* BAE Systems out of running - sources
* L-3, No. 8 Pentagon supplier, declines comment
* Top L-3, EADS officials served in Pentagon at same time
By Andrea Shalal-Esa
WASHINGTON, April 6 Europe's EADS EAD.PA
would likely choose L-3 Communications Holdings Inc (LLL.N) as
a key supplier, should it decide to challenge Boeing Co (BA.N)
for a U.S. aerial refueling contract worth up to $50 billion,
according to analysts and sources closely following the
"Based on what we know today -- and things can change -- it
appears that L-3 seems to be the likely subcontractor," said
Scott Hamilton of Leeham Co, noting that there is a large
faction within EADS that wants to move ahead with a bid.
Analysts say a strong teaming agreement could help EADS in
what is seen as an uphill battle against Boeing, maker of the
current fleet of KC-135 aerial refueling tankers, especially
given simmering protectionist sentiment among U.S. lawmakers.
EADS, the parent company of Airbus, has been in discussions
with several companies, including L-3, Raytheon Co (RTN.N) and
the U.S. unit of Britain's BAE Systems Plc (BAES.L), the
But BAE Systems, which owned 20 percent of Airbus -- a unit
of EADS -- until 2006, would not join the EADS team, according
to industry sources not authorized to speak on the record. BAE
Raytheon had no immediate comment, but the company has few
if any major aircraft integration operations in North America,
having sold its E-Systems unit to L-3 in 2002, said Loren
Thompson with the Virginia-based Lexington Institute.
"From what I know, L-3 would appear to be the most likely
candidate," said Thompson.
L-3 spokeswoman Jennifer Barton said the New York-based
company does not comment on rumors or speculation.
EADS declined comment on the latest chapter in a
long-standing rivalry between Boeing and Airbus.
This is the Air Force's third attempt to begin replacing
its aging KC-135s, which are nearly 50 years old on average.
EADS was a key subcontractor to Northrop Grumman Corp
(NOC.N) when the team won the last tanker competition in
February 2008, but the Pentagon canceled the deal months later
after government auditors upheld a Boeing protest.
EADS DECISION AS SOON AS NEXT WEEK
Northrop withdrew from the competition last month after
concluding that the revamped terms of the Air Force competition
were skewed to favor Boeing's smaller 767-based tanker versus
the larger A330-based tanker that Northrop and EADS were
But the Pentagon told EADS, which would have provided about
87 percent of the plane's content, that it could bid as a prime
contractor. Last week, defense officials said they would give
EADS 60 extra days if it agreed to bid -- a significant
extension, but short of the 90 days EADS had sought.
EADS, which had also wanted some changes in the request for
proposals, is considering the Pentagon's offer. Industry
sources expect a decision from EADS as soon as next week and
say any announcement could name a U.S. partner.
Boeing last week said it was disappointed that EADS was
trying to delay the tanker competition further and was
reviewing its options. Some analysts said that suggests Boeing
could protest the competition terms if EADS entered the fray.
Analysts said a teaming agreement would clearly benefit
L-3, which has been trying to expand its profile as a major
player in the U.S. defense market. L-3 was the Pentagon's No. 8
supplier in fiscal 2009, with $7.1 billion in prime contracts,
according to www.usaspending.gov, a federal website.
L-3 is the prime contractor on the Pentagon's Joint Cargo
Aircraft, the C-27J, but it is partnered on that deal with
Alenia, a unit of Italy's Finmeccanica SpA SIFI.MI.
That plane is "far smaller and less complex but certainly
along the same lines" as the refueling tanker, Hamilton said.
EADS North America Chief Executive Sean O'Keefe has also
known Robert RisCassi, the retired Army general who runs L-3's
Washington office, for years.
RisCassi was vice chief of staff of the Army when O'Keefe
was the Pentagon's comptroller in the late 1980s.
EADS NEEDS DOMESTIC POLITICAL COVER
But Lexington's Thompson said L-3 lacks the stature of
bigger prime contractors like Northrop, Boeing or Lockheed
Martin Corp (LMT.N) to undergird an EADS bid for the tanker
"EADS really needs a major aircraft integrator ... to give
it domestic political cover in the United States. They don't
really need a partner at all, but an American imprint for
purposes of presenting themselves to the political system."
An agreement with L-3, a second-tier company, would not
allow EADS to "present their team as having a big American
footprint," Thompson said. "It will be obvious the government
is buying a European plane if EADS prevails," he said.
EADS is the prime contractor for a large Army helicopter
program, and also builds equipment for the U.S. Coast Guard and
Department of Homeland Security.
But Boeing supporters in Congress argue that EADS should
not be allowed to bid for the tanker work given a recent World
Trade Organization ruling that the company benefited from
illegal government subsidies, including aid to develop the A330
wide-body that it would pit against Boeing's 767 tanker.
The trade organization is due to rule on a European Union
counter claim about illegal aid to Boeing in coming months.
Any EADS bid would also include many of the same companies
that were involved in the joint Northrop-EADS bid, including
General Electric Co (GE.N), Honeywell International Inc
(HON.N), Rockwell Collins Inc (COL.N), Goodrich Corp GR.N,
and the U.S. unit of Britain's Cobham Plc (COB.L).
(Additional reporting by Tim Hepher in Paris and Rhys Jones in
(Reporting by Andrea Shalal-Esa, editing by Gerald E.