Boeing Backers Seek to Raise Price of EADS Tanker Bid

Photographer: Paul J. Richards/AFP/Getty Images

A US Air Force KC-135 Stratotanker tanker. Close

A US Air Force KC-135 Stratotanker tanker.

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Photographer: Paul J. Richards/AFP/Getty Images

A US Air Force KC-135 Stratotanker tanker.

U.S. lawmakers who support Boeing Co.’s bid for a $35 billion Air Force refueling tanker contract introduced legislation today that would require the Pentagon to add the value of government subsidies to a competing proposal from European Aeronautic, Defence & Space Co.

“The Pentagon should add back about $5 million” per plane for each of the EADS tankers, which are based on the Airbus A330, said Republican U.S. Representative Todd Tiahrt of Kansas, where Boeing has manufacturing facilities. The number is based on $5 billion in government subsidies that Airbus, an EADS subsidiary, received for about 1,000 A330 planes, Tiahrt said. He co-authored the bill with Republican Senator Sam Brownback.

Boeing has expressed disappointment that the Pentagon gave EADS an extension to submit a tanker bid after the European company’s partner, Northrop Grumman Corp., dropped out of the competition. Boeing, which based its refueling tanker proposal on the 767 jet, said it was concerned the bidding process wouldn’t consider World Trade Organization findings about the subsidies.

The WTO issued a final ruling in March that backed key elements of U.S. complaints about European Union aircraft subsidies including aid for the Airbus A380, according to American lawmakers briefed on the findings. The judgment confirms the trade body’s preliminary ruling from September.

The legislation has about 20 supporters in the House and four in the Senate, Brownback and Tiahrt said.

‘No Basis’

Defense Secretary Robert Gates told U.S. lawmakers in March that Pentagon lawyers determined the WTO’s ruling “gives us no basis on which to make a judgment” and that the Air Force does not intend to change the contest rules.

The proposed legislation “is one more attempt to avoid competing on the merits of the tanker,” EADS spokesman Guy Hicks said in an e-mail. The tanker proposed by Chicago-based Boeing “faces tremendous technical risk” and therefore the company’s supporters are finding ways to avoid competition, Hicks said.

EADS says the 767-based tanker that Boeing proposes building does not yet exist, unlike the A330-based tanker, which Paris- and Munich-based EADS is currently supplying to Australia.

The legislation may be attached to the 2011 defense budget now being discussed in Congress, said Brownback, a Kansas Republican. If Congress approves and President Barack Obama signs the bill, the Pentagon would be required to adjust bid prices for all contractors that the WTO determines to have received improper subsidies, Brownback said.

‘Have That Conversation’

The chairman of House Armed Services Committee’s air-land panel, which authorizes defense spending and has jurisdiction over most aircraft programs, said today he’s considering adding a similar amendment to its version of the bill.

“We are going to want to have that conversation” when the full committee considers the bill next week, Representative Adam Smith, a Washington Democrat, told reporters today. If EADS “is able to offer a lower bid because they were illegally subsidized, I think that’s something we ought to look at.”

The winner of the tanker competition will replace 179 of the Pentagon’s more than 500 KC-135 refueling planes. The remaining aircraft and a fleet of about 60 larger KC-10 tankers are to be upgraded later. The first plane in the KC-135 class built by Boeing flew in 1956, and the last one was delivered decades ago.

To contact the reporters on this story: Gopal Ratnam in Washington at gratnam1@bloomberg.net; Tony Capaccio in Washington at acapaccio@bloomberg.net.

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