EADS won't face "payback" if it protests": general

WASHINGTON Wed Mar 2, 2011 3:19pm EST

WASHINGTON (Reuters) - Europe's EADS EAD.PA is entitled to protest the loss of a new refueling plane contract to Boeing Co (BA.N) if it believes the procurement was flawed, and would not face retribution for doing so, a top U.S. Air Force official said on Wednesday.

Air Force Chief of Staff General Norton Schwartz said EADS did a "magnificent job" competing for the contract for 179 aerial tankers, which is worth over $30 billion, but he was confident that the Air Force would prevail if EADS decided to challenge the Boeing contract award.

EADS, the parent of Boeing's arch rival Airbus, must decide by March 7 whether to protest the Air Force's surprise decision to award the contract to Boeing, capping a nearly decade-long effort to begin replacing the current 50-year old planes.

EADS officials have been tight-lipped about their decision-making process, but analysts say the European company is unlikely to protest so it doesn't alienate U.S. military officials and can bid for other weapons contracts later.

Asked if an EADS protest could harm the company's chances of bidding for future Pentagon contracts, Schwartz said, "There's no payback on these kind of things. The process is much too pristine for that."

Schwartz, speaking at a conference hosted by Credit Suisse and McAleese & Associates, acknowledged the troubled history of the tanker acquisition program, but said the process was carefully monitored and recorded at every step to avoid another reversal by government auditors.

"You know the history on this, and frankly it's ugly," Schwartz said, adding, "We worked diligently ... to make sure that this time, we did it properly."

The Air Force failed at two previous attempts to start buying replacements for a fleet of over 500 KC-135 refueling planes. Congress killed a first, sole-source deal with Boeing amid ethics violations, and the Pentagon canceled a second contract, with EADS and then-prime contractor Northrop Grumman Corp (NOC.N), after auditors upheld a Boeing protest.

Schwartz said the Air Force worked hard to ensure that the current procurement was more objective and less judgmental, saying he trusted that EADS and its congressional supporters would "respect" the decision and allow the procurement to finally move forward.

Defense Secretary Robert Gates told reporters on Tuesday that he believed the procurement process was "very transparent" and "forthright" and that Pentagon officials did not believe there were grounds for a valid protest.

(Reporting by Andrea Shalal-Esa, editing by Dave Zimmerman)

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