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Originally published September 20, 2009 at 12:13 AM | Page modified September 20, 2009 at 12:15 AM

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WTO ruling sets stage for another fight over tanker

A long-awaited ruling in an international trade dispute could become the latest flash point in the competition for a $35 billion contract to begin replacing the Air Force fleet.

McClatchy Newspapers

WASHINGTON — A long-awaited ruling in an international trade dispute could become the latest flash point in the competition for a $35 billion contract to start replacing the aging fleet of Air Force aerial-refueling tankers.

The Pentagon is expected to release a draft request for bids on the tanker contract this week.

Boeing supporters in Congress have made it clear they won't tolerate a competition that doesn't take into account a preliminary ruling this month from the World Trade Organization (WTO) that Airbus has received billions of dollars in illegal subsidies from four European governments.

"It would cause a meltdown on Capitol Hill," said U.S. Rep. Rick Larsen, D-Lake Stevens, whose district includes the Everett plant where a Boeing tanker would be built.

Airbus responded that Larsen and others are engaged in "vigilante justice" and advocating "irresponsible congressional intervention."

"Launch aid"

Behind the rhetoric is a fundamental question about whether the Pentagon, amid a recession, should buy a tanker from a European company that used illegal "launch aid" to drive two U.S. companies out of the commercial-aircraft business and overcame a substantial lead by Boeing to become the world's largest producer of passenger jets.

The WTO ruling remains confidential, though the Office of the U.S. Trade Representative has seen it and briefed the Pentagon and members of Congress. A final ruling is expected next year but it can be appealed.

Meanwhile, the WTO is expected to rule in the next six months on a European Union complaint alleging Boeing has received illegal subsidies through its military and NASA contracts and from Washington and other states.

Lawmakers who have been briefed said the WTO found Airbus received illegal launch aid for many of the aircraft and it caused "material harm" to Boeing. Neither Boeing nor Airbus has commented.

Even though the ruling officially remains secret, it's become a focal point in the eight-year effort to replace the nation's 600 or so Cold War-era tankers. The contract eventually could be worth $100 billion.

Controversy has swirled around the competition. Early on, a former top Air Force contracting official and a top Boeing official were sentenced to jail after a procurement scandal involving the tanker. In the wake of the scandal, the head of Boeing resigned.

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The Air Force then launched a new competition and awarded the contract to a team of Northrop Grumman and European Aeronautic Defence & Space (EADS), the parent of Airbus, that would use an Airbus A330 airframe. Boeing appealed the award, and congressional auditors overturned it. The Air Force is set to solicit new bids.

Boeing offered a tanker version of its 767 wide-body jet, built in Everett. The 767s would be converted into tankers at a Boeing facility in Wichita, Kan.

The Northrop-EADS tanker initially would be built in Airbus' factory in Toulouse, France, though Northrop-EADS has said it eventually would open a facility in Mobile, Ala. Construction on that plant hasn't started.

The A330, said Rep. Norm Dicks, D-Bremerton, received $5 billion worth of government subsidies.

"No wonder they can bid lower," Dicks said.

Letter to Obama

Larsen, along with Rep. Todd Tiahrt, R-Kan., sent a letter to President Obama signed by 45 other House members saying if Northrop-EADS won, the Pentagon would be rewarding the Europeans with a Defense Department contract at the same time U.S. officials are trying to punish the Europeans for flouting international law.

Outside analysts said even if the Air Force decided to add a penalty to the Northrop-EADS bid, it might not affect the outcome.

"Cost is only one of several factors," said Loren Thompson, an analyst with the Lexington Institute, a Virginia-based research center that focuses on defense and national-security issues. "Even if additional costs were imposed, it won't substantially diminish their (Northrop-EADS') ability to compete."

Thompson and other analysts said the real issue was whether the WTO decision would prompt a new fight on Capitol Hill over the tanker contract.

Richard Aboulafia, an analyst with the Teal Group, said the ruling had given ammunition to Boeing supporters in Congress.

"They are giving a loaded revolver to some very angry men and women," Aboulafia said. "If they sense any hostility from the Europeans, they will fire back, and the easiest target could be tankers."

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