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EADS/Airbus Government Ownership, Protection, Intervention & Subsidies

President Obama’s new National Security Strategy begins with a pledge of American leadership and the assertion that “the center of [its] efforts is a commitment to renew our economy, which serves as the wellspring of American power.” If this commitment is to be taken at face value, the recently released World Trade Organization (WTO) ruling on large Commercial Aircraft (LCA) should be cause for action. The WTO has ruled that for over forty years the European government owners of Airbus and its later formed parent the European Aeronautic Defense and Space Company (EADS) have been have been undermining that wellspring and harming the U.S. aviation industry.  The WTO ruling on June 30, 2010 flatly stated that Airbus’ success wouldn’t have been possible without over $15 billion in illegal launch-aid loans and $5 billion in other illegal support from European governments. The impact on American workers and businesses for the last decade has been lost production, lost profits and lost jobs.

The full extent of EAD/Airbus activities undercutting free enterprise goes well beyond the WTO ruling and the topic of government subsidies it covers. EADS was created, and remains tightly controlled, by the French, German and Spanish governments. These governments, along with that of the U.K. in the original EADS partnership, have a direct financial interest in EADS. As a result, these nations regularly protect EADS-and its subsidiary Airbus- from competition, interfere in the market on its behalf and provide it launch aid and research grants that are prohibited under World Trade Organization agreements. In addition, EADS/Airbus’ owners regularly employ prohibited political pressure and inducements such as airport landing rights in their sales tactics.

U.S. Department of Defense (DoD) officials have stated that government contracts are not jobs programs. However, EADS/Airbus is in fact explicitly intended as a European jobs program created at the expense of U.S. companies and their workers; U.S. companies are routinely excluded from European defense contracts. In spite of this completely overt protectionism, DoD has refused to take into account these anti-free enterprise activities that allowed EADS/Airbus to develop its products in the first place. By overlooking, and in fact rewarding, such actions the Pentagon neglects to uphold the President’s pledge to support the economy. The National Security Strategy calls for an integration of our economic and military power, but DoD has shown it is more interested in taking advantage of cost savings provided by foreign government subsidies. Our prosperity “pays for our military, underwrites our diplomacy and development efforts, and serves as a leading source of influence in the world.”7 This paper concludes that allowing EADS/Airbus to compete for U.S. government contracts without conditions comes at great cost to our prosperity and our overall national strength.

The economic and free market concerns raised in this paper are in addition to those based on EADS/Airbus’ history of questionable business practices and behavior that runs counter to U.S. foreign and defense policy. A previous Center for Security Policy paper, EADS: Welcome to Compete for U.S. Defense Contracts – But First It Must Clean Up Its Act (online at securefreedom.org), covers these areas.

The appendix included with this paper is a review of previous EADS tanker selections. An analysis of these selections clearly shows that rather than an endorsement of the EADS/Airbus tanker’s ability to win contracts in a competitive market, there is instead a pattern of EADS/Airbus taking advantage of non-competitive markets.  These non-competitive market bidding conditions ranged from advantages conferred on EADS/Airbus by European governments’ subsidy largesse, or advantages conferred by contract award conditions that were highly preferential from the very beginning of the bidding process. The Government Accountability Office ruling on the 2008 U.S. Air Force KC-X tanker competition is also highlighted as part of this review.

 

Read the paper… (Web)

Read the paper… (PDF)

Scandalous air tanker decision: Despite corruption, EADS favored over U.S.-based Boeing

Within days, the Obama Pentagon is expected to decide which supplier to rely upon for what is, arguably, the cornerstone of America’s ability to project power for the next forty years: the next generation aerial refueling tanker known as the KC-X.  The choice for this role – which is worth conservatively $40 billion – would seem to be a no-brainer.  The obvious winning candidate to produce and maintain for decades to come 179 tankers would be a reliable, experienced and responsible U.S. manufacturer, Boeing.

It seems, however, that Team Obama is poised to entrust responsibility for this vital defense capability to a company that has none of those attributes – the European aerospace conglomerate EADS.  The pretext apparently will be that the foreign competitor is offering a lower bid than its American counterpart.  

This claim is preposterous on its face.  The Lexington Institute’s Loren Thompson, one of Washington’s most respected defense program and budget analysts, noted recently that each of the two bidders has to satisfy 372 mandatory performance requirements.  “Thus, the key discriminator in who wins becomes price.”  Meeting or substantially undercutting Boeing’s bid is problematic since the Airbus tanker based on the A330 weighs in  28 percent larger with 40 feet more wingspan than Boeing’s derivative of the 767.  “It appears that is exactly what the European company plans to do, raising the obvious question of how such a bid is possible.”

How, indeed?  The answer is not so hard to fathom if you look at the nature of EADS.  As the Center for Security Policy documented in a white paper issued in September 2010 (http://www.centerforsecuritypolicy.org/p18520.xml), the company has relied on devious, unethical and unfair practices to buy-into or otherwise win contracts.  It has then relied upon massive subventions and/or cost-overruns to stay afloat.  For example, last June, the World Trade Organization estimated that EADS garnered some $20 billion in illegal subsidies from its European governmental owners.

Then, there are EAD’s endemic problems with bribery and corruption. Eleven years ago, with the company’s Airbus sales in mind, former Director of Central Intelligence R. James Woolsey told Europeans in an op.ed. in the Wall Street Journal:  “Your companies’ products are often more costly, less technologically advanced or both, than your American competitors’. As a result you bribe a lot.”

In addition, EADS has been under investigation in France for the past five years in connection with alleged insider trading tied, presumably, to the company’s abysmal financial track record.  In early February of this year, the Paris judges said they were focusing the investigation on Daimler.  In particular, EADS’ massive cost-overruns have gotten so bad lately that the German government has scheduled an emergency summit on February 23 to discuss bailing out Daimler, by nationalizing Daimler’s 7.5% stake in EADS.  According to the Financial Times, the EADS losses cost Daimler €231 million in the last year alone.  Is this really the kind of company we want the Pentagon to be keeping?

