EADS says won't kill price to win tanker

EADS Chairman and CEO Louis Gallois speaks at 2010 Reuters Aerospace and Defense Summit 2010 in Washington, September 8, 2010.

WASHINGTON (Reuters) - European aerospace group EADS (EAD.PA) vowed on Wednesday to stop short of offering below-cost refueler aircraft in its high-stakes rematch against Boeing (BA.N) for a potential $50 billion U.S. Air Force contract.

Boeing supporters in Congress have accused the Airbus parent company of preparing to engage in dumping with the help of European subsidies by offering cheap planes to win the politically sensitive contest for 179 refueling planes.

EADS Chief Executive Louis Gallois told Reuters the company would make money even as it competes aggressively to win the hotly contested defense deal to be announced this fall.

"We are not ready to kill the price," Gallois told the Reuters Aerospace and Defense Summit.

"Clearly we can live without the tanker deal but we want to earn money on this deal if we win it. The board of EADS has given me clear indications they want to have a profitable contract."

He said winning the deal would be strategically important for Franco-German-led EADS, which faces defense cuts and currency pressures in its home markets, but not at any cost.

"It is important for strategic reasons because we would become a U.S. aircraft manufacturer. It is very important. Economically we can live without it -- it is 15 planes a year."

EADS is offering to assemble commercial freighters in the same Alabama plant it proposes to use to put together tankers from parts produced in Europe. Gallois said it had no current plans to move other types of passenger jet production there.

The contest marks the third time the Air Force has sought to start replacing Eisenhower-era tanker aircraft. The purchase has long been listed as the Air Force's top acquisition priority.

FINAL A400M DEAL SOON

On Tuesday, a Boeing executive left open the possibility of trimming its bid to deny the deal to EADS.

"On price, I am happy to see Boeing is expressing its views. The only thing I can say to you is that we will be profitable," Gallois said, declining to give further details on the offer.

Boeing backers in the U.S. Congress have urged the Pentagon to add to EADS's bid price the estimated value of what the World Trade Organization has ruled were improper subsidies on the Airbus A330-200, the model on which the EADS tanker is based.

The European Union has appealed the finding, and EADS expects to recover ground when the WTO gives a preliminary view on an EU counter-suit next week, while Boeing has expressed confidence on both cases which it says are in any case not linked.

Gallois warned of stiffer competition on world export markets for Western arms as budget pressures force governments on both sides of the Atlantic to cut their spending.

Defense companies must come up with ways of helping governments defer spending, such as leasing military hardware and providing related services rather than focusing on outright sales, he said.

He said he expected European nations to agree by the end of the deal to ratify a provisional deal to bail out the Airbus A400M military airlifter after cost overruns and delays.

European nations agreed in March to pump an extra 3.5 billion euros into the 20-billion-euro project but talks to finalize the deal have been prolonged by British and German defense reviews which are expected to lead to significant spending cuts.

(Additional reporting by Andrea Shalal-Esa, Karen Jacobs, Phil Stewart, Kyle Peterson, Deepa Seetharaman and Soyoung Kim; editing by Carol Bishopric)