THE announcement on Monday March 8th that Northrop Grumman and its European partner EADS were pulling out of a bid for a $35 billion contract to build air-refuelling tankers for the United States Air Force was no surprise. Northrop had said that it would not contest the terms of the latest contract proposal, even though it thought they had been drawn up to favour the rival Boeing bid. The British and German governments, along with the European Commission, expressed concern at what they see as the Pentagon rejecting open competition in order to bolster Boeing. Lord Mandelson, the British business secretary, said it was “very disappointing” that the Ameircan-European bidders felt the procurement process was so biased against them that it was not even worth making a bid.

The outcome is a blow to EADS, which on Tuesday announced a loss for 2009 caused by the need to post a €1.8 billion ($2.5 billion) charge because of cost over-runs on another military project, the A400M military troop carrier, and further charges caused by delays to its A380 super-jumbo passenger aircraft.

The tanker development is but the latest twist in a plot that goes back nearly ten years. In 2002 the defence department wanted to lease tanker aircraft based on Boeing 's ageing 767 passenger jet, but Senator John McCain led a noisy campaign against what he called corporate welfare for Boeing. The 767 was seen as coming to the end of its commercial life and the leasing deal would have helped to keep a production line open. The Congressional Budget Office agreed with the senator that America's air force could do better. After a scandal involving conflicts of interest and the hiring of a Pentagon procurement official by Boeing, the original lease deal was dropped by congress in 2004. Two Boeing executives were jailed and its chief executive, Phil Condit, resigned.

In 2006 the Pentagon restarted the process, and in February 2008 the Northrop-EADS bid was named the winner. Its tanker, based on the Airbus A330 jet, offered greater range and load-carrying capability than the Boeing design. Boeing immediately launched a campaign attacking the award; the Government Accountability Office found fault with the Air Force's procurement process and the contract was cancelled.

When the Pentagon asked for renewed bids last year it was obvious that the new terms favoured Boeing. Whereas the original contract had to be judged on mission capability as well as price, the latest version laid more emphasis on the unit cost of each tanker plane, thus favouring the cheaper and more modest product offered by Boeing. After scrutinising the details, Northrop and EADS came to the conclusion it was no longer worth their while going through the motions of submitting a formal bid. So Boeing is left as the only bidder for a defence contract second only to the enormous Joint Strike Fighter contract won by Lockheed Martin in 2001.

The repercussions of this affair are likely to poison European-American trade relations and expose the administration to accusations of corporate welfare for America's aerospace national champion. EADS was prepared to invest in an American factory to build the tankers and saw the contract as a foothold in the biggest defence market. The importance of the tanker deal and the A400M was that together they would help make EADS a more balanced aerospace company, less reliant on the performance of its Airbus subsidiary in the very cyclical civil aviation market. Now both these ventures are in trouble, while EADS's rival, Boeing, is sitting more comfortably on a fat cushion of defence work. So much for Senator McCain's original complaints about corporate welfare for Boeing.