Airbus Pursues Tanker Contract
Europe’s largest defense contractor is aggressively campaigning to wrest one of the Air Force’s biggest contracts from Boeing Co.
European Aeronautic Defence & Space Co., known as EADS, has launched a major public relations and lobbying campaign to persuade Congress and the Pentagon to buy its aerial refueling tankers instead of those built by scandal-plagued Boeing. The tanker contract is worth up to $100 billion.
“We are doing all that is necessary to be a real player in this competition,” said Ralph Crosby, a former Northrop Grumman Corp. executive who is head of EADS’ North American operations. “We do not intend to be a stalking horse.”
A Dutch-based consortium, EADS owns 80% of Airbus, which last year surpassed Boeing to become the world’s largest commercial airplane maker. Now, industry analysts said, Boeing’s problems have provided the Europeans with a political opening to possibly land the tanker contract.
Although it is unlikely that the Pentagon would have EADS replenish the Air Force’s entire tanker fleet, analysts said planes might well be purchased from both companies. For example, the Air Force could buy 60% of the aerial tankers from Boeing and 40% from EADS, or vice versa.
EADS executives said such a split buy would make economic sense for both Chicago-based Boeing, which is Southern California’s largest private employer, and Airbus, headquartered in Toulouse, France. It could also be advantageous for the Pentagon.
“There is growing awareness that more competition provides a better playing ground,” said Richard Aboulafia, an analyst with aerospace research firm Teal Group Inc.
“The more players, the more you can pressure the other guy for a better deal.”
Two years ago, Boeing beat out Airbus when it struck a $23.5-billion deal with the Air Force for 100 aerial tankers to replace aging craft also built by Boeing.
Since then, Boeing’s reputation has been tarnished by the biggest Pentagon procurement scandal in decades. A former top Air Force procurement official admitted last month that she had favored Boeing on several multibillion-dollar awards and had agreed to a higher price on the tanker deal because the company gave jobs to members of her family.
The former official, Darleen Druyun, also said she passed along to Boeing inside information on the rival tanker bid from Airbus.
The admissions by Druyun prompted Congress to cancel the tanker contract with Boeing and increased the likelihood of a new round of bidding next year. What’s more, the scandal highlighted the pitfalls of having the Pentagon beholden to one contractor.
Hoping to make an Airbus tanker deal politically palatable, EADS has pledged to build a $600-million plant in the U.S. for final assembly work and to hire 1,000 U.S. workers if it wins the contract. Crosby said EADS would also guarantee that at least 50% of the tankers, based on dollar value, would be made by American companies. In addition, he said, EADS would try to team up with a U.S. company to compete for the contract; the partnership would be modeled after a pact EADS recently signed with Northrop to develop a new generation of search-and-rescue helicopters for the Air Force.
Crosby, the point person in EADS’ tanker campaign, has extensive experience on big Pentagon projects. He joined EADS in 2002 after he lost an in-house competition to Ronald Sugar to become Northrop’s chief executive. Previously, Crosby, 57, ran Northrop’s B-2 stealth bomber program and headed Northrop’s military aircraft-making operations in El Segundo.
EADS has relatively modest contracts with the Pentagon, providing mostly electronic components and testing equipment. U.S. operations accounted for only $600 million of EADS’ $37 billion in worldwide revenue last year.
But it is pushing hard to get a bigger share. The company recently opened a plant in Mississippi to build helicopters for the Coast Guard, for example.
Despite Boeing’s problems, the company has supporters in Washington, in part because of politicians’ reluctance to award a large military contract to a foreign company. But several members of Congress, including Sen. John McCain (R-Ariz.), a chief critic of the Boeing tanker deal, have called for a new round of bidding.
Boeing Chief Executive Harry Stonecipher said last month that if the Pentagon reopened the tanker contract, “you can bet that we’re going to compete.”
EADS’ tanker would be a version of its Airbus A330 passenger jet; Boeing’s tanker proposal calls for modifying its 767 passenger jet.
The Air Force wants a multipurpose plane that would not only provide aerial refueling but also carry cargo, battlefield command and communication equipment and perhaps radar and sensors for surveillance work.
The planes would replace a mature fleet of tankers, some of which were built during the Eisenhower administration.
The new tankers must have two types of refueling systems: a retractable boom that can refuel Air Force aircraft and a hose system for Navy airplanes. In March 2002, when the Air Force eliminated EADS from contention, it noted that the Airbus tanker didn’t have so-called boom technology necessary to refuel its planes.
Now EADS is spending more than $90 million to develop an advanced boom system that would go on aerial refueling tankers it is building for Australia’s military. Crosby said the Airbus planes could be modified to refuel both U.S. Navy and Air Force planes.
Boeing officials scoffed at EADS’ claims.
“We continue to believe that the 767 tanker is the right-sized aircraft to perform the difficult missions asked for by the Air Force,” Boeing spokesman Douglas Kennett said. “That means the ability to take off and land with a full load of fuel from unimproved and narrow runs. 767 tankers can operate from 50% more airfields than can the Airbus offering.”
Boeing shares rose 92 cents to $52.07 on the New York Stock Exchange on Monday.
