Defence industry

Europe anger over end of US air force tender bid

AFP, 10.03.2010

BRUSSELS — Europe cried foul on Tuesday over Pentagon contract rules it said favoured US plane-makers, after European consortium EADS threw in the towel on a mammoth US defence tender.

American giant Boeing is now poised to win the 35-billion-dollar (26-billion-euro) deal to supply US air force refuelling tanker jets, after rival partners Northrop Grumman and EADS dropped out of the race.

But after the companies cited skewed bidding rules, provoking widespread European Union anger, the prospect of a new battle pitting the EU against the US at the World Trade Organization cannot be ruled out.

In Brussels, a carefully-worded statement from EU trade chiefs -- who would lead the European case before WTO adjudicators -- queried the terms of the published tender document.

The WTO is already examining tit-for-tat disputes between the US and the EU over subsidies or state aid to Boeing and Airbus, legal battles which are expected to rage for years.

In Berlin, a German government minister accused the United States of "protectionism" and said he would "take up the affair on a political level, and also at the level of the WTO."

A French foreign ministry spokesman also warned that Paris will study closely the "possible implications" of the dispute.

Northrop Grumman and EADS charged that the requirements for the KC-X programme -- to replace a 1950s-era Boeing fleet -- were unfairly weighted in favour of their US rival.

While a European Commission spokesman declined to answer whether a WTO complaint would be forthcoming, a statement said the EU "would be extremely concerned if it were to emerge that the terms of tender were such as to inhibit open competition for the contract."

The commission "will be following further developments in this case very closely," it warned.

Brussels argued that the US defence trade balance with the EU has traditionally been "significantly in the US' favour," citing 2008 figures showing five billion dollars of US defence exports against only 2.2 billion dollars' worth of imports.

It did not give figures for 2009 or a longer timeframe.

EU trade commissioner Karel de Gucht underlined: "It is highly regrettable that a major potential supplier would feel unable to bid for a contract of this type.

"Open procurement markets guarantee better competition and better value for money for the taxpayer."

Rainer Bruederle, German Federal Minister of Economics and Technology, said he was "disappointed by the way the US defence ministry acted" and claimed the rules had "clearly favoured" Boeing, when "open competition should not be decided unilaterally."

Bruederle underlined that "particularly given the current economic crisis, the tiniest hints of protectionism are harmful."

The Northrop-EADS team originally won the contract in February 2008, but the deal was cancelled after Boeing successfully appealed the decision to the investigative arm of Congress.

EADS chief executive Louis Gallois said the final Pentagon tender offer "gives an advantage to (Boeing's) 767."

He underlined: "We have no chance of winning the competition and we regret it, because we think that we have the better plane."

EADS also posted a net loss for 2009 of 763 million euros (1.04 billion dollars), owing to huge cost over-runs on its separate Airbus A400M military transport plane for seven NATO clients.

Its share price sank by 4.85 percent to 15.11 euros after the announcements.

Of the Pentagon case, Airbus chief executive Thomas Enders told the Financial Times Deutschland's online edition that "the current tender is biased in favour of the competition's smaller and less able aircraft.

"The real losers are the US army and American taxpayers," he claimed.

Deputy US Defense Secretary William Lynn insisted that "we strongly believe that the current competition is structured fairly and that both companies could compete effectively."