EADS will not mount a solo bid for the U.S. Air Force KC-X tanker program, ending the company’s highest profile effort to grow its footprint in the U.S. market.

EADS CEO Louis Gallois ruled out a solo bid a day after the Northrop Grumman-led team involving EADS and the Airbus A330 said it would not respond to the Pentagon’s request for proposals (RFP), saying the tender favored the Boeing-offered KC-767. He also rejected the notion of partnering with someone else.

CFO Hans-Peter Ring says that discussions on cancelling the original KC-45 deal continue, but will not materially impact the company.

Despite the setback, Gallois insists “the U.S. tanker decision does not diminish our commitment to the U.S.” EADS already has its eye on the next round of competitions, including the Army’s armed scout helicopter and the Air Force’s Common Vertical Lift Support Platform. Moreover, the U.S. remains a target for acquisitions, although EADS isn’t planning any big deals near term as it remains focused on preserving cash.

On the A400M, Gallois says a contract to reflect Friday’s agreement on the way forward is expected in a few weeks. It will remain a fixed-price contract, something EADS originally rejected. However, Gallois says there is enough margin back in the program to allow the company to remain with that kind of a contractual structure.

The €1.8 billion charge associated with the A400M for 2009 was largely responsible for driving EADS full-year results into the red. The company booked a net loss of €763 million, on revenue of €42.8 billion.

The charges did not account for all the risk an independent audit identified, but Gallois believes restructuring of the program that is being completed now will reduce the risk of the €3.6 billion becoming reality.

The A400M saga will not be over for some time, however. Claims suppliers have against the prime contractor, as well as those from the prime contractor against suppliers, will take years to sort out, Gallois notes.

Other issues to be resolved is how to structure royalty payments countries will get on export sales as a result of the €1.5 export financing levy they are providing as part of the A400M restructuring. Gallois says there is an agreement to keep the royalty payment at a level so it will not hurt export pricing.

Meantime, European political leaders are blasting the U.S. for perceived protectionism on KC-X, saying the request for proposals favored rivals.

Although it had no direct involvement in the program, European Union’s trade commissioner, Karel de Gucht says that “it is highly regrettable that a major potential supplier would feel unable to bid for a contract of this type. Open procurement markets guarantee better competition and better value for money for the taxpayer.” The EU says it will watch the situation further.

U.S. Deputy Defense Secretary Bill Lynn attempted to address such concerns immediately in reacting to Northrop’s withdrawal. “The department strongly supports trans-Atlantic defense industrial ties and believes they benefit the American war-fighter and taxpayer,” he said late March 8.

The EU notes that defense trade balance has heavily favored the U.S. In 2008, the U.S. exported $5 billion from EU members and imported only $2.2 billion. The statement comes as the EU is still trying to bring down trade barrier on intra-EU defense trade.

The European Union’s message was echoed by Germany’s economics minister Rainer Bruederle. The RFP clearly favored Boeing, he says, adding that “also in defense procurement, free trade should not be curtailed. Particularly in the current economic downturn, event indicators of protectionism are damaging.”

Photo: Northrop Grumman