Boeing bests EADS in surprise U.S. aerial tanker win

By @ibtimes on

Boeing Co was the clear winner in a U.S. Air Force tanker competition, the Pentagon said on Thursday, surprising analysts who had expected Europe's EADS to win the deal.

U.S. Air Force Secretary Michael Donley told reporters the contract was worth over $30 billion and Boeing's shares rose 3.5 percent in after-hours trading.

Boeing, which could still face a contract protest from Airbus parent EADS, was awarded an initial $3.5 billion to design and deliver 18 planes.

It is the third effort in nearly decade to start replacing the Air Force's Boeing-built KC-135 Stratotankers, built before man first landed on the moon.

The contest has sparked transatlantic tensions and clashes in Congress among lawmakers eager to bring high-paying aerospace jobs to their states.

Boeing was the clear winner, Deputy Defense Secretary William Lynn told reporters at the Pentagon.

He said EADS could protest the decision, but the Pentagon was convinced the decision was fair and transparent and there would be no grounds for a protest.

We think we've established a clear, a transparent and an open process and we think we've executed on that and it will not yield grounds for protest, Lynn told the briefing.

EADS last week said it would only protest if it saw egregious errors. On Thursday, it expressed disappointment and concern about the decision, but said the contract was just one business opportunity among many in the United States.

EADS did not say if it planned a protest. Company officials say they will wait until after a formal briefing by the Air Force, which is likely to occur on Wednesday.

EADS has 10 days to file a formal protest after a contract award and its congressional backers can also try to block the award legislatively. Several Alabama lawmakers said they would examine the decision carefully to ensure it was fair.

Teal Group analyst Richard Aboulafia called the decision a major surprise and said if it holds, Boeing will have succeeded in blocking EADS's biggest defense initiative.

Aerial refueling tankers supply fuel to fighter planes and other aircraft in mid-flight, extending the range of military operations.

Air Force Chief of Staff General Norton Schwartz said he was pleased that troops would finally get a new refueling plane. Let me just say that I'm pleased that this has produced an outcome ... that we'll get about delivering a capability that's long overdue -- and we'll stop talking about it.

EADS and Boeing, arch rivals in the market for passenger jets, have fought bitterly in public over the contest with expensive advertisements while their respective supporters have battled it out at dueling news conferences.

The decision disappointed EADS backers in the South, who had hoped work on EADS' A330-based tanker in Mobile, Alabama would boost a region still struggling with the aftermath of Hurricane Katrina in 2005 and last year's BP oil spill.

Alabama Governor Robert Bentley put a brave face on the news, telling hundreds of officials and business leaders: There's sunshine above the clouds. We are going to still work hard and we are going to still create jobs in this area.

Boeing offered a variant of its 767 twin-engined, wide-body passenger jet, to be built in Washington state and Kansas.

Brian Ruttenbur, a defense analyst with Morgan Keegan, said the decision gives Boeing a shot in the arm as the company looks to fix issues with its 787 commercial plane program.

Especially with all the Dreamliner issues they are having, they needed something, Ruttenbur said.

Pentagon officials declined to give any details from the bids, saying only that the two offers were more than one percent apart.

The Air Force has been trying since 2001 to begin replacing its Boeing-built KC-135 tankers.

An initial $23.5 billion plan to lease and then buy 100 modified Boeing 767s as tankers, fell apart in 2004.

EADS, partnered with Northrop Grumman Corp, won a 179-plane deal in February 2008, only to have it canceled after government auditors upheld parts of a protest by Boeing.

Northrop subsequently pulled out, leaving the European aerospace and defense company to bid alone.

Documents from the previous competition showed an average price for the Airbus plane of $160 million versus $168 million for the Boeing plane, but analysts say the price could wind up being 5 to 10 percent lower this time.

Shares of Boeing rose 3.5 percent to $73.25 in after-hours trading on Thursday after closing up 0.8 percent to $70.76 in regular trading on the New York Stock Exchange.

(Reporting by Andrea Shalal-Esa, Tim Hepher, Karen Jacobs, Kelli Dugan, Kyle Peterson, and Tim Hepher; Editing by Tim Dobbyn, Dave Zimmerman)

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