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EADS Goes for It: Can It Beat Boeing for Giant Tanker Contract?

The decade-long saga to replace the KC-X aerial tanker contract begins a new chapter. The European aerospace giant EADS (EADS: P) and Airbus, its subsidiary, announced that it will definitely submit a contract proposal to the Air Force. The program will replace the aging Cold War KC-135 tankers (pictured).

Boeing (BA) thought it had won the contract for at least 179 new aircraft earlier this year when Northrop Grumman (NOC) who had bid in partnership with EADS withdrew from the bidding. Then, earlier this month, the Pentagon agreed to extend the deadline, at EADS' request, to allow it time to submit a new bid.

EADS has tried to find an American partner, but failed. So it has decided to go it alone, relying on U.S. suppliers as support.

Both companies are lining up political support. Congressman Norm Dicks of Washington, where Boeing has major facilities, is the head of the key defense appropriations sub-committee; the Democrat raised eyebrows last week when he said he hoped U.S. companies would not partner with EADS. That caused Senator Jeff Sessions (R-AL) to issue a press release Monday condemning the words and accusing Dicks of "attempting to restrict competition -- a competition mandated by Congress -- on the second-largest defense contract in the history of the United States to the sole benefit of one company. I believe that many Americans view this as brazenly inappropriate behavior." EADS plans to assemble the aircraft in a new plant in Mobile.

Boeing has been pulling out the stops in support of its bid, rallying diverse allies to go public. A good recent example was the letter from retired military officers to Congress arguing against the extension of the deadline to allow EADS to bid . The officers said that it was "critical that the delays, particularly those that are politically motivated, cease, allowing the military to focus on procuring the planes needed for a strong national defense."

And then there was the letter from the Asian Pacific American Labor Alliance: "If President Obama wants to keep us moving in the right direction, he'll stand up to European pressure on the tanker contract and create 50,000 U.S. jobs by purchasing an American-made tanker. Illegally-subsidized French companies have no right to tell the Air Force how to spend U.S. taxpayer money."

The Air Force could have simply given the contract to Boeing; it chose not to. It had painful memories of a sole-source lease contract given to Boeing for a tanker earlier this decade. That attempt ended with Congress canceling the lease and senior Air Force and Boeing officials going to jail amid recriminations from various members of Congress about the lack of competition.

So after ten years, and three tries, it looks like the great tanker caper is getting close to resolution. Expect this to get more interesting and more tense: the proposals are due this summer.

flickr: mashleymorgan