EU Envoy Sees Chance for Aircraft Deal
Journalist: Andrea Shalal-Esa
Original Post: EU Envoy Sees Chance for Aircraft Deal
Type: News Article
September 21, 2009 — The United States and Europe could still settle dueling lawsuits about illegal aircraft subsidies if Boeing Co and Airbus concluded the benefits of such a deal outweighed the cost of the battle, the European Union's envoy to Washington told Reuters on Monday.
"Basically you've got to find a time when everybody feels they can gain slightly more from a negotiated outcome than more litigation," Ambassador John Bruton said in an interview. "Getting the timing right is going to be the trick."
He said a recent confidential draft ruling from the World Trade Organization on EU aid to Airbus should be viewed in context of Europe's counter case against Washington, which he said should also be decided in the "reasonably near future."
"I think we should wait and see both reports before coming to any conclusions," said the former Irish prime minister.
Bruton said the recent ruling said launch aid was not automatically illegal, but depended on the conditions under which it was given.
He also cited growing acceptance of government aid to banks and the automotive industry, and said some of the U.S. lawmakers complaining most loudly about EU aid to Airbus had supported U.S. government aid in those other cases. "When these cases were launched the reality of government supporting industry was not as prevalent as it is today," he said.
Bruton said he did not expect the draft WTO ruling to harm the chances of Northrop Grumman Corp and Airbus parent EADS in their battle against Boeing to win a projected $35 billion contract for 179 new U.S. refueling planes.
He said he expected the Pentagon to pick a winner based on national security needs and with the "strictest impartiality."
Tanker Rules Getting Close
Air Force Chief of Staff General Norton Schwartz said a draft request for proposals would be "on the street" this week, but declined to say exactly when. Schwartz told Reuters after a speech to the Center for a New American Security, that he hoped to issue final rules for the competition in late November or early December.
Industry executives said the draft could come as as early as Thursday.
Northrop and Boeing executives say they are gearing up to pore over the draft request for proposals (RFP) to see how the Air Force changed the rules from the last round.
Defense analysts say this time the companies could file protests once the terms of the competition are finalized rather than waiting until a winner is picked next year.
"This is a battle to the death," said Scott Hamilton, defense analyst with Leeham Securities. "For Boeing the strategic implications also involve allowing Airbus to get a production foothold on U.S. territory."
Hamilton said inclusion of the WTO ruling against the European Union could trigger a protest by Northrop, as could a shift in the Air Force's priorities away from a "best value" competition to one purely based on price. Last time, the Air Force gave Boeing some proprietary Northrop pricing data, but Northrop did not receive similar Boeing data, he said.
Mark Werfel, a Virginia-based consultant and former military acquisition official, said the Air Force could reduce the risk of a protest if it had separate discussions with each offer or regarding the size of the aircraft it was seeking.
After Boeing lost the last competition, it complained that the Air Force had misled it about wanting a mid-size tanker, but then choosing the larger Airbus A330 offered by Northrop.
Werfel said such talks would not involve improperly comparing the rival bids, but comparing a company's proposed solution with another of its own, providing increased clarity for the bidders, and ultimately, better proposals.
The Pentagon canceled the last contract, won by Northrop and EADS in February 2008, after government auditors upheld a Boeing protest and the process became highly politicized.
The service's first tanker acquisition drive, a sole-source lease deal with Boeing, collapsed amid a major procurement scandal that sent a former top Air Force weapons buyer and Boeing's former chief financial officer to federal prison. (Additional reporting by Phil Stewart; Editing by Phil Berlowitz and Carol Bishopric)
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