Boeing seals $30bn US defence deal

Analysts had expected EADS to underbid Boeing aggressively for the refuelling aircraft contract [EPA]

Boeing, the American aerospace firm, has won a $30bn contract for 179 new US air force mid-air refueling aircraft, beating out Airbus’s parent company, the European Aeronautic Defence and Space (EADS) company .

The US defence department announced on Thursday that the company was the “clear winner” in the fiercely contested competition to replace 50-year-old Boeing-manufactured KC-135 Stratotankers.

William Lynn, the US deputy defence secretary, made the announcement at the Pentagon, saying that Boeing had offered a better deal at a time when the country’s defence budget is under pressure.

Boeing’s shares rose 3.9 per cent in afterhours trading on the back of the news.

EADS expressed disappointment and concern about the decision, but said the contract for the refueling aircraft was just “one business opportunity among many” in the US. Last week it had said that it would only contest the results of the bidding process if it saw obvious errors.

Dennis Muilenburg, chief executive of Boeing’s defence unit, said the company was “humbled” by the decision, but did not release any figures on pricing for the planes. He did say, however, that his company was able to cut costs by working more closely with its commercial wing, and making substantial improvements to its 767 aircraft production line.

He said the Boeing plane was smaller, used 24 per cent less fuel, and would result in less reconstruction requirements at US airbases.

Michael Donley, the US air force secretary, said the initial $3.5bn fixed-price contract would pay for design, development and delivery of 18 planes by 2017, but could be worth over $30bn in the following years.

‘Long overdue’

Norton Schwartz, the air force chief of staff, said he was “pleased” that the contract for the new aircraft had been awarded, and that the capability was “long overdue”.

Previous US air force efforts to procure new mid-air refueling aircraft have been marred by an ethics scandal and selection errors.

Analysts said they were surprised in the wake of the decision, as they had expected EADS to underbid Boeing aggressively in what would have been its biggest defence initiative.

“We think we’ve established a clear, a transparent and an open process and we think we’ve executed on that and it will not yield grounds for protest,” Lynn told the briefing at the Pentagon.

EADS has 10 days to file a formal protest after the contract is awarded formally, and its congressional backers can also attempt to block the award through legislation.

The German government on Friday expressed doubt over the fairness of the contract award procedure. “The decision leaves a bitter aftertaste because it is not entirely clear whether there was a fair procedure at the third tender,” Peter Hintze, the country’s deputy economy minister, told the Reuters news agency.