EADS beats Boeing to massive US defense contract

In a major blow to US rival manufacturer Boeing, the US Defense Department awarded a $35 billion aircraft deal to Europe’s Northrop Grumman/EADS group on Friday.

European leaders have hailed the decision. German Chancellor Angela Merkel, in a statement, called the deal “an immense success for Airbus and for the European aerospace industry,” but US lawmakers have reacted angrily.

“It’s stunning to me that we would outsource the production of these airplanes to Europe instead of building them in America,” said Republican Senator Sam Brownback about the Pentagon’s decision. “I’ll be calling upon the Secretary of Defense for a full debriefing and expect there will be a protest of the award by Boeing.”

The US Defense Department deal for a fleet of in-flight refueling craft to the Northrop Grumman/EADS team is a major coup for Boeing’s main rival Airbus. The surprise choice marks the European group’s entry into the lucrative US defense market, where it had only a marginal presence before the deal. Boeing voiced strong disappointment after losing the contract and said it would ask for an explanation.

“We should have an American tanker built by an American company with American workers,” said Republican Representative Todd Tiahrt. “I cannot believe we would create French jobs in place of Kansas jobs.”

Boeing, the second leading US defense contractor after Lockheed Martin, had been considered the heavy favorite for the contract and according to its website is the largest employer in Kansas.

The contract for the newly named tanker, the KC-45, is one of the largest Pentagon contracts in recent years and the first order on a tanker market valued at more than 100 billion dollars in more than 30 years. Los Angeles-based Northrop Grumman and the European Aeronautic Defense and Space Company (EADS), parent of Airbus, will provide up to 179 tankers for the US Air Force.

The stunning victory for EADS comes as group CEO Louis Gallois seeks to build up its presence in the defense sector, judged to be less cyclical than civil aeronautics. Gallois told AFP the contract was a “great subject of pride” for the company and would “encourage it to pursue its strategy in the United States.” A spokesman for French President Nicolas Sarkozy said he had called Gallois “to pay homage to this historic success.”

Boeing and the EADS-Northrop team had been competing for more than a year for the prize, which offers a cushion for decades in case of a downturn in the highly cyclical market for commercial aircraft.

EADS’s winning offer is a modified version of the Airbus 330. The commercial plane will be militarized by Northrop Grumman and its American partners to prevent the transfer of sensitive technology to a foreign entity.

Boeing had proposed a version of its long-haul cargo plane, the 767-200. In May 2003, a similar tanker contract was awarded to Boeing, but it was annulled under allegations of procurement fraud, for which Boeing paid a record $615 million settlement to the US government.