Boeing rejects protectionist motive over U.S. tanker

By Jim Wolf

FARNBOROUGH (Reuters) - The head of Boeing Co's (BA.N) defense business rejected suggestions he was banking on protectionism to win back a $35 billion defense deal from Europe's EADS and its partner, Northrop Grumman Corp (NOC.N).

The U.S. Defense Department agreed last week to reopen the bidding for 179 midair refueling planes after Boeing successfully challenged, on procedural grounds, the Air Force's choice of a rival Airbus A330 derivative.

The Air Force picked the Northrop-EADS team over Boeing on February 29, sparking a challenge that ended up giving the biggest U.S. exporter a new chance at the deal, one of the Pentagon's costliest acquisitions ever.

"We protested based on the process and the fact that the RFP (request for proposal) wasn't followed," Jim Albaugh, head of Boeing's Integrated Defense Systems, said in an interview at the Farnborough International Airshow, a global arms bazaar and aviation industry showcase.

In sustaining parts of Boeing's protest, the U.S. Government Accountability Office, Congress's audit arm, found last month the Air Force did not stick to its own rules for evaluating the rival aircraft.

They were a modified Boeing 767 tanker versus the A330 offered by Airbus parent EADS (EAD.PA), which is based in Munich and Paris.

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"And I reject the view that this is something driven by a protectionist desire on the part of Boeing," Albaugh said. "That said, I think if you were to review the industrial policies of a lot of other countries that we buy hardware from, that they have industrial policies that provide exclusive treatment for some of their domestic suppliers."

Protectionism is the practice of coddling domestic manufacturers to spare them from global competition, for instance to preserve jobs.

Albaugh was responding to remarks by Ronald Sugar, Northrop Grumman's chief executive. In a Reuters interview here on Monday, Sugar predicted dire diplomatic consequences if the Northrop-EADS tanker contract were overturned for reasons perceived to be protectionist.

"If it goes the other way because of protectionism and misinformed jingoism, I think that would be a devastating blow to the relationship with our most trusted allies," Sugar said.

Chicago-based Boeing has for 50 years been the sole provider of U.S. Air Force tankers, which are used to fuel other planes as they fly. The Pentagon said it would rerun the competition after fixing flaws identified by the accountability office with a goal of picking a new winner by December.

Albaugh said he was not sure what Sugar meant by "jingoism."

"I think I know what it means," he said, adding: "At the Boeing Company, we do business all over the world. We sell all over the world. We buy all over the world. And my view is that competition is right for the customer."

"It drives the best solution," he said. "And our military deserves the best equipment that money can buy regardless of where it comes from."

(Editing by David Holmes)