Here is what U.S. taxpayers can expect in EADS performance. The company’s A400M military transport plane program is surviving only because of a $4.6 billion bailout forced from European taxpayers in November 2010 .  The A400M program was originally to cost $27 billion; a recent study found that final costs could now rise to $44 billion. The program is three-to-four years behind schedule.

It is not easy getting a company with such a dismal past cleared to win what may prove to be the largest Pentagon contract ever.  In January 2010, then-Representative Todd Tiahrt of Kansas wrote in Human Events: “Given the well-known corruption practices by EADS, it would make common sense that it not be awarded Pentagon contracts. In fact, Congress has passed the Foreign Corrupt Practices Act that bars companies who engage in bribery overseas from competing for United States government programs.

“The U.S. Department of Justice has appallingly interpreted the laws to only cover U.S.-based companies – therefore exempting EADS. But it gets worse. The federal government has gone even further and exempted EADS from the Buy American Act, the Berry Amendment, the International Trafficking and Arms Regulations, and the Cost Accounting Standards. Complying with these expensive regulations is mandatory for any American company looking to do business with the Pentagon, but waived for a foreign competitor such as EADS.” (Emphasis added.)

If these considerations were not grounds enough for denying EADS the KC-X contract no matter what price it offers, there are other compelling reasons to have these tankers made in America.  These include: EADS has a highly politicized socialist workforce in Europe, one that has exhibited profoundly anti-U.S. sentiments in the past. Do we really want to rely on such workers in the event their efforts are essential to future combat operations with which they vehemently disagree? 

There have also been issues of technology theft and commercial espionage associated with EADS.  With the Kremlin owning a 5% stake in the company, the security implications of such behavior cannot be minimized. 

Taken together, the arguments against turning the future of a key determinant of America’s power projection capability over to EADS are compelling.  If the Obama administration persists in its efforts toward that end, it will likely find the Congress less willing to ignore the strategic and economic repercussions of such a step.  That is especially true insofar as doing so would give lie to the universal mantra of politicians on both sides of the aisle to promoting American competitiveness and the need to expand the number of skilled jobs here at home.  

Alternatively, the Government Accountability Office may find irregularities in the KC-X award (notably, the Pentagon’s inexplicable sharing with EADS last November of proprietary, competition-sensitive data supplied by Boeing) that once again justify overturning an ill-managed award.

Either way, the real loser will be the servicemen and women who needed a reliable and capable new tanker years ago – and certainly deserve no less now.


Frank J. Gaffney, Jr. is President of the Center for Security Policy (www.SecureFreedom.org), a columnist for the Washington Times and host of the nationally syndicated program, Secure Freedom Radio, heard in Washington weeknights at 9:00 p.m. on WRC 1260 AM.

WSJ picks wrong issue in Air Force tanker debate

It’s highly unusual for The Wall Street Journal to be gulled into ignoring the most important part of an issue in favor of chasing a rabbit down a random trail. But it has apparently fallen prey to what is at stake in the Air Force’s acquisition of a tanker aircraft to replace the Eisenhower-era KC-135s, which have flown far past their useful life.   The Journal, like too many others, apparently believes it’s a question of protectionism versus open competition.

A Thursday Wall Street Journal editorial rightly bashes Rep. Norm Dicks (D-Wa) for his attempt to bully US defense contractors out of partnering with EADS, the European Aerospace and Defense Systems company which is still trying to sell its Airbus 330 to the US Air Force as a replacement for the KC-135s.

There is no more urgently-needed new aircraft for all our armed services.  As then Air Force Chief of Staff John Jumper told me in a 2005 interview, "We are a global air and space power because of these tankers.  He added, "The first thing that happened in any contingency is that you put the ‘tanker bridge’ up there. We deploy tankers to places such as Spain, Hawaii, Guam and their sole purpose is to get large numbers halfway across the world without stopping."

In short, no tankers, no superpower.  And the aged KC-135s are no longer capable of meeting the mission requirements imposed by Iraq, Afghanistan and our other international defense needs.

As much as the Journal is right in bashing Dicks, it would be just as right in condemning Sen. John McCain’s (R-Az) effort to pressure the Defense Department into buying the Airbus.  McCain’s campaign in favor of the Airbus goes back to at least 2003. In 2006, before EADS won the last round of competition, McCain bullied the Defense Department out of counting the illegal "launch" subsidies paid to Airbus which artificially – and substantially – reduces the price EADS offers.  (The WTO, in a still-confidential decision, ruled those subsidies illegal last year.)

In a September 8, 2006 letter to then Deputy Secretary of Defense Gordon England, McCain posed 13 questions to England and objected to any consideration of the subsidies Airbus received: "I respectfully suggest that Air Force follow an acquisition process based on extant legal and regulatory guidelines and remove any WTO element from its procurement evaluation supporting its tanker recapitalization program." The Air Force didn’t count the subsidies in evaluating the EADS price just as McCain demanded, which put Boeing at a big disadvantage in the price evaluation.

McCain’s pro-EADS campaign continued through the transition to the Obama administration and, last fall, he was writing to Defense Secretary Gates insisting, again, that the competition was skewed toward Boeing because the cost evaluation considered fuel consumption and the requirement for additional construction at military bases to house aircraft that couldn’t fit into the current facilities.  (The A-330 is a massive aircraft, its wingspread so large that other aircraft would have to be moved from their current European bases to make room for it. So counting the cost of rebuilding airfields to accept the A-330 is entirely rational.)

The Air Force’s decision between the Boeing and Airbus aircraft hinges on one important question, and it has nothing to do with protectionism, subsidies or any financial issue. It’s a matter of which aircraft best meets the Air Force’s – the warfighters’ – needs.  In this, the Airbus categorically fails.

