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Air Force tanker deal stuns Boeing

PARIS — Shares of Airbus' parent company surged Monday after the French planemaker snatched a $35 billion U.S. Air Force contract from its American rival, the Boeing Co.

European Aeronautic Defence and Space Co. and its U.S. partner, Los Angeles-based Northrop Grumman, won the contract to build military refueling planes Friday, one of the biggest Pentagon contracts in decades.

Shares of EADS rose 9.2 percent to close at 19.04 euros ($28.90) in Paris and shares of Northrop Grumman rose $3.96, or 5 percent, to close at $82.57 Monday. Boeing shares slid $2.12, or 2.56 percent, to $80.67 Monday.

The deal was a blow for Boeing, which had supplied refueling tankers to the Air Force for nearly 50 years, and it was a surprise to Wall Street, defense analysts and U.S. lawmakers.

For EADS, breaking into the world's largest military market opens the door to possible follow-up contracts and fits with CEO Louis Gallois' strategy of reducing the group's dependence on the commercial airliner market.

"It's a really good surprise for the group," said Montsegur Finance fund manager Gregory Moore, who holds EADS shares.

"Even the management didn't have high expectations about winning this contract given that there could have been some industrial protectionism on the side of the Americans."

The announcement provoked fury among U.S. politicians, who objected to the military deal being awarded to an overseas contractor.

"We should have an American tanker built by an American company with American workers," said Rep. Todd Tiahrt, R-Kan., who represents the district in Wichita where Boeing would have done much of the tanker work. Tiahrt said he will try to reverse the decision.

Officials with the International Association of Machinists and Aerospace Workers, which represents Boeing workers, on Monday called for Congress to pass legislation barring the Pentagon from awarding contracts to foreign companies that receive "anticompetitive" subsidies. The U.S. Trade Representative has filed a complaint against the European Union with the World Trade Organization charging the EU with providing unfair subsidies to Airbus for large civil aircraft.

"By awarding this contract to EADS, the Department of Defense is gutting our domestic manufacturing industry and outsourcing 44,000 good-paying manufacturing jobs, forcing the United States to also become increasingly dependent on those abroad for our most basic military materials," said Richard Michalski, the union's general vice president.

Air Force Gen. Duncan J. McNabb said the EADS-Northrop Grumman partnership won the competition in part because of the larger size of its aircraft — the KC-30 tanker — allowing for more fuel, more cargo and more passengers. Boeing offered a smaller 767-200.

The contract to build up to 179 aircraft is the first of three awards worth up to $100 billion over 30 years.

Addressing labor fears, Gallois said the contract will create jobs on both sides of the Atlantic.

The tanker frame is to be based on the Airbus A330 passenger jet, and final assembly will take place in Mobile, Ala., according to EADS. Civilian Airbus A330 freighters will be assembled there, too.

Europe will play a role in building the tanker, with the nose made in France, the wings in Britain and part of the fuselage in Germany.

The announcement provided some welcome goods news ahead of EADS' 2007 results, to be announced March 11.

Airbus, the planemaker which provides the bulk of EADS' revenue, is in the midst of a restructuring plan that aims to cut 10,000 jobs and recoup some 2 billion euros ($3 billion) in savings by 2010.

The company, which sells its planes in dollars while many of its costs are in euros, has also been struggling with the strength of the euro — which hit a record high of $1.5238 Friday.

In this artist’s depiction provided by Northrop Grumman Corp., a KC-45A refuels a F-22 Raptor. The Air Force on Friday awarded Northrop Grumman and partner European Aeronautic Defence and Space Co. a $35 billion contract to build airborne refueling planes. - AP