Airbus Beats Boeing in Contract for South Korean Refuel Tankers--Update

By Jeyup S. Kwaak in Seoul and Robert Wall in London 

Airbus Group SE beat out Boeing Co. in a $1.33 billion race to supply South Korea with four aerial refueling tankers, dashing the U.S. plane maker's hopes of securing the first foreign order for a program beleaguered by budget overruns and delays.

A spokesman for South Korea's main arms procurement agency said Tuesday it plans to buy four of Airbus's refueling planes, called the A330 MRTT, for multirole tanker transport. The first delivery is due in 2019.

The European plane maker's bid became more attractive with euro weakening since the bids were submitted, the spokesman for South Korea's Defense Acquisition Program Administration said. It is the first indication the strong dollar may become a burden for U.S. defense exporters.

Airbus leads Boeing in overseas sales in the refueling jet contest. Customers for the A330 MRTT jets include Australia, the U.K., Saudi Arabia, the United Arab Emirates and Singapore, which last year picked the aircraft over Boeing's Pegasus.

France and a consortium of European militaries have said they would buy the plane and India also has picked the Airbus aircraft for its air force, though it hasn't finalized a contract.

"The A330 MRTT has won every tanker competition since it entered the market," an Airbus spokeswoman said. "

Converted from its A330 passenger jet, the Airbus tanker can carry more fuel and fly over a greater distance than the Pegasus, which Boeing touted as more cost-efficient than its rival.

Boeing highlighted interoperability with the U.S., a major military ally for South Korea as well as Japan, another potential buyer. Japan already operates an older version of the Boeing tanker that is made by converting 767 jetliners.

South Korea historically is a large buyer of U.S. military equipment, though Airbus has made inroads in the market, especially with its helicopter unit. "This contract will also allow Airbus Defence and Space to establish a long-term and sustainable cooperation with the Korean industry," the spokeswoman said.

Airbus's win deals a blow to Boeing, which hasn't won a single foreign order for its KC-46A Pegasus tanker, despite winning in 2011 a U.S. contract valued by the Pentagon at as much as $41 billion over its lifespan. Overseas sales could help reduce costs to build the plane.

Boeing aims to have the first of the 179 jets delivered to the U.S. Air Force starting in 2016. But its first test flights have been delayed for months and the company last year took a $425 million impairment on earnings to fix wiring problems.

Jeff Kohler, vice president for international business development at Boeing's defense unit this month said the company was in talks with "a few other customers" beyond South Korea and Japan, though their budget process may mean a deal is a few years down the road. Poland is among potential future buyers, the company has said.

"We will be around a long time with the KC-46," Mr. Kohler said, noting the existing U.S. program runs until 2027 with potential for follow-on purchases.

Write to Jeyup S. Kwaak at [e-mail] and Robert Wall at [e-mail]

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