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EADS lands $35bn US defence deal
By FT Reporters
Published: March 1 2008 00:49 | Last updated: March 1 2008 00:49
EADS, the European defence company, scored a stunning victory in its campaign to penetrate the US defence market on Friday by winning a $35bn (£17.6bn) contract to supply the US air force with refuelling tankers.
EADS and Northrop Grumman, its US partner, beat Boeing in a competition that could ultimately be worth more than $100bn.
The winning team will initially supply 179 air-to-air refuelling tankers using a modified version of the Airbus A330 passenger jet.
But the air force may select the same aircraft to replace its entire fleet of about 600 tankers over the coming decades.
Louis Gallois, EADS chief executive, told the Financial Times that it was “just great” to beat Boeing, saying: “I think it is the best contract I have won in my life.” Ronald Sugar, Northrop’s chief executive, said he was “delighted”.
The decision is a huge blow to Chicago-based Boeing. Congress cancelled its original deal to supply tankers in 2003 following a procurement scandal that sent a Boeing executive and air force procurement official to prison.
“Obviously we are very disappointed,” Boeing said in a statement. “Once we have reviewed the details behind the award, we will make a decision concerning our possible options.” Shares in Boeing fell 3.7 per cent in after-hours trade, while shares in Northrop rose 5.6 per cent.
Most analysts, before the decision, expected the losing bidder to protest.
Politicians from the state of Washington and Kansas, where Boeing would have built the tanker, lashed out at the air force decision.
“We are shocked that the air force tapped a European company and its foreign workers to provide a tanker to our American military,” said Patty Murray, a Democratic senator from Washington. “At a time when our economy is hurting, this decision to outsource our tankers is a blow to the American aerospace industry, American workers and America’s military.”
General Michael Moseley, air force chief of staff, this week warned that a protest would force the air force to continue using 44-year-old planes.
“From the warfighters’ point of view we need to get on with this,” said General Arthur Lichte, commander of the US Air Mobility Command, which oversees the US tanker fleet.
Richard Aboulafia, an aerospace expert at the Teal group, said the decision was a “major win for EADS and a breakthrough for their crucial US defence market strategy”. EADS will assemble the aircraft in Alabama where it has developed a strong group of congressional supporters.
But lawmakers supportive of Boeing will likely paint the decision as a blow to US industry.
“We are proud that the US air force chose the Northrop Grumman/EADS team to modernise its aerial refueling fleet,” said Ralph Crosby, chief executive of EADS North America. “We already have begun the work necessary to expand our US industrial footprint in support of this important programme.”
Loren Thompson, a defence analyst at the Lexington Institute, said that the air force had concluded that the winning team beat Boeing in four out of five criteria used to pick the aircraft, including superior fuel and cargo-carrying capacity.
The air force has gone to great lengths to dispel any suggestions of bias.
Sue Payton, the head of air force acquisitions, who has stressed that the Pentagon provided regular feedback to the rivals, said Northrop and EADS “clearly provided the best value to the government”.
Reporting by Demetri Sevastopulo in Washington, Sylvia Pfeifer in London, Peggy Hollinger in Paris, and Hal Weitzman in Chicago
Copyright The Financial Times Limited 2008
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