The Wall Street Journal-20080114-Airbus to Raise Ante in Bid For Military-Tanker Deal
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Airbus to Raise Ante in Bid For Military-Tanker Deal
Airbus will announce today that it will produce commercial freighter jets alongside Air Force tankers in Mobile, Ala., if it wins a hotly contested defense contract this year, according to people familiar with the situation.
Airbus parent European Aeronautic Defence & Space Co. is teamed with Northrop Grumman Corp., of Los Angeles, in an attempt to break Boeing Co.'s lock on the air-to-air tanker-jet market with the Air Force. Throughout the Cold War, U.S. fighter and bomber jets hooked up with Boeing tanker jets to refuel, but the planes are now older than most of the pilots who fly them. The contract for the next generation of tanker jets calls for 179 planes, valued at about $40 billion.
The timing of today's announcement is important and nearly certain to prompt a pointed response from Boeing because it is so close to the awarding of the tanker contract. The Air Force is expected to make a decision on the contract in the coming weeks. Air Force officials have said the contract will be awarded to the team that produces the best airplane and that political maneuvering won't sway their decision.
Such moves are common in the aerospace industry, particularly when a company is embarking on an important sales campaign or focusing on a market for its products. Airbus is setting up an assembly line for single-aisle airplanes in China, where the government plays a big role in choosing airplanes in that growing market.
The tanker contract is important because the winner could also have a leg up on future tanker contracts. The stakes are high for EADS because this is its strongest foray into the U.S. defense market, the world's biggest in terms of budget.
Reflecting the political stakes of the award as well as the potential local economic impact, Airbus has assembled a group of regional supporters, many of whom will be at an event in Mobile today. Among those expected to attend are Alabama Gov. Bob Riley and Alabama lawmakers Sen. Jeff Sessions and Rep. Jo Bonner.
By adding another type of aircraft to the final-assembly line in Mobile, Airbus hopes to hold down costs and operate the plant more efficiently. The additional work also means about 300 more jobs would be needed in addition to the 1,000 associated with the tanker assembly, according to a person familiar with the situation. Northrop Grumman and EADS believe work on the plane would involve 25,000 people in 49 states.
Building the tanker alone would mean producing about one aircraft a month on the Mobile line, but adding freighter work would lift the rate to four planes a month, according to the person familiar with the situation. Airbus has a backlog of 66 jets for the freighter version of the A330 jet, on which it is basing its tanker design. Boeing's tanker is based on the 767 jetliner, which has 52 unfilled orders.
Assembling the plane's components in the U.S. gives EADS ammunition against critics who contend that U.S. military pilots shouldn't be piloting a European plane in such a critical role.
But at a time when defense contracts produce fewer jobs, Congress is expected to enter the fray once the Air Force taps either Boeing or the Northrop Grumman-EADS team. Each team repeatedly has touted the economic and employment benefits of its program while claiming the other has exaggerated its case.
Buying new tankers is the Air Force's top priority for reasons beyond the aging fleet. The contract is a test for the Air Force's ability to acquire big weapons systems without controversy or legal problems.
Recent contract awards have been protested by the losing parties, requiring the Government Accountability Office to determine whether the government followed its own rules and criteria. The Air Force says it has taken pains to make sure the contest is open and fair.
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Daniel Michaels contributed to this article.
