September 24, 2009 in Nation/World

Air Force won’t consider WTO ruling in tanker bidding

Les Blumenthal McClatchy
 
Associated Press photo

In this Feb. 10, 2009, file photo, a KC-10 plane takes part in a refueling exercise with an Air Force KC-135 plane over the Atlantic Ocean about 300 miles east of New York. After more than 50 years as the military’s gas station in the sky – and a decade of attempts to replace it – the KC-135 is showing its age.
(Full-size photo)(All photos)

WASHINGTON — As it seeks new bids on a $35 billion contract to start replacing its fleet of aging aerial refueling tankers, the U.S. Air Force has decided against considering a World Trade Organization ruling that a European aerospace company received billions of dollars in illegal subsidies for other aircraft.

The competition is expected to be a rerun of an earlier showdown between Boeing and a team of Northrop Grumman and the European Aeronautic Defense and Space Co., the parent company of Airbus.

The decision not to take into account a recent interim WTO ruling that Airbus received $5 billion in illegal “launch aid” from four European governments for the A330 and billions more for other aircraft wasn’t unexpected.

The Air Force is aware of the WTO case and its interim ruling, but Undersecretary of Defense Ashton Carter said that the ruling could be appealed and that there was a counterclaim pending filed by the European Union alleging that Boeing has received illegal subsidies through military and NASA contracts.

“The final resolution of these cases is many years away,” Carter said.

Still, lawmakers from states where Boeing jobs are at stake lashed out at the Air Force’s decision.

“We argued and argued and argued,” Rep. Norm Dicks, a Democrat from Washington, where Boeing would manufacture the planes, said after a briefing for lawmakers. “I think it’s a mistake.”

U.S. Sen. Patty Murray agreed. “There can be no more guessing games,” she said in a prepared statement. “Neither our airmen nor the American taxpayers can afford another muddled competition in which the rules change in the middle of the game.”

However, Republican Sen. Richard Shelby of Alabama, where the Airbus team plans to build a plant to manufacture its tankers said the Air Force made the right call.

“After initial review, the Air Force has made the fair and just determination to not include provisions that would irresponsibly penalize one competitor based on unfounded results of an interim World Trade Organization report,” Shelby said. “This is the right decision.”

Carter emphasized that the Pentagon had learned from the problems of the previous tanker competition.

“This is not a rerun of the previous competition,” he said.

He and others emphasized that while price will be a factor in the competition, it won’t be the only factor.

“We have tried to play this right down the middle and haven’t favored anyone but the taxpayer and the war fighter,” said Deputy Secretary of Defense William Lynn.

The actual Air Force draft request for bids will be released Friday, but lawmakers and reporters were briefed Thursday by Air Force Secretary Michael Donley and other top Pentagon officials.

Lawmakers from states with Boeing plants said after the briefing that the Air Force apparently has fixed the problems that led congressional auditors to overturn the earlier award of the contract to Northrop-EADS.

“It’s a preliminary look, but it appears much fairer,” said Rep. Adam Smith, D-Wash., adding that while he thought the subsidies unfairly helped Airbus and the Northrop-EADS bid, he thought it would be “dicey” for Congress to get involved.

Dicks said the draft included several factors, including the costs to operate, maintain and base the planes over 40 years, which should favor Boeing.

“That’s all to Boeing’s advantage,” he said.

The tanker contract eventually could be worth $100 billion, as the Air Force needs to replace the 600 or so mostly Cold War-era tankers in its fleet. The initial order would be to replace 179 tankers. Fairchild Air Force Base was expected to get the first squadron of the new tankers earlier this decade, but the Pentagon has recently said the decision on “bed down” has yet to be made.

Boeing is expected to offer the 767 or the 777, and Northrop-EADS the A330.

The Boeing planes would be built in the company’s Everett, Wash., plant and converted into tankers at its Wichita, Kan., facility. About 9,000 jobs are at stake in Washington state and about 1,000 in Kansas.

The Northrop-EADS tanker initially would be built in Airbus’ plant in Toulouse, France, though plans have been announced for a new facility in Mobile, Ala. Work hasn’t started on the Mobile facility.

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