During the March 12 edition of Fox News' Special Report, host Brit Hume and a panel that included The Beltway Boys co-host and Weekly Standard executive editor Fred Barnes discussed the controversy over the awarding of a $35 billion Air Force tanker contract to Los Angeles-based Northrop Grumman and European Aeronautic Defence and Space Co. (EADS), the parent company of Airbus, over the American company Boeing. According to Reuters, the contract was described as a "surprise blow" to Boeing, which had previously been the "Pentagon's sole supplier of aerial tankers." In purporting to explain Sen. John McCain's role in the controversy, Barnes stated, "[H]ere's what he asked for: He asked for the Air Force to take into consideration, which he thought the Air Force regulations required, aircraft -- taking into consideration maximizing cargo and passenger capacity, which are important in a supertanker. Well, they did. And now Northrop Grumman and Airbus won the contract." But McCain reportedly asked for more than what Barnes said. His request was reportedly not merely for what the Air Force should take into consideration, but what he reportedly said it should not take into consideration. McCain reportedly urged the Defense Department to -- in the words of The New York Times -- "not proceed with a plan to consider" the potential effects of a World Trade Organization (WTO) dispute between the United States and the European Union over whether Airbus and Boeing received illegal subsidies for commercial airliners from their respective governments, and those effects were dropped from consideration. According to numerous media reports, the omission of the subsidies dispute as a factor in evaluating the proposals benefited EADS and Northrop Grumman at the expense of Boeing. Boeing and EADS have been at the center of a WTO dispute after the U.S. filed a complaint -- still pending -- alleging that, according to a March 12 New York Times article, the European Union "provided illegal subsidies to design and develop aircraft, including preferential loans, debt relief and loans and research and development grants" for Airbus. In response, the "Europeans countersued, saying the United States had granted indirect subsidies to Boeing, including tax breaks." The Associated Press reported that in initial drafts of the Air Force's request for proposals for the tanker contract in 2006, "bidders would have been required to explain how financial penalties or other sanctions stemming from the subsidy dispute might affect their ability to execute the contract." The AP then wrote that the provision "was widely viewed as hurting the EADS-Northrop Grumman bid." Indeed, a March 7 Seattle Post-Intelligencer article reported that the "issue of European government subsidies for Airbus has been raised for years by Boeing supporters who claim that those financial breaks have allowed the Toulouse, France-based company to undercut Boeing's prices and thus gain market share in the global competition between the two aircraft manufacturers." Aerospace Daily Gates' confirmation hearing took place Dec. 5. One of McCain's concerns is whether the Air Force plans to make its decisions based on the hypothetical impacts of a pending trade dispute between Boeing and Airbus on pricing of their offerings for a refueling tanker. "I remain troubled that, without clarity on how answers to this provision will be evaluated, this element ... may risk eliminating competition before bids are submitted," McCain says. Each company accuses the other of unfair pricing based on government subsidies. Aerospace Daily he wanted to have read the letter. BARNES: Just -- wait a minute. Just think if the Air Force had only had one bidder and gave it to a company. KONDRACKE: I agree. BARNES: People would be raising Cain -- why don't you get another bidder? And here's what he asked for: He asked for the Air Force to take into consideration, which he thought the Air Force regulations required, aircraft -- taking into consideration maximizing cargo and passenger capacity, which are important in a supertanker. Well, they did. And now Northrop Grumman and Airbus won the contract. Look, why are they -- they're mad because they think jobs are being outsourced. Well, look, most of the jobs are gonna be here. They're gonna be in Alabama. And here's what makes a lot of them mad: They're gonna be non-union. MARA LIASSON (National Public Radio national correspondent): Look -- HUME: Quickly, Mara. LIASSON: There is nothing easier to demagogue when a foreign company gets a big contract, or even with an American partner in the United States. This happened with the Dubai ports deal; it's happening now. It turns out that they're gonna look at this, they're gonna see if this contract was awarded fairly, and they'll make a determination. HUME: What do you think will happen? LIASSON: I think it'll stand. From the January 30, 2007, Agence France-Presse article: The US Air Force Tuesday cleared the way for European aerospace company EADS to bid against Boeing Co. for a lucrative contract to supply a new generation of refueling tankers. The Pentagon said it was committed to an open bidding for the checkered "KC-X" project, which aims to replace the Air Force's aging mid-air tankers under a deal that could be worth up to 200 billion dollars. The contract is under intense scrutiny from the US Congress. A year ago, it was re-opened after a procurement scandal sank an initial Air Force deal to buy Boeing tankers without a competitive bidding process. "The Air Force remains committed to a full and open competition," said Sue Payton, the Air Force's senior acquisition executive. "The KC-X is the Air Force's number one acquisition priority and will continue to be conducted in a transparent and deliberate manner," she said. Payton stressed: "We don't really want to go to a hypothetical situation relative to only having one provider here, one proposal (from Boeing)." In its "request for proposals" (RFP), the Department of Defense dropped any link between the bidding and a legal tussle over aircraft subsidies being waged by the US and European Union at the World Trade Organization. The draft "WTO clause" was seen as penalizing EADS, whose commercial aircraft unit Airbus is the target of the US government case at the Geneva-based referee of the global trading system. The Air Force's invitation for bidding also appeared to take account of objections lodged by Northrop Grumman, the US partner of EADS for the massive mid-air refueling plane contract. Northrop had threatened to pull out unless the terms were altered to give priority to more than just cost in the Pentagon's decision-making, which would have favored a cheaper offering from Boeing. Northrop said it was "deferring comment" until its project team has completed a "thorough review" of the RFP. Any withdrawal by Northrop would leave EADS without a US partner and so unable to proceed with the bid, which the European company sees as pivotal to its ambitions to take on the world's biggest military market.
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