U.S. Aerospace and Antonov to bid for U.S. tanker

WASHINGTON Fri Jul 2, 2010 7:25pm EDT

WASHINGTON (Reuters) - U.S. Aerospace Inc, a small cash-strapped U.S. company, said on Friday it has joined forces with Antonov, the state-owned Ukrainian plane builder, to enter the hotly contested competition to build a new generation of aerial tankers for the U.S. military.

It is the latest twist in a nearly decade-long, drama-filled saga likely to end with a government contract worth as much as $50 billion to the winning bidder.

Bids are due by next Friday, but California-based U.S. Aerospace has asked the Pentagon for a 60-day extension to prepare its bid, an attorney for the company said. He said the team would submit a bid even if the request was denied.

Pentagon spokeswoman Navy Commander Wendy Snyder had no immediate comment on a possible extension but confirmed the department had received a request for information from U.S. Aerospace, and supported a competitive process.

"The department is committed to conduct a fair, open and transparent acquisition process. We also believe that any company that is interested and qualified to participate in this important program should do so," she said.

One analyst dismissed the new bid as a "waste of time."

John Kirkland, a Los Angeles-based attorney for U.S. Aerospace, told Reuters the team would offer the Pentagon a "dramatically" lower price for a far more capable plane.

Kirkland said Antonov, maker of the world's largest cargo planes, had modified an existing military cargo plane to meet U.S. specifications. Unlike the commercial derivative planes offered by rival bidders, the plane had a rear cargo door, a more stable airframe, and could land on dirt runways.

He noted the U.S. Army often leases Antonov planes to add extra transportation capabilities in Iraq and Afghanistan.

Boeing Co and Europe's EADS are already locked in a fierce battle for a contract for 179 refueling planes to replace the aging U.S. fleet of Boeing-built KC-135 tankers, which are nearly 50 years old on average.

Shares of U.S. Aerospace closed Friday unchanged at 12 cents in the over-the-counter market, after trading as high as 23 cents earlier in the session.

The company, which reported a net loss of $14 million in 2009, said in a filing with the U.S. Securities and Exchange Commission that it signed the deal with Antonov on Thursday.

The company told investors in May it was in default on several notes and had an accumulated deficit of $28 million, which raised substantial concerns about its future unless it was able to secure additional debt and equity financing.

U.S. Aerospace, formerly known as New Century Companies Inc, has been in discussions about the teaming agreement for some time, and did not believe that certain pre-submission deadlines for the bids would pose a material problem, Kirkland said in a telephone interview on his return from Kiev.

Kirkland was involved in a tanker bid by United Aerospace Corp, an aerospace consortium partly owned by the Russian government, in March that never materialized. UAC has denied involvement in any such bid. Kirkland said the deals were not related.

Defense analyst Richard Aboulafia of the Teal Group said the new bid was "a complete waste of time," citing concerns about the company's finances, security matters, maintenance, and the offering of a military plane with high wings, unlike the commercial type, lower-wing plane sought by the Air Force.

Kirkland said the board of U.S. Aerospace included senior former government officials who bought the company expressly to bid for the tanker work, especially given efforts by Defense Secretary Robert Gates to lower the high cost of U.S. weapons.

"They build the best plane at the lowest price, they win the bid," he said. "The U.S. Air Force doesn't get to deny a bid because there's a supplier from the Ukraine."

Kirkland said Ukraine was a respected maker of wide-body jets and dismissing the bid out of hand reflected "American arrogance."

Charles Arnold, a special adviser to the US Aerospace board, said the company would unveil the names of external investors, including some larger financial institutions, in the coming weeks, as well as U.S. defense contractors that would handle avionics and other sensitive technology work here.

He acknowledged U.S. Aerospace was small, but said it provided a clean slate to take on a big contract, without the problems that have plagued larger U.S. defense contractors.

In its filing, U.S. Aerospace said the team also planned to bid for other U.S. military contracts and sell Antonov aircraft, products and services in the United States.

It expects to bid three different models, the AN-124-KC, AN-122-KC and AN-112-KC, which would be built by Antonov in Ukraine, with final assembly in the United States.

Arnold said the company was considering locations in the southeastern and midwestern United States for final assembly.

EADS and Boeing declined to comment on the news.

U.S. Aerospace said it provides components to the Pentagon, the Air Force and other U.S. companies including Lockheed Martin Corp, Boeing, and L-3 Communications Holdings. It said it supplies parts used on military aircraft such as the P-3 Orion, and wide-body commercial airliners such as the Boeing 747.

(Reporting by Andrea Shalal-Esa; Editing by Derek Caney, Phil Berlowitz, Matthew Lewis and Sofina Mirza-Reid)