UPDATE 2-Canada bars Boeing from fighter race, indicates bid hurt by airliner row

(Recasts lead, adds reaction, details)

By David Ljunggren

OTTAWA, Dec 1 (Reuters) - Canada on Wednesday excluded Boeing Co from a multi-billion-dollar race to supply 88 new fighter jets and indicated a previous clash between the U.S. company and a Canadian aircraft maker influenced the decision.

The move means only Lockheed Martin Corp and Sweden's Saab AB can compete. Ottawa says it intends to make a decision next year on a contract that could be worth up to C$19 billion ($14.8 billion).

Reuters reported the decision to bar Boeing's F-18 Super Hornet on Nov. 25, citing a defense source. The formal announcement came from the federal procurement ministry and did not mention Boeing.

Boeing said it was "disappointed and deeply concerned" by the announcement. "We are working with the U.S. and Canadian governments to better understand the decision and looking for the earliest date to request a debrief to then determine our path forward," it said in a statement without giving more details.

Defense analysts had expected Ottawa would exclude Saab's Gripen plane, given Canada and the United States only fly U.S. military jets. Unlike Canada, Sweden is not a member of NATO or NORAD, the North American defense organization.

Saab said in a statement that the Gripen had passed all aspects of the evaluation, including security and interoperability requirements.

Canada belongs to the consortium that developed Lockheed Martin's F-35 jet, which defense sources say is the preferred choice of the air force.

The procurement ministry made clear one reason for the decision was Boeing's formal complaint https://www.reuters.com/article/us-boeing-bombardier-commerce-idUSKBN1CB29X in 2017 to the U.S. Commerce Department that Ottawa was unfairly subsidizing a passenger jet made by Montreal-based rival Bombardier.

Canada responded by saying it would look less favorably on a bid from a company that had had a negative economic impact on Canada's interests.

The procurement ministry on Wednesday said proposals had been assessed on elements of capability, cost and economic benefits.

"The evaluation also included an assessment of economic impact," it added. A spokesman for Procurement Minister Filomena Tassi declined to comment.

The procurement ministry said it could now either decide which bidder offered the best plane or offer Lockheed Martin and Saab a chance to improve their proposals.

Lockheed Martin said: "As a cornerstone for interoperability with NORAD and NATO, the F-35 will strengthen Canada’s operational capability with our allies."

($1 = 1.2825 Canadian dollars) (Reporting by David Ljunggren; Editing by Nick Zieminski, Leslie Adler and Cynthia Osterman)