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No matter the site, hurdles for company remain

State disappointed, but still could see benefits from EADS

When it was announced recently that Mobile, Ala., had won out over Kiln and two other Southern sites for a proposed $600-million EADS (European Aeronautic Defense and Space Co.) plant to produce air refueling tankers for the U.S. Air Force, a spokesman for the Mississippi Development Authority (MDA) said: “While we are never satisfied being a bridesmaid, we were pleased to be selected as one of the four finalists out of the 70 locations that applied.”

MDA spokesman Scott Hamilton said, ultimately, the Mobile site with its contiguous deep-water port 300 yards from the airport was simply a better physical site to meet EADS-North America’s unique requirements. EADS proposes to build Airbuses (A330s) in Europe and deliver them to the U.S. to be fitted with large tanks for refueling Air Force jets in mid-air.

While Mississippi officials tried to put a positive face on the disappointing news by saying that perhaps 25% of the workers manufacturing facility proposed for the Brookley Industrial Complex in Mobile would come from Jackson County, what has received far less attention in the state is that the “bride” in the mix — the U.S. government — hasn’t yet selected the groom.

EADS has some big strikes against it over the tanker project. One is a proposed “Buy American” amendment introduced in Congress that would bar the Pentagon from purchasing from foreign companies that receive subsidies from their government.

Billions at stake

With contracts potentially worth $20 billion at stake, there has been a lot of national and international attention to the issue. EADS is proposing to build a plant in the U.S. to temper Congressional opposition to outsourcing such a huge military contract to a foreign company headquartered in France and Germany. France has not been supportive of the war in Iraq.

Several major financial news services have reported that EADS may team up with Northrop Grumman Corporation on the contract. Earlier Boeing Company was bumped from what has been described in the financial press as “the nation’s troubled air tanker program” after a contracting scandal erupted. Several large financial publications reported that EADS and Northrop Grumman Corp. might compete jointly against Boeing Co. for the refueling tanker contract. EADS would provide aircraft that would be refitted in the U.S. for aerial refueling, replacing the current KC-135 refueling fleet with aircrafts named KC-330s.

When contacted for comment on whether Northrop Grumman would team up with EADS, a Northrop Grumman spokesman said there had been misinformation published on the issue. He declined direct comment on whether Northrop Grumman might team up with EADS — or go after the contract on its own — beyond providing the following prepared statement:

“If the Defense Department announces its intention to hold a fair and open competition for a tanker replacement, then Northrop Grumman will be very interested in competing to propose and deliver a platform that provides best value and, at a minimum, meets or exceeds the requirements.

“Northrop Grumman is holding exploratory talks with industry, the Office of the Secretary of Defense and the Air Force to assess tanker replacement program requirements and schedule, cost and competitive issues.

“Northrop Grumman will decide its level of participation in the future.

“At the end of the day, the Department of Defense, not Northrop Grumman, will determine the selection.”

In an interview with the Financial Times, Northrop Grumman CEO Ronald Sugar said the company’s decision on whether to compete in the Air Force refueling tanker program has been delayed by proposed legislation in the U.S. House of Representative to punish EADS because of disputes with the U.S. over commercial aircraft subsidies. Sugar’s comments seem to make it unlikely that Northrop will join the EADS bid until the matter is resolved in Congress — possibly later this summer.

“We have to be mindful of the issues surrounding the WTO (World Trade Organization) and subsidies issue,” Sugar was quoted as saying.

Recently, the U.S. filed a lawsuit with the WTO charging that European subsidies to EADS subsidiary Airbus violate global trade rules. The European Union counter-sued, charging that the U.S. government was unfairly subsidizing Boeing.

Previous partnerships

EADS and Northrop Grumman have partnered together previously. In 2004, the companies announced their intention to work together to provide the U.S. Air Force with the next-generation personnel recovery vehicle (PRV), a combat search-and-rescue helicopter. The two companies are also collaborating on ballistic-missile defense solutions.

EADS is the world’s second largest air and defense company. Its North American subsidiary operates the new Eurocopter manufacturing facility in Columbus. Northrop Grumman is the nation’s third largest defense company. In addition to its large shipyard in Pascagoula, Northrop Grumman is also investing in an unmanned aircraft manufacturing facility in Jackson County.

U.S. military spending accounts for about 45% of the worldwide expenditures, about $455 billion in 2004. Only an estimated 4% of U.S. military contracts are awarded to companies in foreign countries.

Could still benefit

If EADS does end up landing the air tanker contract and builds a plant in Mobile, coastal Mississippi is expected to benefit from increased employment.

“As much as a fourth of the workforce may come from Mississippi,” said Pete Smith, spokesman for Gov. Haley Barbour. “The shipyards here, as well as other existing industries, have a labor pool that might be tapped for this. So Mississippi stands to benefit in that regard. There is always also the possibility of spinoff benefits from suppliers locating in Mississippi.”

Just being in the running for the EADS plant has been good for the state’s image in economic development recruitment circles.

“With EADS being an international company, and having Mississippi as one of the four finalists, certainly raised the level of attention to Mississippi when other companies out there are searching for a skilled workforce and site selection,” Smith said.

Smith said Gov. Barbour attributed Mississippi not making the final cut to Alabama being prepared to offer greater incentives, and Mobile having a deepwater port site that meant the A330s would have to be transported only 300 yards to the plant.

“In Mississippi, the two ports are 35 and 72 miles away from where the aircraft would be unloaded,” Smith said. “Alabama had a better site. As the governor stated, we knew going in that Alabama would be a tough contender for this plant.”

An estimated 1,000 workers would be employed at the EADS facility in Mobile, which would also house a new Airbus Long-Range Aircraft Engineering Center. The center would employ about 150 aerospace engineers.

Contact MBJ contributing writer Becky Gillette at bgillette@bellsouth.net.

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