Boeing allies aim to boost EADS' tanker bid price

WASHINGTON (Reuters) - Twin bills that could help Boeing Co best Europe’s EADS for a potential $50 billion U.S. Air Force contract were introduced in the House of Representatives and Senate on Thursday by Boeing supporters.

The legislation would force the Defense Department to adjust bids on its major purchases by the amount of any illegal subsidy under a final World Trade Organization ruling.

In a final ruling, a WTO panel found in March that Airbus, a unit of EADS based in Toulouse, France, benefited from billions of dollars of European government subsidies to develop its A330 wide-body aircraft, among other commercial planes.

EADS is pitting an Airbus A330 derivative against a modified Boeing 767 in a rematch to sell an initial 179 mid-air refueling aircraft to the Air Force. Bids are due July 9. The Pentagon has told the bidders to be ready to start work by November 12 if chosen for the deal.

The measure would apply to all companies, including Boeing, if it were found by the WTO to have received illegal subsidies, said Senator Sam Brownback, a Kansas Republican who introduced it in the Senate with four co-sponsors.

The goal of the “Fair Defense Competition Act” is to make sure “that illegal subsidies do not distort the defense procurement process,” Brownback told reporters.

In response, the Defense Department repeated its contention that it is barred from unilateral retaliatory action for violations of trade regulations.

“That is the purview of the WTO,” Pentagon press secretary Geoff Morrell said in an email. “If we were to do so, we would then be in violation of WTO rules and subject to disciplinary action.”

A WTO panel is expected to make an interim ruling by the end of next month on European Union counter-complaints that Boeing has unfairly benefited from U.S. federal, state and local subsidies. That would not constitute a final WTO determination under the measure.

Rep. Todd Tiahrt, who put in the bill in the House with more than 20 co-sponsors, estimated that if it became law the Defense Department would have to add about $5 million per plane to an EADS bid to offset the value of improper subsidies to the A330.

Tiahrt is a Republican from Kansas, where Boeing would do final assembly and militarization of its tanker. He and Brownback said the legislation complies with WTO rules in that it is non-discriminatory.

Brownback and Tiahrt said they would attach their bills to an annual defense authorization act or another measure aimed at speeding them through Congress quickly enough to affect the tanker competition.

“We need an American tanker built by an American company with American workers. Even more so, we should never outsource a vital national security component,” Tiahrt said. Boeing is based in Chicago.

The U.S. Trade Representative’s office had no comment on the bill.


Concerned that it might be underbid, Boeing said on Thursday that it was deeply concerned “about the ability of a heavily subsidized EADS to accept levels of financial risk that a commercial company such as Boeing cannot.”

“To date, these illegal subsidies have not been taken into account in this national security competition, even though the U.S. government has proven in a world court that those subsidies are illegal and directly distort competition between Airbus and Boeing,” said Jacqueline Ferko, a Boeing representative.

Guy Hicks, a spokesman for EADS’ North American arm, said: “The Boeing bill is one more attempt to avoid competing on the merits of the tanker.”

“Unlike EADS North America, Boeing doesn’t have a tanker that meets requirements, it faces tremendous technical risk in producing one and is therefore determined to take away the warfighter’s right to choose,” he said in an email.

Boeing shot back, saying it has delivered 767-based tankers now serving in operational squadrons in Japan.

“And we will meet all 372 mandatory requirements for the next generation of tankers for America’s Air Force. We consider our workforce and the factories here in the United States where they build airplanes a strength in this competition,” added William Barksdale, a Boeing spokesman. “Ultimately, technical risk will be decided by the Air Force when proposals are evaluated.”

Republican Senator Richard Shelby of Alabama, which would land an Airbus assembly plant if EADS wins, said, “This legislation will not protect American workers; it will ensure retaliation against them in all industries by our international trading partners.”

EADS partnered with Northrop Grumman Corp in a winning bid for the tanker deal in 2008, only to have it overturned after Boeing successfully protested on procedural grounds to U.S. congressional auditors, which led to the rematch.

Reporting by Jim Wolf, editing by Gerald E. McCormick