June 19 (Bloomberg) -- European Aeronautic, Defence & Space Co. fell to its lowest in five years in Paris trading on concern the company may be stripped of a $35 billion U.S. Air Force contract following a ruling that competitor Boeing Co. deserves another chance to bid.

EADS slid 34 cents, or 2.5 percent, to 13.21 euros, the lowest price since July 28, 2003. The drop took declines this year to 40 percent, valuing Europe's biggest aerospace company at 10.8 billion euros ($16.8 billion).

EADS and U.S. partner Northrop Grumman Corp. won the contract to supply aerial refueling tankers based on Airbus SAS planes following ``significant errors'' in the assessment of the bids, the Government Accountability Office said yesterday in Washington. While the findings aren't binding, the Air Force will have to answer to Congress if it chooses to ignore them.

``This is very bad for EADS,'' said Doug McVitie, managing director of Arran Aerospace, a Dinan, France-based consulting company. ``It's back to square one now.''

Boeing appealed to the GAO after EADS, which is based in Paris and Munich, and Los Angeles-based Northrop were awarded the contract on Feb. 29. Boeing, which had held the program for more than half a century, said changes the Air Force made during the competition favored the rival bid.

EADS offered a tanker based around Airbus's A330-200 passenger aircraft. Its Chicago-based rival pitched a variant of the 767 jetliner.

The GAO announcement is an evaluation of the selection process, not of the merits of the competing aircraft, EADS Chief Executive Officer Louis Gallois said in a statement.

Best Aircraft

``We will support our partner Northrop Grumman and remain confident that the KC-45 is the aircraft best suited to meet the Air Force's critical-missions needs,'' Gallois said in a statement. Northrop issued a release saying it needs to review the decision before commenting further.

Howard Wheeldon, senior strategist at BGC Partners in London, said the U.S. Air Force will probably now cancel the contract and reopen the contest, influenced by mounting political pressure in the run up to this year's presidential election and the prospect of funding being blocked.

The contract win had been described by Richard Aboulafia, vice president of Teal Group in Fairfax, Virginia, as ``the best thing that ever happened to EADS.''

EADS had planned to assemble the planes at a plant it's building in Mobile, Alabama, helping match dollar costs to dollar revenues and ease the impact of the U.S. currency's decline against the euro.

``The outcome here now is obvious,'' said Loren Thompson, an analyst at Lexington Institute, an Arlington, Virginia-based public policy research group. ``The Air Force will have to revisit the competition and start over.'' The service has 60 days to respond to the GAO findings.

To contact the reporters on this story: Edmond Lococo in Boston at elococo@bloomberg.net; Andrea Rothman in Toulouse, France at aerothman@bloomberg.net

Last Updated: June 19, 2008 13:10 EDT