EADS backer charges politics in tanker

WASHINGTON Tue Sep 21, 2010 7:34am EDT

Senator Richard Shelby (R-AL) speaks at the Reuters Washington Summit in Washington September 20, 2010. REUTERS/Kevin Lamarque

Senator Richard Shelby (R-AL) speaks at the Reuters Washington Summit in Washington September 20, 2010.

Credit: Reuters/Kevin Lamarque

WASHINGTON (Reuters) - A top Republican senator on Monday launched a fresh attack on what he called the Obama administration's injection of politics into a projected $50 billion competition between Boeing Co (BA.N) and Airbus parent EADS EAD.PA for new refueling planes.

"Politics shouldn't enter this procurement process, but it has on the inside of the Pentagon and the White House," Senator Richard Shelby told the Reuters Washington Summit.

"This administration is determined to give this contract to Boeing if there's any way to do it," said Shelby, who earlier this year held up the nominations of top Pentagon officials over the same issue. "I'm skeptical of the process."

The U.S. Defense Department denied that the Obama administration had any political agenda and underscored its determination to run a fair and open competition.

Tensions are escalating in the closely-watched transatlantic competition as the U.S. Air Force nears a decision in its third attempt in nine years to buy new refueling planes.

Analysts, lawmakers and industry observers say they expect a huge uproar regardless of which company wins, with the losing bidder likely to file a formal protest while its backers take the battle to the media.

Shelby, who represents Alabama, where EADS will assemble its refueling tankers if it wins, said he believed the Air Force preferred the larger A330-based plane proposed by EADS to the smaller and older 767-based Boeing plane, but politics meant Boeing was likely to win this round of the procurement.

Republican Senator John McCain, whose investigation killed an earlier sole-source Air Force deal with Boeing, told the Reuters Summit he was keeping close tabs on the process, but had no cause for concern.

"We pay close attention to it almost every day, and I haven't seen anything improper yet," McCain said.

McCain said he had great faith in Defense Secretary Robert Gates, the sole Republican cabinet member who stayed on in the Obama administration, and was confident that Gates would do all he could to ensure a fair and transparent process.

PENTAGON DENIES POLITICAL AGENDA

Geoff Morrell, Gates' press secretary, said the Air Force was still evaluating the competing bids.

"But I can assure Senator Shelby and every other member of Congress that politics has most certainly not entered into the procurement process," Morrell said in an emailed response to Shelby's comments. "We here at the Pentagon remain committed to a fair and open competition that delivers the best plane to our warfighters at the best value to the taxpayers," he added.

EADS and its partner in the last round of the competition, Northrop Grumman Corp (NOC.N), beat out Boeing to win a contract to build 179 refueling planes for the U.S. Air Force in February 2008, but the Pentagon later canceled the deal after government auditors upheld a Boeing protest.

The Air Force expects to award a contract to either Boeing or EADS this fall.

Shelby, who has remained fairly quiet about the issue in recent months, said he remained skeptical of the procurement process and was convinced the rules for the new competition were clearly "re-geared" to favor the Boeing plane.

He also warned about possible international repercussions if Boeing was awarded the tanker contract when the Air Force announces its decision later this year.

"There are trade issues here. Europe buys a lot of stuff from us," Shelby said. "It won't create goodwill."

Senator Patty Murray, a Democrat from Washington, where Boeing would build its 767 tanker, plans to introduce an amendment to the fiscal 2011 defense spending bill on Tuesday that would require the Pentagon to take illegal subsidies into account in picking the winner of the tanker competition.

Murray says the World Trade Organization has concluded that Airbus benefited from billions of dollars of illegal launch aid on the A330 plane it is using for its tanker bid.

Last week, an interim WTO ruling concluded that Boeing also benefited from U.S. federal and state subsidies, but U.S. sources said it was to a much lower extent that Airbus.

EADS decided to enter the competition as a prime contractor after Northrop dropped out, but only after President Barack Obama assured French President Nicholas Sarkozy that the competition would be completely transparent, open and fair.

France holds a 15-percent stake in the French-German company.

Scott Hamilton, defense analyst with Leeham Co, said Pentagon leaders were trying to make the decision apolitical by basing it on price, although that strategy was seen giving Boeing's smaller plane a competitive edge.

He said Shelby, and supporters of both companies, from both parties and in both houses of Congress, were injecting politics into the process, and the shouting would grow even louder once a contract was awarded. Hamilton added, "It's a sordid affair."

(Reporting by Andrea Shalal-Esa; Editing by Tim Dobbyn and Carol Bishopric)

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