UPDATE: Northrop Takes Aim At Boeing With Air Force Tanker Bid Wednesday September 7, 3:18 PM EDT SAN FRANCISCO (Dow Jones) -- Northrop Grumman, the No. 3 Pentagon contractor, announced Wednesday that it will team with European Aeronautic Defence and Space Co. to build an air-to-air refueling tanker that can challenge Boeing Co. (BA), once thought to have a lock on an Air Force contract worth billions. For Los Angeles-based Northrop, which built the Cold War-era, billion-dollar B-2 Stealth bomber, the program puts the company in contention for major Air Force work and places it at the fore of a new trend that teams American defense contractors with European manufacturers. The airplane's basic design will come from the commercial catalog of Boeing (BA)arch-rival Airbus, and will be assembled in Mobile, Ala., by American workers. "This will be an American airplane," said Northrop Grumman spokesman Randy Belote. Based on the A330 jetliner, the tanker plane is already in use by Canada and Germany, and is going to be used by Australia and the United Kingdom, according to EADS. The competition for the Air Force program could start with a request for proposals and a subsequent award in 2006, said Paul Nisbet, analyst at JSA Research. "There's almost certainly going to be heavy competition for the tankers," he said, adding that a lot more proposals perhaps involving Boeing's (BA) 777s and 787s could be tendered. An overhaul of the current fleet of more than four-decade-old planes isn't out of the question, either. Boeing's (BA) (BA) KC-767, also based on a commercial plane, had been slated to become the next Air Force refueling tanker, but a scandal over the contract's award derailed the program, worth more than $20 billion. The RAND Corp. has studied the Air Force's tanker needs and concluded that if the cost of keeping the current fleet aloft is stable, then there is "no economic reason to replace the fleet until the aircraft reach their structural flying limits." However, if those costs rise, RAND found that replacing the current planes with slightly fewer new aircraft "made sense." Helicopters already are an area where European technology is highly prized in the defense industry. Lockheed Martin (LMT) (LMT) beat out incumbent Sikorsky (UTX) to provide the next presidential helicopter, known as Marine One, by using a European design packed with American technology. But there is political resistance from U.S. lawmakers who feel America should not rely on foreign firms and workers for such sensitive defense programs. Protection of the American defense industrial base is also a priority for legislators. "I'm sure that this is one of the things that has been thought through by Northrop, and probably the reason they hesitated so long," Nisbet said. Another possible hurdle is Airbus' subsidies, already fiercely contested by Boeing (BA) -- which could keep the work out of the hands of a European effort. Northrop has said that more than 1,000 jobs will be created in the United States and that the plane will be have more than 50% "U.S. content." "This opportunity will directly and indirectly create thousands of new American jobs for decades, and billions in economic development across the United States," said Northrop's Belote. Northrop (NOC) shares rose 0.2% to $57.17 on Wednesday. Boeing (BA) (BA) traded down 1.6% to $64.02. (END) Dow Jones Newswires Roger EWROPS