Jingoism and the $35B USAF Contract to EADS

♠ Posted by Emmanuel in ,,, at 3/01/2008 05:31:00 PM
Oh, what a tangled web we weave, when first we practice to deceive - Sir Walter Scott

The bidding war for the US Air Force's multibillion dollar contract to replace its aging, four-decade old Boeing KC-135 air refueling tankers has had every soap opera element and more, but now the deed is done. Northrop Grumman, together with its partner the European Aeronautics and Defense and Space Company--the parent company of Airbus--has won a deal to supply the Air Force with $35B worth of replacement air tankers at the expense of Boeing. Unsurprisingly, Boeing's allies--especially in Congress--are up in arms about awarding such a large US defense contract to, well, dratted furriners. Before you share in their outrage, though, a little bit of history.

It's generally a bad idea in the public relations department to try and defraud your customers. However, an earlier round of bidding in which Boeing was involved was scuttled after its former chief financial officer tried to win a tanker contract by promising the Air Force procurement officer a job at Boeing. He got sent to the clank...

An ex-chief financial officer at Boeing has received a four-month jail sentence and a fine of $250,000 (£131,961) for illegally hiring a top Air Force aide. Michael Sears admitted his guilt in breaking conflict of interest laws by recruiting Darleen Druyun while she still handled military contracts. Ms Druyun is currently serving a nine month sentence for favouring Boeing when awarding lucrative contracts. Boeing lost a $23bn government contract after a Pentagon inquiry into the case.

...and the corrupt Air Force procurement officer was also tossed behind bars:

The former number two buyer for the US air force has been sentenced to nine months in jail for corruption. Darleen Druyun, 56, admitted to boosting the price of a tanker plane deal to win favour with Boeing, the company she was about to work for. She also pleaded guilty to giving Boeing a competitor's secret data. The judge said the stain of her offence was very severe, and the case "must stand as an example", given the high office she held. The contract, to provide refuelling tankers for the US Air Force, was cancelled last year.

Given such a colorful history over this program, is it any wonder that the Air Force would be inclined to choose the Northrop-Grumman and EADS combo? Actually, Boeing isn't making that much of a fuss over the matter since it probably wants this dirt to go away for good despite losing a hefty deal that may eventually amount to some $100B. [Northrop-Grumman and EADS are jubilant as you would expect.] The politicians from the losing home states where Boeing plants are located are very unhappy, though, and will probably force another look at the deal. After all, why should furriners be charged with supplying the US Air Force with these aircraft? Protectionism + jingoism = political mayhem. What surprises me is the amount of misinformation these elected officials are spewing which could easily be refuted by a seven year old with Internet access. From Reuters:

A U.S. Air Force decision awarding a $35 billion aircraft contract to a team including the European parent of Airbus landed like a bomb in Congress on Friday, drawing howls of protest from lawmakers aligned with the loser, America's Boeing Co.

The Congressional delegation from the Seattle area said they were "outraged." Kansas Republican Rep. Todd Tiahrt vowed to seek a review of the decision "at the highest levels of the Pentagon and Congress" in hopes of reversing it.

Boeing has big facilities in both Seattle and Wichita, which stood to gain from the long-term project to build up to 179 aerial refueling tankers. Although Boeing was favored to win the contract, the Air Force awarded it to a partnership between Northrop Grumman and Europe's EADS.

Conventional wisdom was running so strongly against Northrop-EADS in some corners of Capitol Hill that Texas Sen. Kay Bailey Hutchison's office issued a statement late on Friday declaring Boeing the winner. It was swiftly retracted…

Wichita's Rep. Tiahrt said, "I am deeply troubled by the Air Force's decision to award the KC-X tanker to a French company that has never built a tanker in its history. [Gee, isn't EADS N.V. headquartered in, er, the Netherlands? The Airbus A330 is largely constructed at Toulouse, the home of Airbus, but EADS is not headquartered there, my dear bumpkins.]

"We should have an American tanker built by an American company with American workers. I cannot believe we would create French jobs in place of Kansas jobs."

Tiahrt said he will seek to have the decision reviewed by both the Pentagon and Congress. "At the end of this laborious process, I hope the Air Force reverses its decision."

Washington Senators Patty Murray and Maria Cantwell, both Democrats, along with six other lawmakers from the state said in a joint statement: "We are outraged that this decision taps European Airbus and its foreign workers to provide a tanker to our American military.

"We will be asking tough questions about the decision to outsource this contract [yeah, those Grumman-Northrop folks look, well, French. Must be related to Kerry]. We look forward to hearing the Air Force's justification."

Bottom line: Boeing had the tanker replacement deal sewn up three or four years ago, but blew it by engaging in all sorts of shenanigans. Call it justice served, but Boeing has now paid the price. If free trade means buying a superior French design, so be it, monsieur.

UPDATE 1: EADS believes that winning this contract will help it deal with the strong euro. Also, the BBC reports what USAF officials have found in favor of the EADS bid:

Gen Arthur J Lichte, commander of the US Air Force's Air Mobility Command, said the winning design had many advantages over Boeing's tanker. "More passengers, more cargo, more fuel to offload, more patients that we can carry, more availability, more flexibility and more dependability," he said.

UPDATE 2: Senator and presidential candidate Barack Obama of Boeing's home state, Illinois, has fired his guns at the deal as expected:

Sen. Barack Obama expressed his disappointment Sunday that Northrop Grumman and the parent company of Europe’s Airbus beat out Chicago-based Boeing Co. for a contract worth up to $40 billion for the next generation of Air Force refueling tankers.

Obama said it was hard for him to believe “that having an American company that has been a traditional source of aeronautic excellence would not have done this job.” He preempted his comments by saying that he had not examined the deal carefully.

Hillary Clinton has chimed in as well:

In a statement Sunday evening, Clinton said she was “deeply concerned” about the Pentagon decision to award the contract to “to a team that includes a European firm that our government is simultaneously suing at the WTO for receiving illegal subsidies.”