EADS Follows Northrop Grumman, Drops Out Of Tanker Contest (BA, NOC)

Today European aircraft manufacturer EADS announced that it was withdrawing from the Air Force tanker competition, a decision that occurs one day after partner Northrop Grumman (NYSE: NOC) withdrew - effectively swinging the victory to Seattle-based aircraft manufacturer Boeing (NYSE: BA).

The move comes after both companies admitted that they could not compete with Boeing under the new contract guidelines drawn up by the Department of Defense – guidelines that allegedly give an unfair advantage towards the smaller aircraft favored by Boeing. In the previous competition, Northrop Grumman won the bid with a larger, arguably more capable aircraft. The process was judged to be flawed, though, and the competition was restarted.

The news comes as EADS, the European partner to Northrop Grumman, reports a loss of more than 1 billion euros in the fourth quarter related to its military transport program, the A400M. This project is becoming something of a money pit for European countries who have heavily invested in its success. Should it fail, Europe could be deprived of a viable tanker/transport alternative to Boeing aircraft produced in the United States.

Critics of the tanker competition state that the guidelines were rewritten under intense pressure from American lawmakers from states that would benefit from Boeing winning the $35 billion competition. Pressure was also placed on the Department of Defense from lawmakers on behalf of Northop Grumman, such as Sen. Jeff Sessions (R-AL), representative for workers in Northrop Grumman plants located in Mobile, Alabama.

EADS does not plan on submitting another proposal for the tanker competiton.

Plans for the tanker project will be finalized before production begins. The first serviceable aircraft are scheduled to be delivered by 2015.

In trading today, shares of Boeing have risen by 1.15% to 68.04. Shares of Northrup Grumman have risen slightly by 0.20% to 64.34.