EADS hit as tanker deal reopened

Shares in EADS have fallen 3% on news that the US government has reopened a $35bn (£17bn) contract to supply the US Air Force with refuelling tankers.

The deal had been given to EADS, which owns Airbus, and its partner Northrop Grumman, but the US said mistakes had been made when the bids were evaluated.

US plane maker Boeing will now get the opportunity to rebid.

Analysts say it could prove difficult for EADS to win the contract and some fear it could lead to job losses.

'Significant errors'

The Air Force's decision to award the contract to EADS and Northrop Grumman has been controversial in the US.

Northrop's aerial refuelling tankers would be assembled in the US using components largely made in Europe.

When the decision went against Boeing, the company and a number of US senators campaigned to get the tender process reopened.

The US Government Accountability Office (GAO) reassessed the Air Force's decision and last month said "significant errors" had been made, including the evaluation of which of the two proposals was cheaper.

The initial evaluation had suggested that the Northrop Grumman bid would probably work out cheaper over the life of the deal. But when re-examined, Boeing looked to be the cheapest, the GAO said.

Tough challenge

The decision to re-open the bid was expected but still represents a serious blow to EADS's hopes to expand in the US.

"The new competition will be doubly difficult for any non-American challenger, i.e. EADS, to actually win because politics will decide who will win this competition," Howard Wheeldon, aerospace analyst, told the BBC.

"It alters the perspective on their ability to grow in the US, which is a very important market for them."

An Airbus plant in Flintshire, which employs 7,400 people, was expected to build the wings and the deal had been expected to safeguard these jobs.

However, Mr Wheeldon doubted that the loss of the contract would lead to job losses.

"It does not signal an increase in the number of jobs the company will shed," he said. "If they had won it... it would have created new jobs."

Huge deal

Boeing welcomed the decision to reopen the competition, but expressed concern that the selection criteria might be different.

"It's encouraging that the Defense Department intends to take steps to ensure a fair and open competition that, among other things, fully accounts for life-cycle costs, such as fuel, to provide the most capable tanker at the best value for the American taxpayer," Boeing said in a statement.

The deal - one of the biggest in the Air Force's history - is the first of three contracts to supply up to 600 new refuelling tankers. The 30-year deal could be worth up to $100bn.

Northrop Grumman, which was awarded the contract along with EADS in February, said the "best tanker" had already been picked.

"We are reviewing the decision to ensure the re-competition will provide both companies a fair opportunity to present the strengths of their proposals," the company said in a statement.

The Pentagon is expected to decide by the end of the year who will be awarded the contract. It has taken over responsibility for the process from the Air Force.