March 23, 2010 / 7:51 PM / in 9 years

UPDATE 1-Pentagon-Still in talks on longer tanker deadline

* Pentagon says discussions with EADS going very well

* Boeing backer says any deal with EADS would be “reckless” (adds statement from Kansas lawmaker)

By Andrea Shalal-Esa

WASHINGTON, March 23 (Reuters) - The Pentagon said on Tuesday it remains in active talks with Europe’s EADS EAD.PA on extending the May 10 deadline for aerial tanker bids, while Boeing Co (BA.N) supporters in Congress seized on a WTO ruling to reject any deal with the parent of Airbus as reckless.

Pentagon press secretary Geoff Morrell said EADS had expressed some interest in bidding as a prime contractor against Boeing to build 179 refueling planes for the Air Force after its partner Northrop Grumman Corp (NOC.N) bowed out.

“We are right now engaged in active discussions with the company to better understand the reasons why they would need an extension,” Morrell told reporters at a Pentagon briefing.

“I would say those discussions are going very well thus far and we have not come to a conclusion, and therefore have not made a decision yet about whether to extend the bidding period any further.”

One source who is closely following the discussions said the Pentagon could announce its decision as soon as Wednesday.

Sean O’Keefe, chief executive of EADS North America, told reporters on Monday that the company expected to hear back from the Pentagon within the next few days.

German Economy Minister Rainer Bruederle on Tuesday said it would be fair if the U.S. government accepted EADS’ request for a longer period to ready a bid as a prime contractor.

But Boeing backers continued to reject any deal with EADS as unfair to American workers, particularly after a World Trade Organization panel ruled that the European government gave some illegal subsidies to Airbus.

“We finally have a concrete ruling to justify what we have been saying for years,” Representative Todd Tiahrt, a Republican from Kansas, where Boeing has a large plant, said in a statement.

“In the midst of an economic recession, we should be doing everything possible to keep these high-quality jobs here on American soil,” he said. “Giving a vital national security component like the aerial refueling tanker to a foreign entity is reckless and extremely dangerous.”

Airbus on Tuesday confirmed that a WTO panel had condemned European subsidies in a confidential ruling, but said the panel dismissed 70 percent of U.S. claims. It also said the dispute would likely drag on for years.

Guy Hicks, spokesman for EADS North America, said the U.S. government had decided to exempt the rival WTO cases brought by the United States and Europe from the tanker competition.

“The U.S. government has determined that ongoing WTO cases are irrelevant to U.S. defense acquisition and will not penalize U.S. warfighters by holding their needs hostage to an ongoing commercial trade dispute,” Hicks said.

Northrop and EADS, the parent company of Airbus, won a projected $35 billion contract to build an A330-based tanker for the Air Force in February 2008; but the Pentagon canceled the deal later that year after government auditors faulted the procurement process and upheld a Boeing protest.

Northrop decided earlier this month that it would not compete for the work this time around, saying revamped rules for the competition favored Boeing’s smaller 767-based tanker.

EADS has been weighing a possible bid on its own, but has said it would need three months of additional time to prepare the huge amount of paperwork that would be involved.

Morrell told reporters last week that the Pentagon would consider making a “reasonable extension” to the deadline.

Top U.S. defense officials had hoped to have a competition for the airplane contract, which could be worth up to $50 billion, especially since an earlier sole-source deal with Boeing collapsed in an ethics scandal in 2004. But they insist that they have mechanisms to ensure that any sole-source deal with Boeing would be fair.

The Obama administration is also under pressure from its European allies, who reacted angrily after Northrop decided not to bid and warned Washington against protectionist measures.

Even if it got the additional time it requested, EADS would face an uphill battle with any solo bid.

The company would also likely need to find another U.S. defense company to take on some of the classified work involved in the program, given that tanker operations are closely linked to the U.S. military’s strategic planning for future wars.

Aerial tankers are used to refuel fighter jets and other military planes in mid-air, helping the United States project its power around the world. (Additional reporting by Phil Stewart, editing by Gerald E. McCormick, Bernard Orr)

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