EADS Lands RAF Refueling Tanker Contact

LONDON, March 27 -- Airbus parent European Aeronautic Defence and Space (EADS) landed its second big government order in as many months Thursday when Britain signed a $26.36 billion contract to replace the Royal Air Force's aging fleet of midair refueling tankers.

Airbus will provide the Air Force with 14 new A330-200 passenger aircraft converted for military use under a 27-year contract between the EADS-led consortium AirTanker and the Defense Ministry.

EADS is the junior partner in a consortium headed by U.S. defense company Northrop Grumman that was chosen a month ago over Boeing to supply the U.S. Air Force with 179 refueling aircraft.

EADS has also landed contracts for its A330-200 aircraft with the militaries of Australia, Saudi Arabia and the United Arab Emirates.

Under the terms of the British deal, the planes will be owned by AirTanker but will fly in RAF colors, providing air-to-air refueling and passenger transport. The consortium will also have the rights to commercially lease five of the aircraft, which can carry 290 passengers and freight.

The aircraft will replace Britain's fleet of Tristar and VC-10s, with the first plane expected to come into service in 2011 and all expected to be flying by 2016. Payment for the project will start when the first plane is delivered. Ann Taylor, the defense minister responsible for procurement, said the project will create 600 jobs.

The deal follows two rocky years for EADS. It lost billions because of delays to its commercial super-jumbo A380 and mid-size A350 jets. The company is selling real estate and slashing thousands of jobs to recoup those losses.

Uncertainty surrounding the global credit markets made financing the deal particularly difficult, said AirTanker chief executive Phil Blundell, who acknowledged that plans to raise the funding through a combination of debt and bonds had to be abandoned.

"The bond markets collapsed, so we had to restructure the deal in an all-debt finance," he said.

Blundell said AirTanker had borrowed $5 billion at just 1 percent above the interbank lending rate to pay its costs. The total cost to the consortium is expected to be about $7 billion.

Celebrations over the deal were checked when EADS received some bad news on one of its other projects. Talks collapsed over the sale of three EADS manufacturing sites in Germany to MT Aerospace, a branch of Germany's OHB Technology.

OHB chief executive Marco Fuchs said the deal "didn't make sense" given current market conditions and the weak U.S. dollar, and predicted that Airbus may have trouble finding other buyers.

Angela Charlton in Paris contributed to this report.