As I’ve written many times before, there are mission-critical maneuvers – called "breakaways" and "overruns" – which any tanker has to perform in order to safely refuel all the aircraft in the Air Force’s inventory, including some – such as F-15 and F-16 fighters – that have to be refueled at higher speeds than slower-moving aircraft such as the C-17 and C-130.

The primary reason that the Government Accountability office overturned the Air Force award of the contract to EADS in the last go round had nothing to do with protectionism.  The GAO found, correctly, that the A-330 lacks the ability to accelerate quickly enough – and to achieve a sufficiently high top speed – to perform these maneuvers safely and in accordance with Air Force standards which it has developed in over a half-century of airborn refueling.

Since the GAO decision, more information has come out showing that the "laws" – the internal computer programming – that govern the Airbus’ flight controls make it unsuitable and probably dangerous to fly in a combat environment.

Obviously, there is a lot more to the choice between the Boeing KC-767 and the Airbus KCX than just who gets the jobs to build it.

All the quibbling about McCain and Dicks would be relevant if the Air Force were choosing between two aircraft that could perform the tanker mission equally well.  But it’s not.

The Boeing aircraft can perform the mission.  The A-330 would have to break the laws of physics to do it.  The warfighters need the tanker that can reliably – and safely – do everything the mission profile requires. The A-330 just can’t.

Instead of trying to backdoor the Airbus into the competition again, the Air Force should be holding Boeing’s feet to the fire in a tough negotiation to get the best price on the tanker our warfighters desperately need.

 

Originally posted at BigGovernment.com

Contract Dispute

Honest conservative partisans from either side of the KC-X "tanker war" should concede that there were no perfect choices in awarding the contract for the in-flight refueling aircraft earlier this year.

Ruling in favor of European-owned EADS opened the Air Force up to legitimate national security criticisms, not to mention rewarding a foreign state-owned and operated business for unfair practices. Ruling in Boeing’s favor would have both enraged free trade purists (with long histories of antipathy toward the Washington defense giant) and re-fired old controversies in the Senate.

The just-released Government Accountability Office report should end the tanker controversy — at least within the conservative commentariat. After all, the "free market" opinion, expressed by, among others, the Wall Street Journal and several contributors to National Review, rests on the assumption that the tanker competition was fair.

They assumed that the Air Force chose the best refueling tanker for its needs. If a majority-foreign tanker was selected on the basis of its merits, all the better victory for the principles of laissez faire trade.

This is a sympathetic case for many conservatives, who’d sooner die than look like protectionists and strange bedfellows with John Murtha, Patty Murray and the AFL-CIO. Of course, today’s liberal democrats and unions (as well as Lou Dobbs and Pat Buchanan) are forthrightly protectionist. However, there’s plenty reason to favor Boeing in the "tanker war" that has nothing to do with jingoism.

Here, the GAO report describes why:

We find that the agency’s selection… as reflecting the best value to the government was undermined by a number of prejudicial errors that call into question the Air Force’s decision that Northrop Grumman’s proposal was technically acceptable…. In addition, we find a number of errors in the agency’s cost evaluation that result in Boeing… as the offeror with the lowest evaluated most probable life cycle costs to the government.

The report could read as a primer on the tanker row thus far (admittedly, though, a dry one), from the initial request for proposals to unlocking the criteria on which the decision should’ve been based.

In detail, it refutes most conservatives’ assumptions about the tanker process in two ways. First, it makes clear — embarrassingly so, to the Air Force — that the process was corrupt. Whether by accident or design, procurement officials misled Boeing regarding the basic criteria on which the award would be given.

The report shows that the tanker decision was rife with irregularities and questionable decisions.

SECONDLY, THE REPORT should go a long way toward correcting the rumors and propaganda disseminated by EADS in the days following the announcement of the award.

In an effort to hurriedly establish talking points to leverage the debate, whisper-campaigns from unnamed sources leaked misleading information to the press about a so-called lopsided victory on the part of the EADS tanker, including that, in the eyes of the Air Force, Boeing was beaten "by a mile."

The GAO contradicts these talking points, and then some. While most of the proprietary information is blacked-out, the report contends that the Air Force assessed the Boeing and Airbus tankers very differently.

Not only were the two proposals "very similar" in quality, but there’s reason to believe the Air Force overlooked several of the primary requirements in the case of the EADS tanker — which possibly would make it ineligible for the award — including the fact that the proposal failed to prove the tanker could actually refuel all currently compatible planes using Air Force procedures.

A key requirement for the KC-X tanker is its ability to meet, among others, overrun and breakaway performance standards. This has to do with a plane’s dive speed and ability to refuel in complex situations and at high speeds. After admitting the Airbus tanker was unable to pass this threshold without an additional "fix," the GAO report found that the Air Force made no effort to verify that the "fix" would work at all.

Another assumption shattered by the GAO report is just as damaging to the free market case: that the Airbus A330 tanker was chosen because it was a larger than Boeing’s K-767 and, hence, offered more room for cargo and personnel.

While this is undoubtedly true, the report makes clear that the Air Force’s intention was to look for a replacement for a medium-sized tanker first, with two procurements for the larger planes just over the horizon. In other words, the chief criterion on which the Airbus tanker was selected was irrelevant to the request for proposal at hand.

WE CAN NOW SEE that, by awarding EADS/Airbus with the tanker contract, the Air Force didn’t select the best plane for the job. Even professional earmark fighters, long suspicious of Boeing, should be able to make peace with a re-evaluation based on a very clear and disinterested reading of the original criteria.

After all, there’s no virtue in choosing the wrong $35 billion product just to show your free trade bona fides.

The GAO report on the Air Force’s KC-X tanker decision ought to put to rest the "tanker wars" for all but the most entrenched, bitter partisans. Independent pork-fighting groups — or conservatives concerned with the integrity of competition in government procurement — should re-evaluate their stance based on this new information.

