British Go With European Proposal

How much worse could things get for the beleaguered Boeing? In one word: devastating.

Over the last couple of years, the aerospace giant has taken a beating from its arch rival, Airbus, in the commercial aircraft market. Now, the European-conglomerate is giving Boeing another devastating blow to its pocketbook, as its wins a huge deal for a fleet of British air tankers. The United Kingdom announced European Aerospace Defence & Space (EADS) as the winner of a $24 billion contract to supply air-refueling tankers to the British Royal Air Force.

On Monday, Britain's Ministry of Defense named Airbus's parent company the winner in a written statement to Parliament and in meetings with the competing consortium led by Boeing and EADS. to some, this is old news, as reports from London during the past two weeks had already indicated the contract would go to AirTanker, the EADS-led group, which will supply tankers converted from new and used Airbus A330 widebody jets.

While the decision to go with EADS will be another nail in the coffin for the ailing manufacturer, sources say it will not affect employment at Boeing's Everett plant, where 767s are built. The Boeing UK proposal had called for converting existing 767s previously flown by British Airways instead of building new 767 tankers. The company already has plans to use this design in another much-anticipated defense deal.

Aside from the immediate success of clinching the multi-billion dollar deal, the U.K. selection of AirTanker would boost Airbus' burgeoning tanker business and bolster its chances of someday persuading the Pentagon to select Airbus tankers for its fleet. Congress and the Defense Department last year authorized the Air Force to obtain 100 767 refueling tankers from Boeing to begin replacing the aging fleet of more than 500 KC-135s. The deal is on hold, however, as several government agencies investigate whether Boeing received the $21 billion contract improperly. While it is doubtful Boeing will lose the 767 deal all together, this investigation may create a strategic opening for EADS and its quest to win a portion of subsequent tanker-replacement contract.

Celia Turner, a spokeswoman for Tanker Transport Service (TTSC), the Boeing tanker consortium, declined to comment on the timing of today's Ministry of Defense announcement. But she said the Boeing-led group remained hopeful.

"The fat lady is not singing yet," said Turner.

FMI:  www.raf.mod.uk