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Air Force refueling tankers: Pay no attention to taxpayers

October 5, 2009 |  5:41 pm

Don't count on the U.S. Air Force buying the aerial refueling tankers it, you know, actually wants. That's the message I gleaned from a news story published in The Times' Business section today, which details the particularly lucrative fight in the already pork-laden world of defense procurement to win the $35 billion contract to build the next generation of Air Force tankers. An extended excerpt:

When the U.S. Air Force recently launched its third attempt to award a $35-billion contract for aerial refueling tankers, Pentagon officials said the competition would be fair and transparent.

But it was only a matter of days before the process was under attack.

Interest groups, politicians and the contenders -- Boeing Co. and Northrop Grumman Corp. -- began blasting the way the bids were evaluated, prompting some defense industry analysts to question whether the Air Force would ever get its much-needed tankers.

"I don't see how either of these two companies walk away being the sole winner of the contract," said Loren Thompson, defense policy analyst for the Lexington Institute in Virginia. "The Pentagon says the competition will be objective, but that's going to be hard. It's a very complicated framework."

Handing out one of the largest military contracts in U.S. history hasn't been easy for the Pentagon. Twice it has held a competition to replace its fleet of 415 Eisenhower administration-era Air Force refueling tankers, and both times it has failed amid accusations of underhanded politics and discriminatory rule-making. The process first started in 2001. ...

Then a collection of eight leaders from conservative groups went on the offensive for Chicago-based Boeing.

They collaborated on a letter that was sent to each member of Congress, asking them to factor in a recent World Trade Organization ruling that found that European Union governments illegally subsidized Airbus, whose parent company, European Aeronautic Defense & Space Co., is teamed with Northrop in the tanker contest. ...

Boeing won the first contract in 2004, but it fell apart because of an ethics scandal that resulted in prison terms for a former senior Boeing executive and a former high-ranking Air Force official.

The competition was relaunched and in 2008 Northrop took home the $35-billion contract to build 179 tankers based on a modified Airbus A330 passenger jet.

It was a huge upset since Boeing had built all of the tankers in the current fleet.

This tidbit is particularly infuriating:

Amid the hyper-politicized atmosphere, a "split-buy" may be the only workable option, Aboulafia said. Under a proposal being pushed by Rep. John P. Murtha (D-Pa.), each company would get to build 12 of their planes a year. The downside is it could cost about $2 billion more annually, but it could break the stalemate, he said.

I've singled out the paragraph above because last year, not long before the Department of Defense announced it had chosen Boeing's competitor to build the tankers, an executive from the U.S.-based aerospace giant said the Air Force was unlikely to opt for the "split buy." The concern was that splitting the order -- say, half Boeing planes, half EADS-Northrop planes -- would be more expensive for taxpayers and logistically more complicated for the Air Force, among other things. Now that the Air Force has displayed some immunity from protectionist instincts, Congress may do precisely what Boeing once said was bad for the Air Force and taxpayers. Go figure. 

Putting aside Murtha's game-rigging proposal, notice what seems to be of little concern to anyone: which plane is actually better for taxpayers and the Air Force. Boeing's allies want the Department of Defense to consider the World Trade Organization's ruling that EADS -- Northrop's partner and parent company of Airbus, which would supply the A330-based airframe -- received illegal subsidies from European governments to build new airliner families (as if the Pentagon's opinion matters at all, given that if it favors the EADS-Northrop bid, Congress will no doubt "consider" the WTO case for it). The Air Force has rightly decided to disregard the WTO dispute, which Boeing should chalk up as a wash since the EU is pressing a trade case of its own against Boeing.

My sense is that members of Congress are uneasy about Boeing having to compete with a foreign defense contractor (incidentally, Boeing bought out McDonnell-Douglas, its lone stateside competition for building large airliners, in 1997). Memo to Congress: Aircraft building -- both for airline and military use -- has long been a global business. U.S. defense contractors have sold fighter jets to Egypt, Turkey, Israel and dozens of other countries. As far as large military jets are concerned, robust foreign competition is an absolute must. Only two major aircraft builders in the world, Airbus and Boeing, make planes that can be converted to large aerial refueling tankers. 

I understand this is new territory for the Department of Defense and lawmakers, considering the U.S. once boasted several aerospace companies that could have competed for such a contract. But the U.S. no longer enjoys this near-monopoly; in fact, Brazil is emerging as a major global player in aircraft manufacturing, and China doesn't want to stay far behind for much longer. Going forward, it's doubtful Boeing will have the luxury of facing just a single foreign competitor in Airbus. For the sake of taxpayers and its own armed forces, members of Congress would do well to adjust to this new reality now and avoid skewing the Air Force tanker competition.

-- Paul Thornton

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