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Wednesday, July 19, 2006 - Page updated at 12:00 AM

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Tanker-contest fairness concerns Boeing's CEO

Seattle Times aerospace reporter

FARNBOROUGH, England — Boeing Chief Executive James McNerney said Tuesday that Airbus parent EADS will have an unfair advantage in competing for the massive U.S. Air Force contract for refueling tankers because the European company doesn't have to abide by the same stringent U.S. laws on export controls and business transparency as Boeing.

In an interview at the Farnborough Air Show, McNerney said that in the contest to build wide-body tanker airplanes, his concern with Airbus is not the launch aid it has received from European governments for its past airplanes.

Rather, he raised new issues: U.S. export control and business transparency regulations that he said impact Boeing but not rival European Aeronautic Defence & Space

"We do not object to them competing in this country," McNerney said. "The only thing that we ask for is that we play by the same rules."

In a wide-ranging interview at Boeing's Farnborough chalet, McNerney also said the new A350 XWB airplane family announced Monday by Airbus may require some "tweaks" in Boeing's 777, but no changes to the 787 program.

And he voiced dissatisfaction with recent delays in programs on Boeing's military side, saying he's "not at all proud" of those developments.

Just one year into his job, McNerney said that his experience as a General Electric executive made him more familiar with Boeing's commercial side than with the military division.

"I know that side of the business very well," he said. "Our communication is more natural."

But if he has a predilection for commercial aviation, he must be learning fast on the other side.

Soon after the interview started, the air show's afternoon flying display began outside the windowless conference room. As the roar of a fighter jet silenced him for a moment, he listened carefully to the noise. Before resuming his train of thought, he identified the jet by its sound.

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"That must be a Eurofighter," he said.

On the tanker contract, McNerney said the current debate with EADS over launch aid — government loans to fund airplane-development programs — applies to future commercial airplane-development programs, such as the A350, and not to existing jets.

The proposed EADS tanker, produced in conjunction with Northrop Grumman, would be based on a current Airbus jet, the A330.

In April, the Air Force issued a Request For Information notice concerning a future tanker contract, and it included a clause asking bidders to disclose any launch aid.

EADS objected vigorously, describing the linkage of the subsidy issue to defense procurement as a move that favors Boeing.

McNerney said the linkage of launch aid to the tanker contract is more "an issue in the eyes of some people in Congress evidently," though not for him.

But if McNerney was letting EADS off that hook, he baited a couple more.

He cited two areas of federal regulation — export control and business-practice transparency — that he said have much greater impact on Boeing than on any foreign company, including EADS.

Because of a loophole in federal International Traffic in Arms Regulations laws, he said, foreign companies operate under less burdensome export-control.

"We have to play by a set of rules that identifies every part in an airplane as to whether or not it was designed for a military use, or designed outside the U.S., outside of export controls," he said. "They are proposing to come in with this huge airplane and not have to provide any of that."

Foreign companies such as EADS doing business in the U.S. also don't have the strict oversight and regulatory burden the Foreign Corrupt Practices Act imposes on U.S. companies operating overseas.

That act became law in 1977, following a wave of scandals involving bribery of foreign officials to win defense contracts.

"They have to jump through far fewer hoops," McNerney said. "If they have a legal entity in this country soliciting defense business ... they should follow the same business transparency laws as we do."

McNerney seemed underwhelmed by the new Airbus airplane family announced Monday to compete against both the 787 and the larger 777.

"Clearly their strategy is to find some wiggle room between two very successful airplane families," he said. "It will be difficult because they are, with one plane, trying to cover a lot of ground."

McNerney said Boeing will study whether it needs to upgrade the 777 in response to the A350 challenge, but the 787 will proceed on track.

"We've asked and answered the question on the 787 as to whether we need to do anything differently," he said. "Our answer is we don't.

"We have to ask that question on the 777," he said. "I can't imagine we'd have to completely revamp the 777 line in response to this at all. It's more fit and finish, or tweaks. That might happen a little earlier.

"We'll have to look at it when we know what their plane is," he said. "It remains a concept."

McNerney showed more concern about the unexpected delays announced last month in the Australian Wedgetail and Turkish Peace Eagle airborne early-warning and surveillance-aircraft programs.

"We're not at all proud of the circumstances and the late-breaking news," he said.

The news shocked analysts. Boeing will take an accounting charge in the second quarter of $300 million to $500 million due to penalties and lost revenue from the delays.

McNerney said the response from defense-unit chief Jim Albaugh had been decisive.

"He's taking strong action," said McNerney. The leadership of the program has been changed and the problems are being addressed, he said.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com

Emirates order

Boeing, widening its lead in new business this year over Airbus, won a $3.3 billion order from Emirates, the biggest Arab airline, for 10 747-8 freighters.

Deliveries will begin in 2010, Boeing said Tuesday at the Farnborough Air Show.

Emirates also said it wants to buy 100 planes in the 300-seat category, an order valued at as much as $20 billion.

The airline will take up to a year to make a decision between Boeing's 787 and Airbus' new A350 XWB.

Boeing has also announced orders for 30 737s from Indonesia's Lion Air, two 787s from Pegasus Aviation Finance, two 747 freighters from LoadAir Cargo and 14 737s from Aviation Capital

Airbus won a preliminary order from Libya's Afriqiyah Airways for up to 20 planes, the first order in 30 years from Libya, which was blocked by international sanctions.

The Libyan carrier will buy six A320s, three A319s and three of the larger A330-200s.

Airbus also signed an agreement with GoAirlines, a low-fare carrier that began flying in November, for as many as 20 A320s, worth as much as $650 million.

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