UPDATE 3-US arms buyer keeping WTO dispute out of tanker bids

* Can only hold taxpayer harmless from any damages

* Final bidding rules may not be ready by end of November

* Still plans to award contract by next summer (Adds Boeing reaction in final paragraph)

WASHINGTON, Nov 23 (Reuters) - The Pentagon's chief arms buyer dismissed calls from Boeing Co's BA.N allies in Congress to take a World Trade Organization ruling against Airbus into account in the potential $50 billion competition to supply mid-air refueling aircraft to the U.S. Air Force.

The trade issue was addressed when draft bidding rules were issued in September for a tanker rematch pitting Boeing against a team of Northrop Grumman Corp NOC.N and Airbus parent EADS EAD.PA, Ashton Carter, under secretary of defense for acquisition, technology & logistics, said on Monday.

“The only action we can take at this point ... (is to make sure) that the taxpayer is held harmless in respect of any damages that end up being awarded in any of the cases before the WTO,” he told a group of reporters.

In September, the Pentagon said the WTO findings were preliminary and that Airbus, based in Toulouse, France, had filed a counterclaim against Chicago-headquartered Boeing.

The dispute centers on a complaint filed in 2004 by the U.S. Trade Representatives’ Office alleging that Airbus received illegal subsidies from European governments to develop several of its aircraft, including the A330 model that would be the basis of the Northrop-EADS tanker.

Carter said the Pentagon still planned to award a contract for 179 tankers by next summer, a deal which a top Air Force official has called potentially worth $25 billion to $50 billion.

At stake is the first of three batches of aircraft that could cost more than $100 billion over coming decades. EADS plans to open a factory in Mobile, Alabama, for final assembly of its tankers if it wins. The competition has sparked fierce competition among lawmakers eager to bring jobs to voters.

“We’ve had obviously criticism from both parties,” Carter said Monday of the draft bidding rules. “I suppose that was destined to be.”

He said the Pentagon may or may not meet its original target of putting out the final tanker bidding rules by the end of this month, 60 days or so after publishing the draft request for proposal.

“It’ll happen when we’re done doing a thorough job of considering all the questions and suggestions we’ve gotten,” he said.

Northrop has argued the Pentagon appears to have set up a “price-shootout” that may favor a smaller, cheaper plane such as the modified 767 wide-body Boeing offered last time.

Lawmakers from states that would benefit from a Boeing victory renewed their push last week to factor the WTO’s interim ruling into the Pentagon’s evaluation of the bids.

In its preliminary ruling in September, the WTO ruled the Europeans had given billions of dollars in subsidies to Airbus for the design and manufacture of large aircraft in breach of free-trade rules, according to Boeing backers’ accounts of the confidential findings.

Rep. Norm Dicks, a member of the House of Representatives Defense Appropriations subcommittee, urged the Pentagon at the time to add as much as $5 million per plane to the Northrop/EADS bid to “neutralize” advantages allegedly obtained by Airbus through illegal subsidies.

Randy Belote, a Northrop Grumman spokesman, said his company fully supports the Defense Department’s position “that the commercial aircraft subsidies dispute being addressed by the WTO has no place in the procurement of U.S. defense systems.”

Boeing’s focus “remains on proposing a combat-ready tanker, designed and built in the United States, that features max capability at lowest cost,” said William Barksdale, a company spokesman. (Reporting by Jim Wolf; Editing by Tim Dobbyn and Richard Chang) ((; +1-202-898-8402; Reuters Messaging:


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