The administration hoped that EADS and its partner Northrop Grumman would not follow through on a threat to pull out of the bidding, Gates said.

"But we will move forward. We have to have new tankers," he told the House Armed Services Committee.

The European Aeronautic Defence and Space Company and its rival Boeing have been locked in a long-running rivalry to win a 35-billion-dollar contract for a fleet of new aerial refueling tankers, with both sides heavily lobbying Congress.

EADS and Northrop have accused the Pentagon of favoring Boeing in a draft request for proposal and warned they may withdraw from the competition.

The US Air Force is due to issue a final request for bids this month but the Pentagon has ruled out major changes to the requirements for the 15-year contract and denied any bias.

Northrop has accused the Defense Department of focusing mainly on the competitors' prices, instead of technical features.

A company spokesman said on Wednesday the firm remained reluctant to enter the competition based on the draft request for proposal (RFP).

"Our view is the current RFP as structured fails the test of true competition," Northrop spokesman Randy Belote told AFP.

"Without substantive or meaningful changes it's not an RFP that Northrop can respond to."

Defense officials say competing proposals will have to meet more than 300 mandatory technical requirements and would be judged on the price of their bid but on other factors as well, including the effectiveness of the aircraft in war scenarios and the cost of its operation over decades.

Military commanders view the planned KC-X aircraft as crucial to sustaining US air power and are anxious to replace the older Boeing KC-135 Stratotankers that date back to the 1950s.

The politically charged contract for 179 aircraft to replace the aging fleet of mid-air refueling tankers has had a troubled history, plagued by acrimony and scandal between the rival US and European aviation giants.

A contract for the tankers was awarded in February 2008 to Northrop and EADS but the deal was later withdrawn after Boeing successfully appealed the decision to the investigative arm of the US Congress -- the Government Accountability Office.

In 2004, the Pentagon was forced to drop plans to buy and lease tanker aircraft from Boeing after a former Air Force procurement officer and a Boeing executive were convicted in a conflict-of-interest scandal. The two were accused of conspiring to get Boeing the contract.

For the next round of competition, the Pentagon has decided it would discount a trade dispute between Boeing and Airbus before the WTO, saying the cases could drag on for years without resolution.

Pentagon officials have dismissed complaints from Northrop that sensitive information was revealed in the previous competition, possibly harming its chances.

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