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L-3 leaves door open on tanker work

WASHINGTON (Reuters) - U.S. defense supplier L-3 Communications Holdings Inc LLL.N is open to joining the rematch to build a potential $50 billion aerial-refueling tanker fleet despite having halted talks with prospective European partner EADS.

L-3 Communications Holdings Inc. Chief Executive Officer Michael Strianese speaks during the 2010 Reuters Aerospace and Defense Summit in Washington September 9, 2010. REUTERS/Hyungwon Kang

Chief Executive Michael Strianese said conditions had not been right to partner with EADS, the Franco-German-led Airbus corporate parent, when they discussed in April teaming against Boeing Co BA.N to vie for the deal.

"The door is still open if EADS EAD.PA wants to talk in the future, or Boeing for that matter," Strianese told the Reuters Aerospace and Defense Summit in Washington on Thursday.

EADS and Boeing are locked in a politically charged competition for the contract to build 179 tankers for the U.S. Air Force.

L-3 makes communications equipment of a type that could be placed onboard the tanker. It emerged as a possible partner for EADS after the European company's previous U.S. teammate, Northrop Grumman Corp NOC.N, pulled out on economic grounds.

L-3 surprised some industry watchers by deciding to pull back from any deal a month later.

Strianese denied speculation that L-3’s about-face was spurred by political pressure from Boeing supporters in the U.S. Congress.

“After spending some time and looking at the structure of the work, we did not think it was something that would work well for L-3. There was never a meeting of the minds really as to what the structure would be,” Strianese said.

“The conditions for coming together were not there at this time,” he said. But he added: “I never like to say the door is closed to any prospective work.”

SECOND-HAND TANKER SALE

Boeing supporters in Congress have accused EADS of aiming to undercut the U.S. company unfairly with the help of European subsidies that the World Trade organization has ruled illegal.

EADS denies this and says a European countersuit will show that Boeing has received illegal support through subsidies from local, state and federal deals. Both sides fault the other in the world’s highest-stake trade dispute.

Loren Thompson, a consultant with close ties to the Pentagon and to the industry, said the subsidy dispute reflected differences over state support for industry that could strain trade ties between Europe and the United States for years to come.

The contest marks the third time the Air Force has sought to start replacing Eisenhower-era tanker aircraft. The purchase has long been listed as the Air Force’s top acquisition priority.

A senior U.S. Defense Department official floated the possibility of exports of some of the tankers -- which on average are about 50 years old -- that would be replaced by the winner of the competition.

There “may be potential” for the sale of old KC-135 tankers as excess defense inventory,” Richard Genaille, deputy director of the Defense Security Cooperation Agency, told the summit.

This would involve refurbishing the planes for countries with “limited aerial refueling” needs, he said.

The United States has sold refurbished KC-135s in the past, including to France and Singapore.

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