Europe holds its fire on US Congress review of air tanker bid

20 June 2008

Paris: Understandably, shares in the European Aeronautic Defence and Space (EADS) company fell nearly 3 per cent on Thursday, 19 June, while that of Boeing rose more than two per cent as investors reacted to a US government report that faulted the way the US Air Force awarded a $35 billion contract for refuelling tankers to a EADS and Northrop Grumman combine.

The US Congress's Government Accountability Office (GAO) recommended in its mandatory review  of the deal that the USAF rebid the contract. The recommendation would give Boeing another shot at the contract for 189 air-to-air refuelling tankers for the USAF. This is only an initial contract, the first of three, for the induction of almost 400 tankers at a total cost of around $100 billion.

For European aerospace conglomerate EADS, whose profitability has been hit by the falling value of the US dollar, the contract is critical not only to break into the US military market but also to reduce its dependency on the commercial airliner market. Airbus, its main revenue generator and profit earner, has seen its profits eroded substantially by the falling dollar.

For Boeing the contract is crucial if it is to keep its 767 line open at the Everett factory. Its competing model for the tanker contract was a version of the 767 line.

Meanwhile, European politicians gave a muted response to the development, apparently careful not to provide ammunition to competing presidential candidates in America. The United States is currently engrossed in the election season, which will end in November when the country votes a successor to the current president, George W Bush. A economy in near-recession accompanied by  loss of jobs - some of it  through outsourcing - are the principle debating points in the election campaign and European leaders are being careful not to provide unnecessary opportunities for US politicians.

The first major defence contract to be awarded to an European concern has already sparked off jingoistic attacks, particularly as these contracts hold much significance for local State economies.