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EADS Distressed by Pentagon's Contract About-Face

The European aerospace concern EADS said it was disappointed at the US decision to cancel a competition to build the next generation of Air Force tanker refuellers.

A Northrop-Grummen archival photo of a KC-30 refuelling tanker, filling a B2 bomber in the air

The Pentagon wants to pass the tanker decision on to the next administration

EADS had initially won the $35-billion (25 billion euro) contract in partnership with US aviation concern Northrop-Grumman -- only to see it put on ice after a congressional oversight agency upheld a protest by rival bidder Boeing.

"We have a contract and we are striving for an appropriate fulfilment of this contract, EADS chief Louis Gallois said. "We believe that the KC-45 is the best tanker for the US military and we stand behind our partner Northrop-Grumman," he said.

Gallois calls for continuation of contract

Saying that EADS had not been given any detailed information from the US Air Force or Northrop-Grumman, Gallois said the contract for the refuelling planes was still valid and should be fulfilled.

The US Defense Department announced it would cancel the competition, between Boeing and a EADS-Northrop partnership -- on Wednesday, Sept. 10.

Portrait Louis Gallois

EADS' Gallois: 'We have a contract'

EADS said it would not have any ramifications on the company's operating result because the contract was not included in the planning.

The Pentagon on Wednesday notified Congress of the plans to scrap the competition after US Defense Secretary Robert Gates determined it was too politically charged and couldn't be completed before President George W. Bush's administration ends in January.

Gates: Mistakes were made

Gates issued a statement acknowledging the Pentagon's mistakes in managing the lengthy competition that was thrown into disarray in June, when a congressional oversight agency upheld a Boeing protest and ruled the Air Force erred in awarding the contract to Northrop-EADS.

The next administration will be better suited to handle the contract objectively, Gates said.

"Over the past seven years the process has become enormously complex and emotional -- in no small part because of mistakes and missteps along the way by the Department of Defense," Gates said.

The congressional oversight agency the Government Accountability Office in June concluded the Pentagon should start a new competition after determining the Boeing proposal was not fairly reviewed when the contract was awarded to Northrop and EADS in February.

In July, Gates announced he had accepted the GAO's findings and would rehold the competition to build the 179 KC-X tankers. The contract was the first of three that, when combined, could reach a value of $100 billion over 30 years.

US Defense Secretary Robert Gates, portrait

Gates says time has run out for bidders under Bush

"This will assure delivery of the right tanker to the Air Force and serve the best interests of the American taxpayer," Boeing said.

Pentagon wants 'cooling off period'

The contract was the focus of intense political scrutiny from members of Congress who opposed handing the contract to a European firm at a time when the US economy was struggling.

Congressional battle lines were drawn between members whose districts would have benefited from a Boeing award and those aligned with Northrop-EADS. EADSplanned on building a factory in Alabama to assemble the aircraft from components manufactured in Europe.

"It is my judgment that in the time remaining to us, we can no longer complete a competition that would be viewed as fair and objective in this highly charged environment," Gates said.

"The resulting 'cooling off' period will allow the next administration to review objectively the military requirements and craft a new acquisition strategy for the KC-X," Gates said.

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