WASHINGTON/PARIS, June 18 (Reuters) – European hopes of winning at the second attempt a groundbreaking U.S. military order for refueling planes are fading after the Pentagon scaled back its potential order, cooling the prospect of a new transatlantic “Tanker War,” industry sources said.
Aerospace titans Airbus (AIR.PA) and Boeing (BA.N) clashed in an epic contest more than a decade ago and had shaped up for a re-run after Airbus partnered with the world’s largest arms producer Lockheed Martin (LMT.N).
Lockheed and Airbus will tout their LMXT tanker at the Paris Airshow this week, bringing U.S. reporters onboard the A330 Multi Role Tanker Transport on which the new plane is based.
But although Lockheed and Airbus insist they are in the race, proposals by the U.S. Air Force to reduce its next tanker procurement to 75 from at least 140 have raised questions over the politics and economics of a bid.
This week, two congressional committees are set to debate draft defense policy and spending bills that could shift the odds for Lockheed-Airbus, but U.S. lawmakers thus far have shown little opposition to the Air Force’s plan.
In 2011, Boeing won the first of a three-phase procurement to replace the Air Force’s aging tanker fleet, securing a contract for 179 KC-46s. The program has since incurred $7 billion in losses.
Airbus teamed with Lockheed in 2018 for the second phase, called KC-Y.
The U.S. Air Force expects to decide later this year how many tankers to buy after the KC-46’s initial production run ends in 2029 and whether it will hold a competition.
However, officials are keen to speed up development of a next-generation tanker it hopes to buy in the mid-2030s and could halve the number of jets purchased in KC-Y.
The new plan could diminish the Lockheed-Airbus team’s business case, which people familiar with the matter said was contingent on production of about 100 LMXTs.
NO FINAL DECISION
That would allow Airbus to launch A330 production in the United States – a detail seen as critical for obtaining support on Capitol Hill – and hire 1,300 workers across Lockheed and Airbus plants in Alabama and Georgia.
Over the past year, Air Force leaders have repeatedly said a sole-source contract to Boeing is the likely outcome, although a final decision has not been made.
But Larry Gallogly, Lockheed’s director of LMXT business development, said Lockheed and Airbus “are most definitely still in this competition.” The companies announced a third American supplier, engine-maker General Electric (GE.N), on June 6.
Lockheed and Airbus sought a program of at least 120 aircraft, but “the business case can certainly close below that,” Gallogly said.
Boeing Defense CEO Ted Colbert said the KC-46 “has proven to be highly capable” and is ready for the threats of the 2030s.
A Boeing win would ensure 767 widebody production extends into the mid-2030s, while a Lockheed-Airbus victory would hand Airbus its first aircraft contract with the U.S. Air Force after attempting to penetrate the U.S. defense market for two decades.
Both Airbus and Boeing carry battle scars from the previous competition, which Airbus lost after a decade-long contest that included a corruption scandal that put a Boeing official in prison and a legal protest that overturned Airbus’s initial win.
The KC-46 has weathered scrutiny from Congress after technical flaws pushed the program years off schedule. The House Armed Services Committee’s draft defense bill would cap the KC-46 purchase at 179 planes, but the service could easily overcome that limit by providing cost estimates.
Advocacy for the LMXT could fall to Representative Jerry Carl, an Alabama Republican and member of the powerful House Appropriations Committee. The panel is set to debate defense appropriations on Thursday, but it is unclear whether Carl will offer an amendment forcing the Air Force to open the contract to competition, as he did in a failed attempt last year.
Carl’s office did not respond to a request for comment.
Reporting by Valerie Insinna and Tim Hepher
Editing by Mark Potter
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