Tanker, revised

Center applauds Pentagon decision to reopen bidding on Tanker contract

Yesterday, Secretary of Defense Robert Gates announced the Pentagon’s decision to reopen the bidding on a $35 billion contract for the KC-X Air Force refueling tanker. This step reverses a grievously flawed action previously taken by the Air Force, whereby it awarded that contract to a consortium dominated by European Aeronautic, Defense and Space (EADS). Secretary Gates’ initiative should not only set the stage for a different outcome with respect to the tanker procurement, but a wholesale overhaul of the faulty decision-making and acquisition processes that previously produced such a dismal result.

The flaws in those processes were recently enumerated in excruciating detail by the Government Accountability Office. So egregious were the errors that the GAO directed the Pentagon to scotch the EADS award.

The Center for Security Policy has from the first called that award as a mistake on strategic, military and financial grounds. (see EADS is Welcome to Compete for U.S. Defense Contracts—But First It Must Clean Up Its Act). The Center regarded the harshly critical GAO response to a protest by the Boeing Company as a vindication of its assessment that, whether by accident or design, procurement officials misled Boeing throughout the bidding process and otherwise conducted themselves in a manner that was as improper as it was inconsistent with the national interest.

Upon learning of Secretary Gates’ decision, Center President Frank Gaffney for Security Policy president, observed:

Every American who appreciates the importance of this nation’s power-projection capability is relieved that the Pentagon has reopened the decision whereby it was entrusting the backbone of that capability – our aerial refueling fleet – to the tender mercies of foreign nations, contractors and labor unions that have a record of hostility towards U.S. policies and interests.  

The last KC-X tanker procurement process placed a greater importance on competition than on the requirements outlined in the original Request for Proposal. As a result, the Air Force gave short shrift to the needs of the warfighter, and placed undue emphasis on avoiding what would have been criticized by some as a sole-source acquisition.   It is imperative that such misplaced priorities not afflict the next phase of this acquisition process and that it be brought to a conclusion that is strategically sound and cost-effective at the earliest possible time.

The Center for Security Policy’s Chief Operating Officer Michael Reilly and Research Associate Dave Reaboi deserve particular credit for their efforts in print and on TankerBlog.com to document the serious problems with the last decision.   They and the rest of the Center team will be making a redoubled effort to ensure that the process going forward is both fairly conducted and consistent with our national security interests.

 

 

Firing offense

When Defense Secretary Robert Gates summarily fired the top civilian official last week, the reason he gave was a grave failure of leadership with respect to that service’s nuclear missions.  The low priority assigned by the Pentagon to its nuclear stewardship responsibilities is systemic and acute.  Consequently, this act of accountability is both warranted and a needed wake-up call to all the armed forces.

As it happens, there is another ground on which the dismissal of Air Force Secretary Michael Wynne could be justified.  He was specifically brought in to clean up Air Force procurement, but ended up presiding over a disastrously mishandled procurement of the KC-X next-generation aerial tanker.  The decision to award this contract worth conservatively $35 billion to a team led by the European aerospace conglomerate, EADS, should be considered a firing offense.

In the next few days, the Government Accountability Office is expected to rule on a protest to that award by the losing bidder, Boeing. If the GAO does its job, there is little doubt it will conclude the Air Force unfairly, even cynically, manipulated the acquisition process so as to enable EADS to compete with an aircraft that did not meet the service’s stated requirements and that was significantly more costly to operate.

In documents that have come to light since the contract award was announced in February, including an Air Force briefing provided to the losing company and a redacted version of Boeing’s protest, a number of facts are clear:

The Boeing tanker, based on the 767 commercial aircraft, is a known commodity.  Two were delivered to the Japanese air force earlier this spring.  Four more are currently being built for Italy.  Its American manufacturing line is well-established.  Its estimated costs are grounded in data developed during more than 10 million 767 flight hours.

By contrast, the EADS alternative known as the KC-30 is more the proverbial bird in the bush.  None has been delivered. None has moved aviation fuel through an operational boom.  And none has been produced by the politically-driven, Rube Goldberg-style production line that EADS proposes to establish on two continents – unless, that is, the costs grow.  In which case, it turns out, the French-led conglomerate will build all of the U.S. Air Force’s new tankers in Toulouse, France, not Mobile, Alabama, with attendant loss of the promised American jobs.

Speaking of workforce, there is the natty problem that unions representing EADS employees have a record of rabid hostility towards the United States and its policies.  The effect of entrusting one of the most important elements of our power-projection capabilities to foreign labor capable of production sabotage and/or work-stoppage could be catastrophic.  That is especially true insofar as the reliance on EADS would not be confined to the manufacturing of the tankers.  If past practice is any guide, the company that produced the planes would also be relied upon for maintenance over their expected 40-year service life.

Quite apart from the nationality of the source, there is the basic question of competence.  Boeing is no newcomer to the business of building and supporting aerial refueling tankers.  In fact it has been at it for 79 years and delivered a total of 2,000 tanker aircraft.  It has delivered 1,800 operational refueling booms, the complicated piece of equipment used to move fuel safely and swiftly from the tanker to the recipient aircraft.  

By contrast, the EADS team has been trying to develop a tanker business for just the last five years.  To date, it has not delivered any aerial refuelers or operational booms.  To repose confidence in such a team, to say nothing of its cost projections, entails a leap of faith that seems irresponsible in the extreme.

Finally, there is the matter of the mission.  The Air Force, until strong-armed by a few legislators, rightly did not want as big a plane as the KC-30 for the simple reason that it is far better to have a larger number of smaller, more fuel-efficient aircraft capable of operating from many airfields.  In the competition, the KC-767 was deemed to have 98 strengths (“discriminators”) to just 30 for the Airbus option, with only 1 assessed weakness versus 5 for the KC-30.  If the decision to go with the inferior, but larger aircraft stands, the taxpayer will have to eat an estimated $30 billion in additional fuel costs and billions more in otherwise unnecessary military construction charges.

