Sources familiar with the matter told Reuters on Thursday that EADS, the parent of Airbus, was likely to announce that it would not challenge the contract for 179 planes, turning its focus instead to other weapons contracts and acquisitions.
The move may ease transatlantic tensions over defense contracts but is likely to dismay lawmakers in Alabama where EADS planned to assemble its fleet, the sources said.
For Boeing, it would mark a double victory -- keeping its 767 production line running for a decade longer, and blocking Airbus from establishing a commercial airplane manufacturing site in the United States on the back of the tanker deal.
EADS shares were largely unchanged in European trading on Friday, while Boeing shares were down 1.3 percent at $70.80 after making big gains on Thursday.
The Pentagon awarded the hotly contested contract to Boeing last week, calling it the clear winner in a competition that Alabama Senator Jeff Sessions said had devolved into a low price shootout.
Air Force officials have said EADS is entitled to protest if it believes errors were made, but that the Pentagon expects to prevail in any protest.
A formal announcement by EADS that it will refrain from a protest would pave the way for Boeing to begin work in earnest on a $3.5 billion development contract that it signed with the Air Force last week.
Defense analyst Loren Thompson said the news was almost all good for Boeing, allowing it to hold on to a core franchise and keeping its main rival out of the U.S. market. But he said Boeing would be under intense pressure to perform under the very aggressive bid it submitted.
The Pentagon plans to stage separate competitions in coming years for another 300-plus refueling planes, which provide fuel to fighter jets and other warplanes in mid-flight, extending the range of military operations.
(Reporting by Andrea Shalal-Esa; Editing by Phil Berlowitz)