Pratt & Whitney Canada Corp. has lost a massive contract to build engines for a new Airbus military transport plane, after European governments and business leaders successfully engaged in a last-minute lobbying campaign to keep the business on that continent.
In a decision described as "unfair" and "bizarre" by a Canadian aerospace lobbyist, Airbus SAS said yesterday that the contract for 900 engines will go to Europrop International, a consortium of French, German, British and Spanish aerospace firms. As recently as last week, Airbus executives had described the Pratt & Whitney bid as "much more economic" than the rival bid, because its offer was about 20 per cent cheaper that the Europrop plans. The contract is expected to be worth about $3.4-billion (U.S.).
The engines will power the new A400M military transport plane that is being built for several European countries.
Pratt & Whitney of Longueuil, Que., once had the edge in landing the contract.
When that became clear, European firms began lobbying for Airbus to reconsider its options.
Jean-Paul Béchat, chief executive officer of French engine builder Snecma Group, a member of the Europrop consortium, said last week that awarding the contract to a Canadian company could slow advances in technology at European aerospace firms. French President Jacques Chirac was also reported to have supported the European bid.
Under pressure, Airbus said it would give Europrop a few days to match the pricing in the Pratt & Whitney bid. Yesterday, it announced that Europrop had won, and said that "reopening the engine competition was the right course of action."
Manfred Bischoff, co-chairman of European Aeronautic Defence and Space Co., the parent of Airbus, said "we have decided to opt for the European consortium's engine as the best overall solution and due to the substantial price efforts made."
Pratt & Whitney Canada spokeswoman Nancy German said yesterday that the company was disappointed with the decision, because "we made a very competitive offer, both in terms of costs and in terms of technology."
She would not comment on the politics and lobbying involved in Airbus's decision.
But Peter Smith, president of the Aerospace Industries Association of Canada, characterized the decision as "rather bizarre" because Airbus had earlier given the impression that Pratt & Whitney had won the contest.
The "unprecedented intervention" by European politicians and business leaders resulted in a decision that "looks to be very unfair," he said.
It's unprecedented that a winning bid would be held in abeyance until a competitor could match or better the offer, he added. "It's a very blatant example of European protectionism."
But Mr. Smith said he did not see the decision as stemming from the current tensions between the French government and the U.S. government that resulted from disagreements over the war in Iraq. While Pratt & Whitney is a subsidiary of U.S.-based United Technologies Corp., "it was bidding as Pratt & Whitney Canada."
Mr. Smith said the research and development spinoffs of such a huge engine contract would have been significant, especially in an industry that is suffering. "Certainly it has a tremendous impact on the Canadian aerospace industry since Pratt & Whitney is one of the largest companies."
The Canadian aerospace industry had $23.6-billion (Canadian) in sales in 2001, but this fell to $20-billion in 2002 and is expected to shrink another 10 per cent this year, according to AIAC figures.
Employment is expected to fall to 83,000 this year from 95,000 in 2001 and 85,000 in 2002.
It's impossible to say what impact the Airbus decision will have on Pratt & Whitney's employment levels, Ms. German said, because of the long-term nature of such a contract. "It takes three years to develop an engine, so the impact would have been felt when the engine entered into production."