Tag Archives: The American Tanker

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.

EADS/Airbus Government Ownership, Protection, Intervention & Subsidies: The Effect on American Free Enterprise and National Security

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.


FORWARD: DEFENDING FREEDOM WITH FREE ENTERPRISE

Prior to 1941 the U.S. military relied on its government-owned arsenals and shipyards for much of its procurement needs. Since then, the Department of Defense has transitioned to a predominant reliance on private commercial arms-makers for its needs during both war and peace.1 This Post WWII belief in private enterprise was so strong that, during the height of this transformation in 1960, the Air Force procurement Chief testified, “All things being equal, the man without the Government facility will get the award.”2 The privatization of U.S. military procurement since World War II was not simply an exercise in the principles of free enterprise; it was a recognition that private companies are, by nature, better suited to adjust to customers’ needs and, through fair competition, to provide a better product.

The possibility that government-owned companies might provide a lower cost to the government was specifically rejected as a justification for their continued support. Continuation of these government owned “businesses” was viewed as an “injury to the vitality of the whole private enterprise system.”3 As a 1956 Budget Bureau memorandum to President Eisenhower stated, “Above all, the decision whether to continue or discontinue a Government activity solely on an apparent cost basis runs counter to our concept that the Government has ordinarily no right to compete in a private enterprise economy.”4

That belief in free enterprise, free market competitors and fair competition is under assault today. The European Aeronautic Defense and Space Company (EADS)—an enterprise owned, controlled,and protected by foreign governments—has been welcomed to the U.S. defense market with open arms by the Pentagon and may be selected for U.S. Government contracts as a result of European government subsidies and activities that enable it to underbid truly private companies.

To allow EADS to compete for U.S. Government contracts, without additional conditions, requires that U.S. officials overlook past years of documented corrupt practices, as well as current anti-free market activities that have allowed EADS and its subsidiaries to develop their products in the first place. If American policy makers allow this to happen, they do so in direct contradiction of past and current national security strategy. ■

EXECUTIVE SUMMARY

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.”5 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.6

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.

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.