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08.10.04, 10:02
Boeing looks set to lose US Air Force contract
By Caroline Daniel in Chicago
Published: October 8 2004 04:08 | Last updated: October 8 2004 04:08
Boeing looked poised on Thursday to lose its controversial $23.5bn contract
to supply the US Air Force with aircraft refueling tankers and see it re-
opened to competition in the wake of scandals that undermined the credibility
of the initial negotiations.
According to a congressional source familiar with the contract, the “Boeing
lease deal is dead under the provisions relating to the tanker programme as
part of the full year 2005 defence authorisation bill.”
In addition, Washington agreed on Thursday night to add newly negotiated
provisions to the defence bill which would prohibit the air force “from
entering into a multi-year contract without full and open competition, so the
sole source element is now out,” the congressional source said.
The tanker contract, now put on hold, was dogged from the start by concerns
regarding the air force’s decision to opt for an unusual leasing structure
rather than go through the usual authorisation channels to obtain funding.
The $23.5bn deal has also been at the centre of ethical concerns about the
revolving door between the Pentagon and the defence industry. Darleen Druyun,
a former Pentagon negotiator for the deal, was last week sentenced to prison
for favouring Boeing as an acquisitions official in order to secure
employment with the aircraft manufacturer. Ms Druyun, who left the Pentagon
to join Boeing’s defence department, admitted to passing proprietary pricing
data to the company related to the tanker deal. She said she had been partly
influenced by the fact that her daughter and son-in-law held jobs at Boeing.
Although the defence bill will still give the air force authorisation to
proceed with the acquisition of up to 100 aircraft, it is understood that the
new provisions will require it to get budgetary permission up front.
EADS head deplores subsidies battle
Manfred Bischoff, chairman of the European aerospace giant EADS, says the
idea of “national fights over national products in our industry is outdated”.
Go there
The provisions are expected to be submitted on Friday for a vote on an
expedited basis. If approved, they would represent a firm victory for
opponents of the tanker deal, led by Senator John McCain, who has been a
fierce critic.
The US Air Force may still pick Boeing to replace its aircraft refueling
tankers despite the fact that negotiations for the contract have to start
afresh. But by opening up more defence projects to competition, the new bill
could represent a significant opportunity for EADS, the European aerospace
company which lost out to Boeing on the initial contract. EADS has won
similar contracts in the UK and Australia.
The development came as the US government this week launched a WTO case
against the EU concerning illegal subsidies to Airbus, the commercial
aviation company. The EU has launched a counter-suit.
Manfred Bischoff, chairman of EADS, told the FT in an interview in Washington
on Thursday, that he thought the timing of the WTO complaint was partly
prompted by concerns about the air force tanker contract.
“One of the obvious intentions of our competitors is to make it look like
unfair competition. It is a funny coincidence that we are just competing, or
would like to compete, for the tanker aircraft [contract] in the US. We have
not yet been asked to offer a proposal, but they seem very eager to keep us
out of that,” he said.