EU warns US against protectionism in Pentagon deal

The EU on Tuesday warned the United States against protectionism after a European-led consortium pulled out of the bidding for an Air Force contract, saying the terms had been altered to favor a U.S. company.

EADS, the parent company of Airbus, had partnered with Northrop Grumman to vie for the 179 tanker order, but their consortium pulled out on Monday. They said the terms of the deal appeared designed to eliminate its design in favor of a smaller jet offered by rival Boeing Co.

The announcement left Boeing as the only bidder for the project. It is offering a version of the 767 commercial airplane to replace the U.S. Air Force's 1960s-era fleet of KC-135 tankers.

"The European Commission would be extremely concerned if it were to emerge that the terms of tender were such as to inhibit open competition for the contract," the European Commission said in a statement.

In the United States, the political fallout from the announcement was also swift, with several U.S. lawmakers - including Sen. John McCain, R-Ariz., President Barack Obama's campaign rival in 2008 - saying they regretted the Northrop Grumman/EADS decision.

In 2008, the EADS-led consortium was awarded a contract for the tanker fleet, but Boeing protested and the deal was annulled later that year.

In December, Northrop Grumman/EADS expressed serious concerns to the Pentagon and the Air Force that the new criteria for the project were slanted in favor the Boeing design.

"It is highly regrettable that a major potential supplier would feel unable to bid for a contract of this type," said EU Trade Commissioner Karel De Gucht. "Open procurement markets guarantee better competition and better value for money for the taxpayer."

The EU noted that the trade balance in defense equipment with the 27-nation EU has traditionally been heavily in favor of the American side, and that in 2008 the US exported $5 billion worth of defense materials while importing only $2.2 billion from the European side.

"The Commission will be following further developments in this case very closely," the statement said.

In Washington, Pentagon spokesman Bryan Whitman said the military plans to move ahead with the program and that the requirements for a new tanker fleet won't be reworked just to ensure there are two bidders.

"The question for us is, competition at what cost?" Whitman told reporters. "We know what the requirements are . . . we are going to buy to those capabilities."

Meanwhile, German Economy Minister Rainer Bruederle said on Tuesday he was disappointed by the developments in the U.S. and warned the situation had "signs of protectionism."

"The free market should not be unilaterally restricted," he said.

Twenty-eight of the EADS KC-45 tankers have been ordered or are already in service with the air forces of Australia, Britain, Saudi Arabia, and the United Arab Emirates. Boeing's KC-767 tanker, which can carry a smaller payload, has been ordered by Italy and Japan.

In Paris, EADS CEO Louis Gallois maintained that the EADS design - based on Airbus A330 - makes a better tanker than the Boeing alternative.

"We deeply regret that the U.S. Air Force will not get the best available airplane," he told journalists.

He said the decision doesn't change EADS' intention to boost its presence on the American defense market.

Gallois said the consortium was talking to the administration in Washington to recoup some of the money it spent on its bids.

Also on Tuesday, EADS reported that spiraling costs on its new military airlifter, the A400M, and its A380 superjumbo had led to losses in the fourth quarter and full year but said its outlook visibility was improving.

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Associated Press correspondents Anne Flaherty in Washington, Emma Vandore in Paris and David Rising in Berlin contributed to this report.