Analysis: Election better for EADS’ tanker than Boeing’s


Republican gains in Congress are bad news for Boeing Co and good for Europe’s EADS in their politically charged rematch for an Air Force refueling-plane contract potentially worth up to US$50 billion.

The Republican capture of the House of Representatives in Tuesday’s elections means Democratic Representative Norm Dicks, one of Boeing’s most reliable advocates in Congress, will lose his chairmanship of the House Appropriations defense subcommittee.

Dicks, who comes from Washington state where Boeing would manufacture much of its tanker, would have been well placed to try to block funding for an EADS tanker should the Air Force select it again. He had made clear he might do just that, Reuters reports.

None of the three Republicans considered most likely to succeed Dicks is “particularly partisan one way or another in the tanker competition,” said Scott Hamilton, managing director of Leeham Co LLC, an aerospace consultancy in Issaquah, Washington. “That’s a net loss for Boeing.”

Politics has played an outsized role in the nearly decade-long effort to swap out Air Force KC-135 tankers, which on average are 50 years old. Lawmakers are maneuvering to bring home the jobs that would come with the contract.

EADS, which is headquartered in Paris and Munich, would assemble its tankers at a plant to be built in Mobile, Alabama. That has galvanized support from southern lawmakers, many of them Republicans.

EADS says it would create a new manufacturing corridor in the southeastern United States, broadening and strengthening the US aerospace industry and protecting taxpayers by fostering competition.

An EADS victory would give it an important beachhead in the US arms market, the world’s most lucrative by far. The tanker aircraft are used to refuel fighters and other planes in flight, a key to projecting US power worldwide.

The current competition is in many ways a rerun of 2008, when the Air Force awarded a 179-plane deal to a team of EADS and Northrop Grumman Corp, only to have it overturned on appeal from Boeing.

The U.S. Government Accountability Office found the Air Force had made enough mistakes in judging the rival “KC-X” bids to have changed the outcome, a finding that led to the rematch.

An initial effort to lease and then buy 100 modified Boeing 767 tankers collapsed in 2004 amid a scandal that sent the Air Force’s former second-ranking arms buyer and Boeing’s ex-chief financial officer to prison for corruption.

The Air Force is due to pick once more between Boeing, the Pentagon’s No. 2 supplier by sales, and EADS, no later than December 20. Its choice is sure to be scrutinized for compliance with the competition’s rules, in which price and operating costs are key criteria.

Democrats retained control of the Senate in Tuesday’s election, but with a reduced majority.
“The election means that neither side has a lock on power, which paves the way for more KC-X gridlock,” said Richard Aboulafia of the Teal Group aerospace consultancy in Fairfax, Virginia.
“That’s very good news for EADS, since it means the Democrats can’t push through a Boeing win. But it doesn’t mean EADS can easily win, either,” he said.

With unemployment near 10 percent in the United States, it could be politically problematic for President Barack Obama to award a contract to a European company rather than Boeing, the top US exporter.

But at least two other vocal Boeing political backers will be gone when a new Congress convenes in January, both of them from Kansas, where a facility in Wichita would become a finishing center for a Boeing tanker.

Representative Todd Tiahrt lost his primary bid to move over to the U.S. Senate, while Sam Brownback, another outspoken Boeing backer, was elected governor of Kansas and will be leaving the Senate.

With Republicans now expected to pick up six seats for a total 47 in a new Senate with 53 Democrats, Alabama Republican Senators Richard Shelby and Jeff Sessions — vocal EADS tanker supporters — will have more clout in any power play over the contract.

Senator Patty Murray, a Democrat from Washington, has widened a narrow lead over Dino Rossi, her Republican challenger. If the final tally went against Murray, however, Boeing would lose perhaps its most outspoken advocate in the Senate.