American Industry At Stake In Tanker Fight

Anyone who claims that defense contract negotiations are uninteresting has yet to discover the battle brewing over who gets to build the next Air Force tanker.

American aerospace giant Boeing and European mega-corporation Airbus are locked in a war over who gets to deliver $35 billion worth of refueling planes to the Defense Department to replace about 80% of the Air Force’s refueling fleet – planes that average almost 50 years old, according to the Lexington Institute.

Just a few short weeks ago, Boeing and Airbus officially submitted bids to manufacture the tanker, and now both will compete to see who can create 179 tankers for less cash, who’s plane will be ready in time and who hits closer to the mark on meeting the Pentagon’s needs. Right now the momentum seems to be in Boeing’s favor, but the stakes are high.

From the Wall Street Journal:

For Boeing, the fight is to defend its home market and an area of expertise–tanker planes–that it once dominated. Boeing in 2001 beat Airbus to supply Japan with four 767 tankers. They are now in operation but differ substantially from what Boeing has offered the Pentagon…

For EADS, a U.S. win would cement its position as the new world leader in tankers. Since 2004, it has won orders for 28 tankers from Australia, the U.K., Saudi Arabia and United Arab Emirates. The Airbus design has also faced some delays in development.

Airbus has a version of the needed tanker that they will deliver to Australian forces this week, which they say will be about 90% identical to the version they want to deliver to the Pentagon. Boeing doesn’t have a version of the tanker in production, but they say they’re more willing to wait to develop the tanker so that it could be better in line with the Pentagon’s immediate needs, though it will be based on Boeing 767 plane.

Boeing claims that it’s design will be more custom, more effective and less costly than Airbus’ plane, which has a larger wingspan, burn more fuel per hour, and according to Boeing, has a higher maintenance cost. And worse, as Jed Babbin pointed out right here on Big Government not long ago, Airbus’s design categorically fails in meeting the Air Force’s needs being unable to complete mission critical maneuvers. Airbus says, however, that it’s plane will be cheaper, though, and has submitted a bit that reflects that.

But there’s a catch to Airbus’ bid that might have disastrous effects on American trade interests.

As the Lexington Institute points out, none of the planes Airbus markets have been built without massive subsidies from the European Union. These subsidies, which the WTO recently ruled were an illegal advantage in international trade, were given to European companies to help make their products cheaper on the global market, undercutting American manufacturers and, ultimately, costing American interests.

When the decade began, America accounted for roughly a third of global economic output and a third of global military spending. Today, it accounts for a quarter of global economic output and half of global military spending. Obviously, the growing disparity between America’s economic and military power cannot be sustained indefinitely.

Pentagon policymakers apparently do not grasp what America’s economic decline means for the future of its defense posture. They are planning on the assumption that military spending will be stable in the years ahead, even though the nation is growing poorer every day. In fact, the policymakers are contributing to the economic trends that spell doom for their defense plans by sponsoring a tanker competition that may send billions of dollars to one of the key culprits b behind America’s trade deficit.

Two American companies have already had to give up on competing with European companies. Boeing is the only company left in the race and even they have seen their market share drop by half. Congressman Dave Loebsack, who last week helped pass the Bipartisan Bill to Boost American Workforce and Industry, claims that awarding Boeing the tanker contract would bring an estimated 800 jobs to Iowa alone, perhaps among the first steps in reversing the exodus of industry from American shores.

The House of Representatives, in May, voted 410 – 8 to force the Pentagon to take the WTO’s decision into consideration when deciding on which company got the contract for the new tanker, but the Defense Department hasn’t seemed willing, yet, to admit that they need to consider that they might be rewarding years of unfair competition and contributing to America’s trade decline.