REFILE-UPDATE 2-Boeing cites Iran in tanker battle with EADS

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* Boeing says national security could be hurt

* Pentagon rises to defense of EADS North America

* EADS says Boeing is seeking to divert attention

(Adds Pentagon comment, quotes, background)

By Jim Wolf

WASHINGTON, May 25 (BestGrowthStock) – Boeing Co (BA.N: ) accused
rival EADS (EAD.PA: ) of having courted Iran and other countries
at odds with the United States and said this should be taken
into account in awarding a potential $50 billion U.S. Air Force
refueling plane contract.

EADS, headquartered in Paris and Munich, “continues to do
business with countries that are not friendly to the United
States,” Timothy Keating, Boeing’s vice president of government
operations, told a small group of reporters.

U.S. national security could be undercut by relying on
EADS, a company over which the United States lacks as much
“leverage” as it does over Boeing from which it buys much more,
he added.

The Defense Department rose to the defense of EADS, saying
it did not want to get involved in the “political sparring that
is clearly taking place here” and would confine its response to
a “statement of fact.”

“We would not have welcomed EADS North America’s
participation in this important competition unless they were a
company in good standing with the Department of Defense,” Geoff
Morrell, the Pentagon press secretary, said by email.

Boeing and the corporate parent of Boeing’s commercial
archrival, Airbus, are locked in an increasingly bitter race to
sell the Air Force an initial 179 tankers used to refuel other
planes in mid-air.

Keating cited a marketing effort by EADS subsidiary
Eurocopter at an Iranian air show at a time the United States
was pushing European allies to get tougher on Iran over its
nuclear program. The event took place in 2005, said Boeing
officials, who supplied a link to an NBC television report at
the time.

“We have not seen any indication that EADS no longer has an
interest in marketing their military products to countries like
Iran,” a U.S. foe, Daniel Beck, a Boeing spokesman, said in a
follow-up telephone interview.

A laminated card newly distributed by Boeing on Capitol
Hill described EADS and its Airbus subsidiary as “foreign
government owned.” It added that they were free from such laws
as the U.S. Foreign Corrupt Practices Act, which outlaws bribes
and improper payments to win contracts overseas.

The card’s flip side said the United States, “for reasons
of national security,” had never bought a critical military
system “developed or produced by a foreign owned or controlled
company — including aerial refueling tanker aircraft.”

France, Germany and to a lesser extent Spain have
considerable sway over EADS, which was formed in 2000 through a
merger of aerospace assets, but they have no say in day-to-day
decisions or strategy.

The French government owns 15 percent, but its hands are
tied by a shareholder pact giving control over nearly all
issues to the industrial founders: French media group Lagardere
(LAGA.PA: ) and German car company Daimler AG (DAIGn.DE: ). The
pact was designed to allay German concerns about any French
state interference.

EADS North America was chosen in 2006 to supply a new light
utility helicopter for the U.S. Army, with a potential total
“life-cycle” value of more than $2 billion.

A spokesman for EADS North American arm, James Darcy, said
Boeing was trying to make the tanker competition “about
anything other than getting the best tanker for the Air

Boeing officials said the national-security implications of
any EADS tanker contract were more serious now that Northrop
Grumman Corp (NOC.N: ), EADS’s partner in a previous tanker
competition, had dropped out.

Northrop withdrew in March, complaining the contest was
unfairly slanted to favor Boeing’s smaller 767 wide-body
derivative over its tanker based on a modified Airbus A330.

The Northrop-EADS partnership won the deal in 2008 only to
have the award withdrawn after the Government Accountability
Office ruled in favor of a Boeing protest that the Air Force
had failed to follow its own bid-evaluating rules.

Boeing now says it fears EADS plans to low-ball its bid in
an attempt to boost its toehold in the lucrative U.S. market.
It is pushing a bill in Congress that would force the Pentagon
to adjust EADS’ bid by the value of illegal European subsidies
as determined by a final World Trade Organization panel ruling
in March.

“Only with a heavily and illegally subsidized price could
their much bigger airplane cost less than than Boeing’s 767
tanker,” Keating told reporters. “We simply believe that the
unfair advantage of those subsidies needs to be considered.”

A European counter claim that Boeing has benefited from
improper U.S. federal, state and local subsidies is due for an
interim ruling by the WTO by the end of next month. A final
ruling may not come in time to be factored in under the
legislation introduced by lawmakers from Kansas, where Boeing’s
tanker would undergo final assembly and militarization.

Keating said the U.S. government would lack leverage to
make sure of an uninterrupted flow of spare parts, for
instance, for any Airbus tanker in case of a policy difference
with France and Germany, which opposed the U.S.-led invasion of
Iraq in 2003.

“What leverage does the United States have over EADS North
America” the unit that would be the prime contractor, he

“A lot less than they would have over the Boeing Company”
which does a lot more business with Washington, he responded.

In an NBC television report that aired on Feb. 23, 2005,
an EADS representative, Michel Tripier, said his company was
emphasizing its civil helicopters at the air show on the
Iranian island of Kish.

“As a European company, we’re not supposed to take into
account embargoes from the U.S.,” he said on camera at the

EADS’ Darcy said Tripier had not been authorized to make
that statement “and his comments were both incorrect and

“He was removed from his position and ultimately left the
company,” Darcy added.

The only arms sales to Iran banned under three U.N.
Security Council resolutions passed since December 2006 were
those that might contribute to Tehran developing nuclear
weapons. However, sanctions now under consideration by the
council would bar sale of many categories of heavy weapons to

Investment Analysis

(Reporting by Jim Wolf; additional reporting by Tim Hepher in
Paris and Patrick Worsnip at the United Nations; editing by Tim
Dobbyn and Andre Grenon)

REFILE-UPDATE 2-Boeing cites Iran in tanker battle with EADS