Airbus, Lockheed join forces to pursue U.S. military refueling orders

By Andrea Shalal

BERLIN (Reuters) - Europe's Airbus is teaming up with a new U.S. partner, Lockheed Martin, to try to crack the U.S. military air tanker market nearly eight years after losing out to rival Boeing in a bitter battle to supply refueling planes to the U.S. Air Force.

Airbus and Lockheed, the biggest U.S. arms maker, said on Tuesday they had signed an agreement to meet the growing demand for aerial refueling for the U.S. military.

The agreement marks Airbus's first major foray into the huge U.S. military market since its failed 2012 bid to merge with Britain's BAE Systems and its large U.S. unit.

It kicks off a rerun of an epic battle between Airbus and Boeing, the world largest planemakers, that stretched for nearly a decade and saw two former Boeing executives sent to federal prison for ethics violations.

Airbus, previously teamed with U.S. weapons maker Northrop Grumman Corp, in 2008 had won a $35 billion contract to build its MRTT aerial refuelling tankers for the U.S. Air Force, only to see the deal overturned amid political pressure.

The U.S. Air Force re-ran the competition and Boeing ultimately won a $49 billion contract in 2011 to build 179 767-based tankers for the U.S. Air Force, but it has missed deadlines on the resulting KC-46A programme and piled up some $3 billion in costs.

Now Airbus will work with Lockheed and go after the next possible aircraft and refuelling service orders.

"By combining the innovation and expertise of Airbus and Lockheed Martin, we will be well-positioned to provide the United States Air Force with the advanced refueling solutions needed to meet 21st century security challenges," said Lockheed Chief Executive Marillyn Hewson in a statement.

Outgoing Airbus CEO Tom Enders said the two firms made "a great industry team."

Militaries rely on tankers - which are essentially flying gas stations - to extend their reach by refueling combat aircraft during military exercises or military missions. Demand has grown given the large number of longer-range military operations underway around the world.

Airbus is banking on the international success of its A330-based Multi Role Tanker Transport (MRTT), which has been selected by 12 countries, including Australia, Britain and South Korea. The aircraft is already refuelling or capable of refuelling most major U.S. combat airplanes, including the stealthy F-35 fighter jet.

Lockheed, builder of the F-35 and the C-130J transport plane that can also be used as a tanker, will give Airbus a strong partner for future U.S. bids, the companies said.

"This is a great opportunity for our two companies to combine our expertise," said Michele Evans, the new head of Lockheed's aeronautics division.

The U.S. Air Force, which wants to ultimately replace its entire fleet of over 400 tankers, is examining ways to meet growing demand for aerial refuelling with possible fee-for-service arrangements, purchases of hundreds of additional aircraft, and the future development of a stealthy tanker.

Senior executives from Airbus and Lockheed agreed in Madrid to jointly explore all those opportunities, but are still working on details of their future cooperation, according to sources familiar with the matter.

(1 euro = $1.1351)

(Reporting by Andrea Shalal; editing by Thomas Seythal, Adrian Croft and Kirsten Donovan)