The new leadership of the Air Force – which reportedly will include as its Secretary Michael Donley, a well-respected veteran and national security official during several administrations – should shortly have an opportunity, thanks to the GAO, to revisit the Wynne tanker selection.  If and when it does so, the service must make its decision on the basis of:

  • its actual requirement, not one adapted to suit a competitor, EADS, that could not otherwise compete;
  • real costs, not those artificially and arbitrarily inflated to make Boeing’s proposal less viable and low-balled to help EADS; and
  • the nation’s interest in having an indigenous supplier of vital tanker aircraft, produced by a loyal work-force capable of not only manufacturing the planes properly and cost-effectively but of reliably supporting them for decades to come. 

Frank J. Gaffney, Jr. is President of the Center for Security Policy and a columnist for the Washington Times.

The EADS tanker contradiction

One major reason voters are fixated on change this election cycle is that to them our government appears dysfunctional. Sadly, this observation has much truth to it – at times the three Federal branches and various agencies work against one another, rather than strive to achieve common goals. 

A perfect example of such dysfunction is the recent announcement that the next generation U.S. Air Force tanker will be based on the Airbus A330 jetliner currently built in Toulouse-Blagnac, France. This selection may seem reasonable to Department of Defense (DoD) procurement personnel, but it directly undercuts other actions by other arms of our government.

[More]For example, having just added $140 billion to the deficit by providing tax rebate checks and business incentives with the hope of creating more investment and jobs, Congress is less than pleased at the $35 billion tanker contract which will mainly produce jobs in Europe and not in America.

Airbus’ parent company, the European Aeronautical Defense and Space Company (EADS) has made numerous assurances that its KC-30 tanker team will eventually create as many as 25,000 jobs in the United States. As the New York Times and others have pointed out though, such calculations are highly speculative. [1]  

For evidence of how truly tenuous the job numbers are, one only has to visit the KC-30 website.  In the state-by-state economic plan listed on the site, it is claimed over 208,000 jobs will be created, supported, or sustained. [2]  If true, this would mean that the modern technological marvel that is the KC-30 requires over three times the manpower to build than the last truly great French engineering success, the Suez Canal. [3]

Needless to say, a healthy dose of skepticism regarding the economic benefits of the KC-30 is not only appropriate but highly recommended. This would not be the first time EADS or its subsidiaries have used deceptive advertising or creative accounting. In April 2007 Airbus was called to task for ads claiming, "Half of the new Airbus A380 will be produced by U.S. Companies," while at the same time the French press was reporting that only 21% of the A380 was made in all the countries of North America combined.[4]

In February 2006 an EADS ad – one made for the very same aircraft the U.S. Air Force wants to purchase – came under scrutiny by England’s Advertising Standard Authority (ASA).  In the ad an image of the Airbus A330 tanker carried the slogan: "I am British." The ASA ruled that the advertisement breached its codes on substantiation and truthfulness, and subsequently banned it from the national press.[5]

Additionally, in a 2003 response to Senator Patty Murray’s requested investigation into Airbus claims – that it created 100,000 jobs in the United States, and contracted with more than 800 U.S. firms – Under Secretary for International Trade Grant Aldonas confirmed that Airbus wildly overstated its contributions to the United States economy and that it could only verify 500 of the "created" jobs and it could only find 250 of the 800 subcontractors Airbus claimed.[6]

Given such prior exaggerations, it is hardly surprising that EADS is now making the outrageous claim that the A330 tanker is an "American" airplane and will have 59% U.S. content, based on labor, materials and subsystems.[7]  The real surprise is that anyone would believe them.

Another reason the A330 is a puzzling contract choice is that the U.S. is currently involved in a trade dispute over illegal subsidies to Airbus.  The U.S. Trade Representative has an open formal complaint with the World Trade Organization alleging that European Union nations have provided Airbus with billions of dollars of unfair subsidies to the detriment of the U.S. aerospace industry.[8]

In total Airbus has received over $15 billion in such support, according to U.S. and European government documents.   As BusinessWeek commentator Stanley Holmes wrote, "Commercial plane manufacturing is probably the riskiest business on the planet. Launch aid shifts the risk from Airbus to the European governments because the manufacturer isn’t required to repay if the aircraft program is unsuccessful."[9]

Since 2000, this launch aid combined with other subsidies has allowed Airbus to gain 20 percentage points of market share, all taken directly from U.S. airplane manufactures.[10]

DoD’s decision to purchase one of the very aircraft documented by the U.S. Trade Representative to have received illegal European subsidies that directly harmed U.S. firms and workers is beyond dysfunctional; it is indefensible.

(Public Domain Article: Readers may distribute or use this article in its entirety.)

 


 

 

[1] Nicola Clark and Jeff Bailey, "European Firm Says U.S. Jet Deal Jobs for Both Countries," (March 3, 2008). New York Times

[2] State-by-State Economic Impact, KC-30, http://www.northropgrumman.com/kc30/benefits/impact.html (accessed March 4, 2008).

[3] Zachary Karabell, Parting the Desert: The Creation of the Suez Canal (New York: Alfred A Knopf, 2003), pg 171.

[4] "L’ero fort constaint Airbus a produire hors d’ Europe." Paris, Les Echos (April 12, 2007).

[5] UK Advertising Standards Authority, "Non-broadcast Adjudication: EADS" (February 15, 2006).

[6] Under Secretary for International Trade, US Department of Commerce, Letter (March, 18 2003).  

[7] Daniel Michaels and August Cole, "Pentagon Embattled Over Tanker Decision," Wall Street Journal (March 5, 2008).

[8] "European Communities – Measures Affecting Trade in Large Civil Aircraft." World Trade Organization Dispute DS316 (October 6, 2004).

