”
Privately, some French officials say the G.A.O. action confirms their sense that it is difficult to work with the United States, especially on flagship programs.
“Europeans felt that they had come with a grade-A solution for the Pentagon,” Ms. Ashbourne said. “And now it has become a very complicated situation.”
On Wednesday, the EADS chief executive, Louis Gallois, said he was disappointed by the decision but added: “It’s important to recognize that the G.A.O. announcement is an evaluation of the selection process, not the merits of the aircraft.”
The Air Force has 60 days to respond to the G.A.O.’s findings.
Randy Belote, a spokesman for Northrop Grumman, said, “We continue to believe that Northrop Grumman offered the most modern and capable tanker.”
A person with knowledge of EADS’s strategy said that the company would continue to argue that the tanker — the KC-45, based on the frame of the Airbus A330 refueling aircraft — was the best on the market, having been extensively tested and ordered by Australia, Britain, Saudi Arabia and the United Arab Emirates.
“People really felt that the A330 was the superior product and thought that it was the right choice,” Ms. Ashbourne said.
Daniel Keohane, a research fellow at the European Union Institute for Security Studies in Paris, said the case was of enormous significance to trans-Atlantic military trade in an era where the aerospace supply chain is increasingly global.
Selling military equipment to the United States has long been difficult for European companies, who cite legislative hurdles like the Buy American Act, passed by Congress in 1933, which allows procurement preferences for domestically produced goods.
Some European companies, like BAE Systems of Britain, have used acquisitions as a route into the market. In May, BAE spent $4.1 billion to buy Armor Holdings, which makes vests and trucks for the Army. The company also spent $4 billion in 2005 to acquire United Defense Industries, which makes the Bradley fighting vehicle used in Iraq.
Others have followed the BAE route. Finmeccanica of Italy agreed last month to pay $5.2 billion for DRS Technologies of the United States, a deal that will require at least three separate reviews by United States agencies.
For EADS, rocked with insider trading scandals, the setback in Washington could not come at a worse time.
The tanker program, while large in its own right, was to be the first phase of a multipronged project. After setting up an assembly plant in Mobile, Ala., to build the tanker, EADS had planned to shift some A330 cargo assembly to the United States.
But when it came to playing the Washington game, Boeing may have held the upper hand. It lined up lawyers to protest loudly and provide information to the G.A.O., and undertook a prominent media campaign involving ads in major newspapers.
Gov. Bob Riley of Alabama, who lobbied hard for the EADS proposal and the jobs it would bring to his state, expressed disappointment with the G.A.O. report, but said he still believed that EADS might prevail. “It is important to remember that this is not a decision on who ultimately wins, but about the process,” Mr. Riley said.
Matthew Saltmarsh reported from Paris and Leslie Wayne from New York.
 
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