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Air Force to review European tanker deal after auditors' report

Article published on the 2008-06-18 Latest update 2008-06-20 10:21 TU

Louis Gallois, CEO of EADS(Photo: AFP)

Louis Gallois, CEO of EADS
(Photo: AFP)

The price of shares in the European aerospace company, EADS, fell 2.51 per cent on Thursday after a US Congress body slammed a US Air Force deal worth 35 billion dollars (23 billion euros). The Air Force said that it will review the contract for refuelling planes that it awarded to Northrop Grumann and EADS in February.  

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"Our review of the record led us to conclude that the Air Force had made a number of significant errors that could have affected the outcome of what was a close competition between Boeing and Northrop Grumman," said a statement by the US Government Accountability Office, the investigative arm of Congress.

The Office said the Air Force did not respect the evaluation criteria when choosing a supplier and that it made some miscalculations in finding the lowest bidder. If corrected, Boeing would become the lowest bidder on the contract.

The GAO recommends that the Air Force reevaluate the contract and modify the request for proposals if it is not clear enough. Its recommendations are non-binding, but they are usually respected.

"We welcome and support today's ruling by the GAO fully supporting the grounds of our protest," said Mark McGraw, the vice president of Boeing Tanker Programs in a statement. “We look forward to working with the Air Force on next steps in this critical procurement for our warfighters."

Northrop Grumman said it had offered the best option to the air force, but that it would review the findings.

Louis Gallois, EADS’s CEO, said he was disappointed, but “it is important to recognise that the GAO’s announcement is an evaluation of the selection process, and does not have anything to do with the merits of our aircraft.”

Shares of EADS took a nosedive on Thursday as the price decreased 2.51 per cent to 13.21 euros in light of the news. Partly because of EADS's performance, the Paris Bourse saw a greater drop in share values than other major stock exchanges.

The contract is for 179 new refuelling tankers to replace the Air Force’s aging fleet.

Much of the criticism of the deal in the US had protectionist overtones, at a time when the US economy is experiencing a slowdown.