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US lawmakers propose law to add subsidies to cost of KC-X bids

US lawmakers supporting Boeing's pursuit of the KC-X tanker contract today proposed a law that would force the Department of Defense to add the value of improper subsidies to the cost of competitors' bids.

The bill would force the US Air Force to add extra costs to the KC-45 bid from EADS North America, which intends to offer a modified Airbus A330-200.

If the Fair Defense Competition Act becomes law before the contract award date in the fourth quarter, the legislation could help tilt the USAF's price-sensitive evaluation in favour of Boeing's NewGen Tanker proposal, which is based on a modified 767.

"This bill will ensure DoD runs a fair tanker competition and that no bidder is rewarded for benefitting from illegal government support," says Sen Sam Brownback, of Kansas. Boeing will complete KC-767 modifications in Wichita.

The bill was introduced by Brownback, Kansas Rep Todd Tiahrt and Washington Sen Patty Murray. Co-sponsors of the bill included members from Boeing's headquarters in Illinois and new manufacturing base in South Carolina.

EADS NA released a statement criticising the proposed law as "one more attempt to avoid competing on the merits of the tanker".

In March, Airbus acknowledged that the World Trade Organisation ruling on the US-brought case concludes the company benefited from an "element of subsidy" to finance the development of the A330.

Airbus, however, interprets the ruling as confirming Europe's reimbursable loan mechanism - or launch aid - is legal under WTO policy.

That interpretation is disputed by rival Boeing, which boasted in March that the ruling means the "United States has prevailed on all of the major issues".

Adding the cost of improper subsidies could have a major impact on the KC-X competition.

The air force's evaluation process awards the contract to the bidder who meets all 372 mandatory requirements at the lowest evaluated price. If the bidders come within 1% on price, the air force will add up bonus points awarded for meeting 93 non-mandatory requirements.

The US Trade Representative has estimated that Airbus received $5 billion in improper subsidies from European governments on the A330, Brownback says.

It is less clear how the bill could impact Boeing's KC-X pending the outcome of a European Union-brought case to the WTO. That ruling is expected to be released in the third quarter.

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