EADS Gains By Losing KC-X Contract

(MoneyWatch)  The U.S. Air Force last year awarded a contract to Northrop Grumman and EADS over Boeing to provide the next generation aerial tanker. This KC-X contract would be worth several billion dollars to the winner as the Air Force required several hundred of the aircraft to replace the aging KC-135 and KC-10 fleet. Unfortunately for the two companies Boeing was able to overturn the award on protest due to the Air Force's inconsistency in applying the selection standards.

The Air Force is planning on starting the contest over very soon with both Boeing and the Northrop Grumman/EADS team planning on bidding again. The Secretary of Defense announced recently that he has enough confidence in the Air Force to return the right to review and award the contract to them.

The Air Force and Northrop Grumman are still negotiating the termination costs related to the original contract and no figure has been announced. Interestingly it was recently revealed that the U.S. Government as part of the settlement of this contract was paying EADS $62 million for the work done on the first A330 aircraft to make it ready to meet the Air Force requirements. This means that EADS has an aircraft available to it that it might be able to sell to another customer with some modification as well as receiving the $62 million. It may be the company is holding the aircraft in case they win the new contract next year.

Having that airframe available would speed up the ability of EADS and Northrop Grumman to have a prototype aircraft available for integration and testing and eventually flying to support the Air Force's operations. The situation with the contract has become more interesting with the recent World Trade Organization (WTO) ruling that EADS received unfair subsidies from European countries. This has allowed some in Congress to claim that it would not be allowable for EADS to win the next contract.