[9] Stanley Holmes, "Finally, a Boeing-Airbus Showdown," BusinessWeek (October 7, 2004).  

[10] Deputy Assistant US Trade Representative, Press Release (September 25, 2007).

Center reissues analysis of EADS contracts

Tomorrow, the Boeing Company reportedly will be briefed by the U.S. Air Force about that service’s controversial rejection of the American firm’s aerial refueling aircraft proposal in favor of that offered by a joint venture dominated by the European Aeronautic, Defense, and Space (EADS) consortium.  As public concern rises, it is already becoming clear that the Pentagon failed to give due attention to many worrisome concerns about EADS when it awarded the multi-billion dollar contract.

In April 2007, these issues were discussed at length in an Occasional Paper published by the Center for Security Policy entitled EADS is Welcome to Compete for U.S. Defense Contracts – But First It Must Clean Up Its Act.  Among the highlighted points:

  • First, a would-be partner [in defense procurements] will be difficult to trust if, for example, its government-owner/sponsor and the locus of the corporate headquarters spies on this country, steals its secrets to the detriment of U.S. interests, and uses bribery and other chicanery to undermine this country around the world. While EADS may not be directly responsible for such behavior, numerous sources – including a former CIA director, the U.S. Department of Commerce, and the European Parliament – indicate that France, one of the governments that has such ties to EADS, has been.
  • Second, it would be dangerous for the United States to rely on the goods and services of a company that is part-owned by the Russian government, and in which Vladimir Putin’s Kremlin wants a say in the management.

  • Third, Congress will be hard-pressed to justify sending the tax dollars of American workers abroad, to pay subsidized European workers who belong to militantly anti-U.S. labor unions that express hatred of our country and what it stands for, and who back politicians who work within NATO to undermine U.S. defense interests.

  • Fourth, it is a challenge, at best, to trust a major foreign supplier who deliberately seeks to circumvent U.S. nonproliferation laws and thumbs its nose at Washington while selling military equipment, over the strongest U.S. objections, to America’s current and possibly future adversaries.

 

In the interest of ensuring that the congressional and public examination of the Air Force’s Eurotanker decision is informed, thorough, and unstinting, the Center today is reissuing this important examination of EADS.  Many aspects of that firm’s behavior cry out for close scrutiny and, in many cases, corrective action.

DoD in Catch-22 when dealing with EADS

Yossarian was moved very deeply by the absolute simplicity of the clause of Catch-22 and let out a respectful whistle.

‘That’s some catch, that Catch-22,’ he observed.

 ‘It’s the best there is,’ Doc Daneeka replied.[1]

The reality of industrial globalization means that the United States will increasingly rely on foreign suppliers of military equipment. That’s not necessarily a bad thing, as long as we know that our global suppliers want to be true defense partners, are trustworthy, and will compete fairly to provide the best value for American taxpayers and the best products for American warfighters.

The Department of Defense (DoD) has rightfully welcomed the move toward globalization. But, with the large-scale entry of the European Aeronautic, Defense and Space (EADS) consortium into the U.S. market, DoD is finding itself in a procurement Catch-22 that would have even Joseph Heller, the creator of the phrase, in awe.

The catch in this case holds that even though DoD personnel are sworn to protect our country, they must award contracts regardless of the political actions of companies from what the Defense Acquisition Guidebook calls “friendly foreign countries.” Though it seems crazy to buy products from a company such as EADS whose owners, executives, and workers politically undermine American defense and foreign policy, this catch makes it not only rational but legally binding.  

Espionage, bribery and other dirty practices.

[Milo:] ‘But it’s not against the law to make a profit, is it? So it can’t be against the law for me to bribe someone in order to make a fair profit, can it? No, of course not!’ He fell to brooding again, with a meek, almost pitiable distress. ‘But how will I know who to bribe?’  

‘Oh you don’t worry about that,’ Yossarian comforted…‘You make the bribe big enough and they’ll find you. Just make sure you do everything right out in the open. Let everyone know exactly what you want and how much you’re willing to pay for it. The first time you act guilty or ashamed, you might get into trouble.'[2] 

The French government owns 15 percent of EADS, and its industrial policy consists of espionage, bribery and other actions to give its favored companies an unfair advantage over American firms. By making EADS a substantial defense supplier, the United States would be rewarding the French government for years of espionage and bribery that inflicted billions of dollars’ of damage on the American aircraft industry and betrayed any trust that they would have earned as credible defense partners.

The EADS idea of leveling the playing field in many cases is to bribe corrupt officials into buying its products instead of American ones. EADS, its precursors, and its subsidiaries have been the subject of bribe related scandals in Belgium, Canada, India, Kuwait, Switzerland, Syria[3], and most recently Austria where one of its lobbyist is accused of paying 87,000 euros ($117,00) to the wife of the Austria Air Force general overseeing a $2.7 billion contract won by an EADS subsidiary.[4]

Former CIA Director R. James Woolsey confirmed seven years ago that Airbus bribed foreign officials to buy its planes. In a Wall Street Journal op-ed addressing European complaints about our Echelon electronic intelligence program, Woolsey said that the U.S. was not using Echelon to spy on European companies to steal their trade secrets. "They don’t have much worth stealing. Instead we were looking for evidence of bribery," Woolsey said. He confirmed that Echelon was aimed partly at Airbus: "That’s right, my continental friends, we have spied on you because you bribe." Woolsey added:

  • "Your companies’ products are often more costly, less technologically advanced or both, than your American competitors’. As a result you bribe a lot."
  • "When we have caught you at it, we haven’t said a word to the U.S. companies in the competition. Instead we go to the government you’re bribing and tell its officials that we don’t take kindly to such corruption. They often respond by giving the most meritorious bid (sometimes American, sometimes not) all or part of the contract. This upsets you, and sometimes creates recriminations between your bribers and your bribees, and this occasionally becomes a public scandal…"[5]

The Economist detailed EADS/Airbus bribery in an important 2003 article, and cited a European Parliament report that confirmed the company’s corrupt practices.[6] The U.S. has a tough enough time guarding against fraud and corruption among domestic suppliers, where the abuse is usually on the part of individuals and not seemingly corporate policy.

