US Air Force Tanker Wars: Boeing Upends EADS

♠ Posted by Emmanuel in ,, at 2/26/2011 12:54:00 AM
Here is another instance where waving the red, white, and blue seems to have paid off for an American firm. I have made a lengthy earlier post on US Air Force efforts to replace it ancient, 50-some-year-old fleet of KC-135 air refuelling tankers. To make a long story short, the world's two largest purveyors of commercial jets, Boeing and EADS (the parent company of Airbus), have played rough in pursuit of the lucrative $35 billion contract.

Round one of the bidding process went to Boeing in 2003, but it turned out that Boeing's former CFO promised the concerned Air Force procurement officer a lucrative job afterwards, resulting in both being sent to jail and the reopening of the bidding process. Round two then went to EADS in conjunction with its then-US partner Northrop Grumman. Understandably, this result provoked a political backlash Stateside, with Boeing and many self-serving politicians claiming a compromise of national security and a loss of jobs by buying jets from the European consortium (nevermind that Europeans are American allies last I checked and that EADS had a US partner).

EADS has since continued pursuing the DoD contract alone. Meanwhile, Boeing has stepped up the "Buy American" angle while also claiming unfairness in the bidding process...and has now won. However, EADS may yet contest this result, further delaying the replacement of ancient aircraft. Meanwhile the rationale for the winning bid was as follows:
"Boeing was a clear winner," Deputy Defense Secretary William J. Lynn III said at a brief Pentagon news conference announcing the decision. The first 18 of 179 planes, to be called KC-46A tankers, are to be delivered by 2017. Considerations in the award, Lynn said, were "warfighting requirements, price and life-cycle costs." He and Air Force Secretary Michael Donley emphasized that both manufacturers had demonstrated they could deliver on 372 requirements specified in the contract.

"What that means is that, in the end, Boeing won on price," said Loren B. Thompson, a defense policy analyst for the Arlington-based Lexington Institute. "Price consists of the cost of producing the plane, plus the cost of operating it over 30 years. The Airbus plane is so much bigger and burned over a ton more fuel per flight hour...Multiply that by 179 planes, times 30 years of service life and it becomes very big," Thompson said.

"These are fixed-price contracts," Donley said. The decision "reflects our efforts to deliver better value to the a budget process that we realize is not going to give us more money every year."
The Europeans are understandably crestfallen, as are politicians from states that lost out in producing the EADS tanker:
But the decision to award the work to Chicago-based Boeing disappointed the European Aeronautic Defence and Space company (Eads) and Germany which had made a rival bid. They vowed to discuss the decision with the US military. Their disappointment was shared by workers in America's Gulf coast and Alabama, where Eads hoped to assemble its aircraft at a former military base in Mobile...

Politicians from Alabama suggested politics played a role. "I'm disappointed but not surprised," Senator Richard Shelby said. "Only Chicago politics could tip the scales in favour of Boeing's inferior plane. Eads clearly offers the more capable aircraft." Chicago is the political home of President Barack Obama, while his new chief of staff, William M Daley, resigned last month from the Boeing board where he had served since 2006. The White House said Mr Daley had no role in the decision.

Representative Jo Bonner vowed to get a full account of why Eads lost out. "This competition has been challenged before and it's not unlikely it will be challenged again," he said. Mr Lynn said the losing bidder could appeal, but believed there was no grounds for protest. Eads chairman in North America Ralph D Crosby Jnr said: "This is a disappointing turn of events, and we look forward to discussing with the USAF how it arrived at this conclusion."
In true American fashion, they've already held victory parades in honour of Boeing vanquishing EADS. Boeing surely can't stop gloating. Nor did it appear to spare any expense with the online propaganda. Still, it ain't over till it's over as EADS may mount a challenge. Given the history of this transatlantic trade dispute, maybe those KC-135s will be in the air after China has overtaken the US as the world's largest economy ;-)