Lockheed chief says U.S. tanker not trade issue

By Jim Wolf

LONDON (Reuters) - The chief executive of Lockheed Martin Corp (LMT.N: Quote, Profile, Research, Stock Buzz), the Pentagon's No. 1 supplier, called the overturn of a $35 billion U.S. Air Force tanker deal involving Europe's EADS a contracting hitch, not a trade issue, and urged Europe to boost its defense spending.

"The tanker issue shouldn't be viewed as a trade issue as much as an acquisition issue," Robert Stevens told reporters on Sunday at a dinner on the eve of the world's biggest air show in Farnborough.

The U.S. Defense Department said last week it would reopen bidding after a botched competition for a new fleet of midair refueling tankers.

This gave Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz) a shot at wresting the deal from a Northrop Grumman Corp (NOC.N: Quote, Profile, Research, Stock Buzz) partnership with EADS (EAD.PA: Quote, Profile, Research, Stock Buzz), parent of Airbus, Boeing's commercial aviation rival.

The Northrop-EADS team beat Boeing for the contract in February. Boeing challenged the award with the Government Accountability Office, the U.S. Congress's audit and investigative arm. Meanwhile, congressional backers assailed the choice of Airbus over Boeing, which had supplied tankers to the Air Force for 50 years, as a blow to American jobs and a threat to the U.S. defense industrial base.

GAO said last month it had found "significant errors" in the Air Force selection process. Boeing might have won if not for flaws in evaluating the rival bids, it said in urging a new competition. Defense Secretary Robert Gates said on Wednesday he had concluded the deal could not go forward under the circumstances and ordered a new, fast-track competition.

Stevens said the perspective of Lockheed Martin was that of "an interested industry observer."

Everyone wanted "a process that's open and transparent where the rules are understood and they're followed," he said. The U.S. Air Force calls replacing its aging KC-135 tankers, used to refuel warplanes in mid-air, its No. 1 acquisition priority.