Trying to supply America’s adversaries with weapons.

Milo shook his head with weary forbearance. ‘And [they] are not our enemies,’ he declared. ‘Oh, I know what you’re going to say. Sure, we’re at war with them. But [they] are also members in good standing of the syndicate, and it’s my job to protect their rights as shareholders. Maybe they did start the war,… but they pay their bills a lot more promptly than some allies of ours I could name.’ [7]    

EADS tried to circumvent US law in bid to help Chavez. Last year, the Center for Security Policy cited EADS for its sales to Venezuelan dictator Hugo Chavez and in January, 2006, the U.S. invoked international arms trade regulations to stop EADS from selling its Spanish-built EADS CASA C-295 and CN-235 transport and patrol planes to Chavez. Under the regulations, known as ITAR, other countries cannot sell military products containing American-made components to third countries without U.S. approval. Since the EADS CASA planes contain dozens of U.S. parts, including engines and unique turboprops, the White House notified EADS and Spain of its objections. 

Rather than stop doing business with Chavez, as a reliable U.S. defense partner would be expected to do, EADS immediately tried to circumvent ITAR by stripping out the American-made equipment and trying to find non-U.S. replacements. Only when it was clear that EADS could not come up with the substitute components did the deal officially fall through, in an October, 2006 announcement – nine months after President Bush invoked ITAR.  

Working to arm China. Since the 1989 Tiananmen Square Massacre, the European Union nations have largely stopped their military cooperation and arms sales to Beijing. Over the past few years though, EADS owners in France and its workers in Germany and Spain have agitated to end the embargo. This desire to fully open the technological floodgates was most recently evinced in March by French Defense Minister Michele Alliot-Marie, who while in Japan, continued to declare that the ban was "illogical" and "paradoxical." In fact, she later stated that China’s burgeoning military might was not a threat but that, "what is important is for China’s military power to be put to the service of peace."[8] The French government is no mere shareholder in EADS; President Jacques Chirac has used his influence to hire and fire the company’s top executives and to intervene in management decisions. 

Even with the current EU arms embargo EADS has found ways to supply Beijing’s armed forces. The company has engaged in dubious endeavors that have direct military or dual-use potential. For example, EADS subsidiary Eurocopter – which has long been partnered with China, has agreed to joint "development" with Beijing of a 16-seat, 6 ton helicopter known as the EC175.   Industry sources indicate that the new design will give the Chinese access to "the very latest technological advances in the cockpit and avionics," and can be used for both civilian and military purposes.[9] What’s more, this is not the first time that Eurocopter has materially contributed to China’s military growth. A 1980s-model helicopter, known as the "Dauphin" by the French and the Z-9 by the Chinese, is still used by the PLA as a tactical troop transport, as well as a communications, fire direction and electronic warfare platform.[10]   

Weapons and nuke parts to Iran. As if selling advanced military equipment to China was not bad enough, EADS is also marketing its wares to the Islamic Republic of Iran. In 2005, for example, Eurocopter representatives attended an air show in that country and were seen attempting to sell what they said were "civilian" helicopters. However, astute observers noticed that EADS’ promotional videotape for the show was labeled "Navy" and that that it prominently featured a military helicopter.[11] EADS official Michel Tripier when questioned why they were ignoring U.S. policy to isolate Iran said, "As a European company, we’re not supposed to take into account embargoes from the U.S.."

Perhaps even more worryingly, there are concerns that EADS may be inadvertently aiding the Iranian nuclear program. As late as 2005, the company was selling Nickel 63 and so-called "Tritium Targets" – both crucial to triggering a nuclear explosion – to the South Korean firm Kyung-Do Enterprises. Reportedly, unbeknownst to EADS, the South Koreans were then reselling the nuclear parts a company called Parto Namaje Tolua, a front for the state-owned Iranian firm Partoris. [12]  Even if the sale was an accident, it is extremely vexing that EADS did not take the time to verify the end-user of the nuclear materials. 

Pro-American marketing and advertising, Anti-American workforce.

‘You’ll be all right,’ Yossarian assured him with confidence. ‘If you run into trouble, just tell everybody that the security of the country requires a strong domestic Egyptian-cotton speculating industry.’  

‘It does,’ Milo informed him solemnly. ‘A strong Egyptian-cotton speculating industry means a much stronger America.’ 

[Yossarian:] ‘Of course it does. And if that doesn’t work, point out the great number of American families that depend on it for income.’

 [Milo:] ‘A great many American families do depend on it for income.’

 ‘You see?’ said Yossarian. ‘You’re much better at it than I am. You almost make it sound true.’ [13]

If you exchange the words Egyptian-cotton industry with European Aerospace-lobbying industry in Heller’s passage above, you would have a good summation of how EADS has been trying to justify its activities and market itself to the American public.

In recent years, EADS has been building assembly and service facilities in Alabama and securing the support of targeted congressional delegations. "The company has been busy building U.S. domestic political support for a program that would ultimately involve billions of dollars and thousands of jobs," Air Force magazine reported in June, 2006. "The company also has been recruiting talent with the technical know-how (and political connections) to get deals done in Washington."[14]

Senator Murray denounced the EADS propaganda campaign to make the company look less French and more American. "EADS and Airbus have launched a deceptive PR and lobbying campaign to convince the U.S. government that it is essentially an American company," she said in May, 2004.[15]

In reality the amount of American jobs EADS plans to create is miniscule compared to the huge number of jobs it provides to anti-American labor unions that form the backbones of some of Europe’s most powerful socialist parties.

