AIRBUS AND ALABAMA: 'Almost married'

June 26, 2007

AIRBUS AND ALABAMA: 'Almost married'

Editor's note: This story, which appeared on the cover of The New York Times business section Tuesday, offers an example of the national interest in efforts by the European Aeronautic Defence and Space Co. to grab a share of U.S. defense spending. Central to that plan is the competition between a Northrop Grumman Corp./EADS team and Chicago-based Boeing Co, to build aerial refueling tankers for the U.S. Air Force. The Northrop team would build the tankers in Mobile.


New York Times

PARIS - Louis Gallois, the co-chief executive of EADS, the parent company of Airbus, could have his pick of invitations among dozens of parties thrown during the Paris Air Show, the giant industry gathering this week.

But on Saturday night, Gallois went to pay his respects at a gathering held by members of the Mobile City Council of Alabama and the Mobile Airport Authority.

"We are linked to Alabama," said Gallois, the lone French accent in a room full of Southern twangs, including state legislators and Alabama's two senators. "We are almost married."

The reason for Gallois' charm offensive? The troubled European aerospace and military giant wants to land a $40-billion contract to provide 179 aerial refueling tankers to the U.S. Air Force.

It is one of the biggest Pentagon contracts in decades, and EADS is counting on the political clout of Alabama officials, who are hoping to get an Airbus factory in their state, to help the company in Washington.

It is not easy being a foreign company seeking more Pentagon business, especially when the competition is the archrival Boeing, America's second-largest military supplier and a skilled Washington hand.

Yet to EADS, expanding its military activities in the United States is increasingly important, especially since last year's profits in its military and space business were nearly offset by losses in its troubled Airbus commercial aviation division.

To have a chance at the tanker contract, Airbus must overcome any "Buy American" sentiment in Congress. So EADS has cast its lot with Alabama politicians, as well as politicians in nearby Mississippi and Florida.

"All I ask, is that EADS be treated fairly and that the tanker decision is based on merit," said Gov. Bob Riley, who acted as a master of ceremonies at the reception Saturday night. "Don't give demerits to this company because they are associated with a French plane."

EADS already has an engineering site in Mobile, and if it wins the tanker contract it has promised to build a final assembly plant there, creating at least 1,500 jobs.

Later this year, the Pentagon will announce its choice. Most analysts expect it will be a "winner take all" victory, and so lobbying by both companies is in full swing.

Boeing officials have been meeting regularly with members of Congress and their staff members, and proclaiming that their tanker work, if they win the contract, would be spread over 40 states.

But Alabama is backing EADS. That is why state officials chartered a Boeing 757 outfitted with first-class seats - an Airbus plane was not available to fit the schedule - to fly 15 members of Congress and their staff from New York to Toulouse, France, last week for a tour of the huge plant that makes the Airbus A330, the plane that would be modified for use as a tanker.

Sen. Jeff Sessions, R-Mobile, who traveled to Toulouse, was impressed.

"I took one look at that facility and it made you think, wouldn't it be nice to have this in Alabama," Sessions said at the reception. "Airbus pointed out all the spinoffs and suppliers in Toulouse, too. I've never seen the Mobile crowd more excited about a project."

Clearly, the trip had its intended effect on Sessions, who said: "Airbus has done a good job of winning the hearts and minds of the people of Alabama. "

With the election of Nicolas Sarkozy as the president of France and with Angela Merkel elected as the chancellor of Germany, two key countries have signaled a greater friendliness to the United States, and that has raised the hopes of EADS.

Wins and losses

While Boeing derives about half of its business from the military and the other half from its commercial operations, EADS draws 60 percent to 70 percent of its revenue from its Airbus division, which has been bogged down by problems with its A380, the so-called superjumbo airliner, as well as its new midsize A350.

EADS does about $1 billion of business a year with the United States government, and notes that it is the largest single customer for American defense and aerospace products.

Small and shrinking military budgets in Europe - especially when compared with an expanding Pentagon budget - are further pushing the company's interest across the Atlantic. Besides Pentagon contracts, EADS has said it is also looking for possible strategic acquisitions of American military companies.

EADS has had its share of Pentagon wins and losses.

It beat out two U.S. companies and an Italian company for a $3-billion U.S. Army contract awarded last June to build the next light utility helicopter fleet. The craft will be built at an EADS facility in Columbus, Miss.

But a stinging loss came just days before the Paris Air Show, when EADS lost out to L-3 Communications Holdings in a $2-billion deal for a small cargo plane for the Air Force and the Army.

L-3 had teamed with Finmeccanica of Italy and Boeing, while EADS had teamed with the Raytheon Co. The competition was notable for pitting an Italian plane against an Airbus version.

"It was certainly disappointing, but this is not going to define EADS strategy in the United States," said Guy Hicks, a spokesman for EADS North America. "We're here to stay."

The tanker deal has captured the attention of the aviation community, not only for its size but also for a series of unexpected turns of events that opened the door for an Airbus bid.

In 2004, Boeing had almost won the tanker contract through an unusual leasing arrangement with the Air Force. But congressional scrutiny of the financial deal, led by Sen. John McCain, R-Ariz., caused it to be scuttled. The greater oversight uncovered a conflict of interest scandal that led to the jailing of Boeing's former chief financial officer and a former top Air Force official.

Those events opened the door for EADS to become a competitor.

Political support

Over the last year, a steady stream of members of Congress, many with no ties to Alabama, has been touring the Airbus facility in Toulouse, among them Reps. Shelley Moore Capito, R-W.Va., and Jim McDermott, D-Wash., who is a member of the House Ways and Means Committee.

In addition, Thomas Enders, the co-chief executive of EADS, became a frequent visitor to Washington, calling on members of Congress and, along with Merkel, meeting President Bush in the White House. Enders spoke recently to the U.S. Chamber of Commerce on the importance of trans-Atlantic ties and is to meet with Pentagon officials at the Paris Air Show.

An Airbus tanker, bought by the Australian government, will be part of the aerial demonstration at the show. In addition, Enders will appear at a joint press conference on the tanker issue with Ronald D. Sugar, the chief executive of Northrop Grumman, which is the American partner of EADS in its bid.

Back in Toulouse, Enders, along with Ralph Crosby, the chief executive of EADS North America, and Allan McArtor, chairman of Airbus North America, held a dinner for the Alabama delegation, before everyone headed to Paris. Crosby, McArtor and other EADS executives were also at the Paris reception.

In all, 46 politicians and others from Mobile came to Paris, including Alabama's other senator, Richard C. Shelby, a Republican, members of the state Legislature and a majority of the members of the Mobile City Council.

This activity has not gone unnoticed at Boeing.

"We don't take them lightly at all," said William Barksdale, a spokesman for the company's tanker program. While EADS has cast its political fortunes with the Southeast, Barksdale said that Boeing is casting a wider political net, pointing out how many jobs throughout the country would be created if Boeing prevailed.

Both sides are battling over many of the same issues - how much American and foreign content would be in the planes, and how many jobs would be created in the United States.

While Riley said the tanker contest should be decided on merit, he acknowledged that politics cannot be ignored. In an interview, Riley said he believed that the tanker deal will go to the House and Senate floor.

"Political support will be crucial," he said. "We want to stress that the tanker will be built in Alabama and made in America."

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