March 3, 2011 / 3:31 PM / 6 years ago

UPDATE 4-EADS near decision to concede Boeing tanker win

* EADS poised to announce won't protest contract - sources

* Boeing shares up, EADS down

* Fuel prices widened gap between Boeing, EADS planes (Summarizes EADS reaction to contract in paragraph 3)

By Tim Hepher and Andrea Shalal-Esa

PARIS/WASHINGTON, March 3 (Reuters) - Europe's EADS EAD.PA is poised to concede defeat in a decade-long battle with Boeing Co (BA.N) by deciding not to appeal a $30 billion U.S. tanker contract, sources familiar with the matter said.

The parent of Airbus could announce as early as Friday that it will not protest last week's surprise decision by the Air Force to award Boeing a contract for 179 new refueling planes, said the sources, who were not authorized to speak publicly.

Since the award to Boeing last week, EADS has been measured in its public response to the decision and has said it is looking forward to competing for other U.S. programs.

The move should avert the transatlantic tensions that flared after the Pentagon in 2009 revoked an earlier contract with EADS, but would likely dismay lawmakers in Alabama, where EADS had planned to assemble the flying gas stations.

It would hand a double victory to Boeing -- keeping its 767 production line running for a decade longer, and blocking Airbus from establishing a commercial airplane manufacturing site in the United States on the back of the tanker deal.

EADS shares, already depressed by Dubai's cancellation of a $4.76 billion Airbus jetliner order, closed down 2.7 percent at 19.78 euros in Paris, while Boeing shares rose 3.1 percent to $71.70 in afternoon New York Stock Exchange trading.

"Most likely there will be no appeal," said one source familiar with internal discussions at EADS.

Guy Hicks, spokesman for EADS North America, said the company was continuing to evaluate information provided by the Air Force this week and no final decision had been made.

Scott Hamilton of Leeham Co said the news was disappointing for EADS, but meant U.S. troops would finally get new refueling planes, which extend the range of military operations.

"That's the way things go in the world -- you win some and you lose some," he said.

Richard Aboulafia of the Teal Group said rising fuel prices had widened the gap in operating costs between the larger Airbus A330-based tanker and Boeing's more modest 767.

PEACEFUL CONCLUSION

The expected peaceful conclusion contrasts with a bitter ongoing dispute between Europe and the United States over civil aircraft subsidies and would come just a year after French and German leaders warned of the threat of U.S. "protectionism."

The Pentagon awarded the contract to Boeing last week, calling it the "clear winner" in a contest that Alabama Senator Jeff Sessions described as a "low price shootout." [ID:nN24261868]

Air Force Chief of Staff General Norton Schwartz on Wednesday reiterated that EADS was entitled to protest the contract loss if it believed mistakes were made and said the company would not face "payback" for doing so.

He acknowledged the "ugly" history of the tanker procurement, but said Air Force officials were convinced they had handled the process fairly this time and would prevail in any legal challenge. [ID:nN02254951]

EADS has until March 7 to decide whether it will protest, but company officials are already shifting their focus to other U.S. weapons competitions and the hunt for acquisitions that could help it expand its footprint in the United States

Airbus Chief Executive Tom Enders last week looked beyond tankers to future business, telling Reuters: "We have given our competitor a tough fight and forced them to offer a very low price. For Boeing, losing this would have been a disaster; for us it is only a lost business opportunity." [ID:nN25160928]

EADS officials were briefed by Air Force officials about the tanker decision on Monday and again on Tuesday, and are still carefully examining all the information; but sources said the company was leaning against a legal challenge.

The Air Force was tight-lipped to EADS in its initial explanation of the contract award, prompting the company to request a second briefing; but the sources said officials have not found the kind of "egregious" error that EADS North America Chairman Ralph Crosby had said it would take to justify a protest.

A formal announcement by EADS, which is likely on Friday, would pave the way for Boeing to begin work on a $3.5 billion development contract signed with the Air Force last week.

Neither the Air Force nor Boeing had any comment.

A key Boeing union said its workers are ready to start building the new planes.

"It's time for the lawyers to stand down," said Ray Goforth, executive director of the Society of Professional Engineering Employees in Aerospace Local 2001.

EADS and Boeing are likely to battle it out again in coming years, when the Pentagon plans to stage separate competitions for another 300-plus refueling planes. (Additional reporting by Kyle Peterson in Chicago) (Reporting by Tim Hepher and Andrea Shalal-Esa, editing by Gerald McCormick, Dave Zimmerman and Tim Dobbyn)

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