Boeing's tanker bid may gain from WTO ruling on Airbus

The U.S. Air Force must tailor its aerial-refueling tanker bid request to consider Friday's World Trade Organization ruling that Airbus received some illegal subsidies from Europe, some U.S. lawmakers said.

"It is a no-brainer that the bidding process for the tanker project should incorporate this ruling," Sam Brownback, a Republican senator representing Kansas, said Friday. "The Department of Defense should not look the other way."

A World Trade Organization panel found that European loans to France-based Airbus broke commerce rules, people familiar with the ruling said. Europe has six months to respond, and appeals may delay a final ruling until 2012.

The decision may hurt the Pentagon's ability to start a new competition that's scheduled this month for the aerial-refueling tanker contract.

Boeing in February 2008 lost a bid for the $35 billion tanker program to Los Angeles-based Northrop Grumman and teammate European Aeronautic, Defence & Space Co. (EADS), the parent of Airbus.

Boeing appealed to the Government Accountability Office and the agency overturned the award. Defense Secretary Robert Gates postponed a new competition to this year.

"The tanker contract must be awarded on the basis of a level playing field, and because of today's ruling that means it must account for the direct and unlawful subsidies that have allowed Airbus to launch the A330 and other large civil aircraft without the risks that other manufacturers must assume," said U.S. Rep. Norm Dicks, D-Wash.

"This WTO decision casts serious doubts on the validity of any Airbus tanker bid," said U.S. Rep. Jay Inslee, another Democrat from Washington state.

Both Washington and Kansas are home to Boeing plants. The Northrop tanker candidate is a modified version of the A330, while the Boeing proposal was based on its 767 aircraft.

Ruling called preliminary

Sen. Richard Shelby, a Republican from Alabama, said the trade body's ruling is preliminary and shouldn't affect the tanker acquisition.

The Northrop-EADS team intends to build the final assembly plant in Alabama plans if the two companies win the contract.

Sen. Patty Murray, one of the state's two Democratic senators, said the WTO decision raises "major questions."

The Pentagon must answer "how this violation of WTO rules will be considered in the competition," Murray said. Murray Brownback and Shelby are members of the Senate Appropriations committee whose defense panel will consider the Pentagon's 2010 budget request on Sept. 9.

Pentagon spokeswoman Cheryl Irwin directed questions on the case to the U.S. Trade Representative's Office.

"Unrelated dispute"

Ralph Crosby, chief executive officer of EADS North America, called the WTO decision an "unrelated dispute" used to hurt the U.S. defense-acquisition process, according to an e-mailed statement.

"Successive presidents and members of Congress of both parties have rightly determined that these issues are irrelevant to U.S. defense acquisition and have correctly refused to penalize U.S. warfighters by holding their needs hostage to an international administrative process," he said.

The ruling on Friday may have hurt the Northrop-EADS team, said Michel Merluzeau, an aviation analyst at G2 Solutions in Seattle.

"This will reinforce the perception, whether it's accurate or not, that the team is fielding a product that has been unfairly subsidized," Merluzeau said.

The European Union, citing military contracts, NASA research grants and state tax breaks, filed a complaint against U.S. assistance that helped Boeing develop the new 787 Dreamliner and other aircraft. WTO judges are scheduled to rule within about six months on that counterclaim.