UPDATE 1-Boeing tanker backers seize on WTO ruling

* Boeing backers say WTO must be factored in

* Airbus backers say WTO is irrelevant
(Recasts first sentence, adds lawmaker comments, other
background)

By Jim Wolf

WASHINGTON, Sept 4 (Reuters) - Backers of Boeing Co (BA.N)
pushed the Pentagon on Friday to factor an international trade
ruling into a renewed competition between the U.S. aerospace
giant and its European rival, Airbus (EAD.PA).

At stake is a projected $35 billion contract to supply
mid-air refueling aircraft to the U.S. Air Force, which intends
to purchase an initial 179 aircraft to start replacing its
aging KC-135 fleet.

The Defense Department is expected to kick off the
re-competition this fall.

Lawmakers from states that stand to gain jobs if Boeing
wins the tanker deal this time did not wait for an official
U.S. readout of the confidential, preliminary World Trade
Organization report on alleged illegal subsidies to Airbus.

Instead, they said the U.S. Defense Department must take
into account what they described as the WTO's pro-Boeing
findings before awarding the long-delayed tanker contract.

Boeing would vie again for the contract against a
trans-Atlantic team made up of Northrop Grumman Corp (NOC.N)
and Airbus parent EADS, which is offering a modified Airbus
A-330.

Relatively early on in the previous tanker selection saga,
the Defense Department decided that the WTO decision would not
factor into the selection of a winner in the tanker
competition.

U.S. Rep. Norm Dicks, a Democrat from Washington state,
where Boeing does much of its aircraft manufacturing, said
Friday that turning a blind eye was not acceptable in light of
the WTO ruling such as he described it.

"The U.S. government cannot reward illegal market actions
that have harmed U.S. manufacturers and stolen U.S. aerospace
jobs," he said in a statement.

Todd Tiahrt, a Republican from Kansas -- where the Boeing
tankers would undergo final assembly -- added: "The Department
of Defense can no longer put its head in the sand and ignore
internationally confirmed illegal subsidies that have for years
tipped the scales in favor of European workers."

Tiahrt said he had been briefed on the ruling by the Office
of the U.S. Trade Representative.

"It is time to move forward with the only clear solution to
the replacement of the KC-135 aerial refueling tanker," he
said, referring to the 767 offered by Boeing in the last
competition. "We need an American tanker built by an American
company with American workers."

Sen. Patty Murray, a Washington Democrat, said the Defense
Department "needs to answer to how this violation of WTO rules
will be considered in the competition for the vital aerial
refueling tanker."

The Defense Department declined to take a stance.

"It would be inappropriate to comment on any findings that
have not been made public," said Cheryl Irwin, a Pentagon
spokeswoman.

Dicks said the interim ruling from a three-person WTO panel
"definitively" upheld a U.S. contention that European jet-maker
Airbus received illegal subsidies to the detriment of Boeing,
the No. 1 U.S. export earner.

His statement followed consultations with U.S. officials
who had read the ruling, said George Behan, a spokesman for
Dicks.

On the other side of the tanker tussle, U.S. Senator
Richard Shelby, a Republican from Alabama -- where an
Airbus-based tanker would be assembled if Northrop wins the
contract -- said the WTO findings were irrelevant.

"It is important to remember that this preliminary report
pertains to a ongoing dispute involving civil -- not military
-- aircraft," Shelby said.

"Whatever its findings, they should not affect the upcoming
tanker acquisition," he added. "Any attempt to conflate these
two separate processes detracts from that paramount goal" of
buying the best tanker.

Analysts said it may take many years to reach a resolution
on the trade dispute, making it hard for the Pentagon to weigh
the dispute in its calculations.

"Both the U.S. and Europe view aerospace as strategic
industries, and I doubt that either would want to unilaterally
concede anything on this funding issue," said Rob Stallard, an
analyst at Macquarie Research.
(Reporting by Jim Wolf, editing by Matthew Lewis)