Many EADS unions are militantly Anti-American and Anti-NATO. 

Anti-American union workers in Germany. The German socialist IG Metall union represents workers at Airbus Deutschland. Faced with losing thousands of jobs to the current Airbus reorganization, IG Metall is hoping EADS aircraft will start winning large DoD contracts. But the union, as a matter of policy and pride (its flag is still the Soviet-era red banner), openly shows hatred of the United States. The May 2005 cover of its magazine Metall contains a cartoon of a bloodsucking insect grinning and tipping its Uncle Sam hat while it ripped American businesses as "bloodsuckers" and "parasites."[16] When the liberal Free Democratic Party tried to get them to renounce the grotesque depiction, IG Metall Chairman Juergen Peters responded by calling the insect cartoon "a good caricature" of Americans.[17]

EADS CASA workers in Spain: On the wrong side. In Spain, where the EADS CASA division manufactures a variant of the CN-235 for the Coast Guard’s Deepwater program and its stretch C-295 companion, the aircraft workers are even more militant than the Germans.

The EADS CASA’s main union, the General Confederation of Workers (CGT), is virulently opposed to the war on terror, to the United States, and to the NATO alliance. Its red-and-black anarcho-Marxist flag indicates an alliance of two forms of extremism, and its official Rojo y Negro (Red and Black) newsletter shows a militancy seldom seen any more in industrialized democracies.

  • Stirring up extremism in Mexico. The CGT appears to back any radical movement in Mexico that opposes the Mexican government and the United States. The union openly supports both anarchist and communist causes in Mexico that seek to destabilize the southern border of the U.S. The union has its own "CGT Solidarity with Chiapas" committee to back the Marxist Zapatista guerrillas in the south of Mexico,[18] and publishes communiqués by the Clandestine Revolutionary Committee Indigenous Command of the Emiliano Zapata National Liberation Front (EZLN).[19]
  • Globalizing Latin American protests against the United States. The CGT promotes the international networking of protests against the President of the United States. Last month the CGT spread anti-Bush propaganda to spread opposition to the American president’s visit to South America as it denounced American "plans of imperialism for the region."[20]  
  • Militantly anti-NATO . The CGT is steadfastly opposed to the NATO alliance – not simply to alliance policies, but to the very existence of the collective security system itself. In February, the CGT held a major anti-NATO protest in Seville, at the EADS CASA manufacturing hub where the company expects to do most of its future Pentagon work. The demonstration coincided at the NATO leaders’ summit, with the CGT denouncing the alliance as the "global armed wing of the capitalist powers and their multinationals."[21] 

Running from responsibilities.

‘But you can’t just turn your back on all your responsibilities and run away from them,’ Major Danby insisted. ‘It’s such a negative move. It’s escapist.’

Yossarian laughed with a buoyant scorn and shook his head. ‘I’m not running away from my responsibilities. I’m running to them.’ [22]

EADS has the technology and resources to be a valuable partner in the defense and security of the United States. But if EADS is to be trusted – if Americans are to be comfortable buying its products and services – then the company, its owners, and its workers will have to live up to their responsibilities as America’s partner and change some of their ways.

Also, just as Yossarian finally realizes that the Catch-22 he is confronted with is a made up bureaucratic absurdity, the Pentagon and Congressional overseers, need to finally realizes the folly of this self-created procurement catch and that they, at a minimum, have the responsibility to take into account the actions, if not the politics, of foreign suppliers.


[1]Joseph Heller, Catch-22, (London: Vintage Random House, 1994), Chapter 5, p. 63.
[2] Ibid, Chapter 24, p. 337.
[3] "Special Report: Airbus’s Secret Past – Aircraft and Bribery," The Economist, June 12, 2003.
[4] "For the Record", Defense News, April 16, 2007 p.3
[5] R. James Woolsey, "Why We Spy on our Allies," Wall Street Journal, March 17, 2000.
[6] "Special Report: Airbus’s Secret Past – Aircraft and Bribery," The Economist, June 12, 2003.
[7] Heller, Chapter 24, p. 325.
[8] Herve Asquin, "France Calls to Lift China Arms Embargo," Defense News Online, March 15, 2007.
[9] "EADS to Co-develop EC175 Helicopter With China," Defense Industry Daily December 2005; "EADS Creates a New Helicopter in a Cooperative Venture with China," EADS Press Release, May 5, 2005, http://eads.net/1024/en/pressdb/archiv/2005/2005/20050512_ec_175.html
[10] "Z-9 Light Multi-Role Helicopter," Sinodefence.com on April 4, 2007.
[11] Ibid.
[12] "Iran Allegedly Purchasing Nuclear-Weapons Parts.," RFE/RL Iran Report,   2 August 2005, Volume  8, Number  30.
[13] Heller, Chapter 24, p. 338.
[14] Richard J. Newman, "The European Invasion," Air Force, June 2006, Vol. 89 No. 6.
[15] Senator Murray, May 5, 2004.
[16] "US-Firmen: Die Plünderer sind da," Metall, May 2005. Online at http://www.igmetall.de/cps/rde/xchg/SID-0A342C90-8AD8F407/internet/style.xsl/view_4764.htm.
[17] Ray D., "Germany’s Largest Trade Union: Portraying Americans as Blood Suckers ‘A Good Caricature,’" in David Kaspar, Davids Medienkritik blog, http://medienkritik.typepad.com/blog/2005/05/germanys_larges.html.
[18] http://www.rojoynegro.info/2004/article.php3?id_article=16089> (10 February 2007)
[19] http://www.rojoynegro.info/2004/article.php3?id_article=15239> (10 February 2007)
[20] http://www.rojoynegro.info/2004/article.php3?id_article=15165> (10 February 2007)
[21] http://www.rojoynegro.info/2004/article.php3?id_article=13107> (10 February 2007)
[22] Heller, Chapter 42, p. 567.