Tanker shock heaps more bad news on EADS

By Tim Hepher and Matthias Blamont

PARIS (Reuters) - Boeing's success in appealing a U.S. air tanker deal completed a triple whammy for Europe's EADS on a day when its domestic legal woes deepened and it confessed to delays in forging a vital new restructuring plan.

In a move that could also cause diplomatic shockwaves in Europe, U.S. auditors on Wednesday upheld Boeing's (BA.N) protest of the award of a $35 billion (18 billion pound) deal to a U.S.-European team including Airbus, part of Franco-German-Spanish EADS.

The Government Accountability Office's decision to call for a rerun was the latest twist in an epic fight for what could be one of the biggest ever military contracts, awarded in February to a consortium of Northrop Grumman (NOC.N) and EADS.

In Paris, EADS (EAD.PA) Chief Executive Louis Gallois put a brave face on the decision, saying the GAO had not commented on the quality of the Northrop-led offer but only on technicalities.

"I am very confident in the quality of our bid," he told Reuters, adding that if the tender were reopened, EADS would be a "quality competitor."

Gallois was speaking at a party thrown by the EADS defence division at a Paris museum. As the news broke from Washington, what should have been an upbeat effort to divert attention from a host of troubles plaguing the company turned into a wake.

"I am thunderstruck," said a source close to the company, asking not to be identified.

After a drawn-out and dramatic process that has seen both sides rise and fall, a nightmare scenario that is beginning to flicker onto European radar screens is that Northrop could eventually turn its back on EADS and cut a deal with Boeing.