Aviation

EADS will not appeal Boeing's tanker deal

Boeing's victory in its decade-long effort to win an aerial tanker contract will stand.

On Friday, Boeing competitor EADS said it won't appeal last week's decision by the Air Force to award Boeing a $35 billion contract to replace its aging tankers.

"Let me cut to the chase... After meeting with the Air Force and the Department of Defense and evaluating the information that they provided to us in their debriefing, EADS North America has decided not to protest the KC-X contract," EADS North America chairman Ralph Crosby Jr. said in a news conference Friday.

The Air Force announced that Boeing was the winner of a contract to build up to 179 mid-air refueling tankers to replace the current Cold War-era KC-135 tanker fleet.

Boeing was awarded an initial $3.5 billion contract for engineering, manufacturing and development of the first four aircraft. By 2017, Boeing is to deliver the first 18 tankers to the Air Force.

The deal could eventually be worth more than $100 billion as the Air Force replaces its fleet of 600 or so tankers.

The win means thousands of jobs for Kansas and tens of thousands of jobs for the U.S., Boeing has said.

The Boeing tanker is based on a 767 commercial airliner. Spirit AeroSystems builds the 767's nose, struts and portions of the nacelles in Wichita, then ships them to Boeing's factory in Everett, Wash., for final assembly.

The plane will then be flown to Boeing Wichita, which will serve as a finishing center to convert the plane to military use.

Crosby called Boeing's bid "what I consider to be an extremely low-ball offer to achieve their strategic objectives." That objective, he said, is to keep EADS off U.S. shores.

EADS had planned to build a facility in Mobile, Ala., for final assembly.

When it's a fixed-price contract, "and the other guy decides he's going to win at any cost... then there's probably not a lot that could be done," Crosby said.

EADS North America CEO Sean O'Keefe said the company's future will now be on future opportunities and continued growth.

The Air Force issued a statement saying it "acknowledges the EADS announcement."

"The Air Force looks forward to the long awaited recapitalization of its air refueling fleet," the statement said.

EADS's decision not to protest means that work will move forward.

"We understand the importance of this effort to our customer and the country and stand ready, along with our nationwide team of suppliers, to go to work on the new KC-46A program," Boeing spokesman William Barksdale said in a statement.

The Pentagon said last week that the award basically came down to price. Both bidders had met all 372 requirements and the price difference was more than 1 percent, leaving cost as the factor.

EADS executives on Friday questioned how Boeing might make money on the contract.

They detailed the EADS bid and what they said the company had deduced analytically about Boeing's bid through a debriefing with the Air Force earlier this week.

Boeing declined comment on the figures.

According to EADS, Boeing's bid totaled $31.5 billion over 17 years, compared to its bid of $35 billion.

It's logical that Boeing's bid would be lower than the EADS bid — unless EADS tapped into European subsidies, said Lexington Institute defense analyst Loren Thompson.

The Boeing 767 is smaller than EADS' offering — the Airbus A330 — and, therefore, costs less to build and operate, Thompson said.

A 767 lists for $40 million less than an A330, he said, "before you even get to fuel costs.... So Boeing had a huge advantage — if EADS didn't use subsidies."

It's unclear whether EADS couldn't or didn't want to tap into those subsidies, Thompson said.

Boeing bid the tanker contract to make a profit, not to lose money, Thompson said.

"Whether they actually make a profit depends on if their assumptions are correct," he said.

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