When Frogs Fly
2:36 PM, Mar 22, 2007 • By MICHAEL GOLDFARB
Amy Butler has a fantastic post up over at Ares on the competition for the Air Force's next tanker. The competition pits the all-American Boeing against rival Northrop Grumman, which has teamed with EADS North America to propose a design based on the Airbus A330.
The Air Force's urgent need for a new fleet of tankers has been causing embarrassment in all quarters since 2001, when Senator McCain first complained that a quietly arranged deal to lease 100 aircraft from Boeing--rather than go through the messy oversight process of a purchase--didn't pass "the sniff test." McCain's one man crusade against the deal finally forced the Air Force to scuttle it, and led to the resignation of Boeing CEO Phil Condit in 2003 and sent the company's CFO to jail.
The whole thing stunk, but six years later, Boeing remains the odds-on favorite to win the contract, which may end up totaling $100 billion. Why? The A330 would carry more fuel, more passengers, and more cargo than the Boeing KC-767. But the Lexington Institute's Loren Thompson still expects "Boeing to win the competition" because their plane is "a better match for the mission the way the Air Force describes it." Said Thompson, the Air Force is "primarily looking at refueling," which "tends to undercut" the bid by Airbus.
Thompson says "the Air Force separates [the refueling mission] fairly severly from the cargo mission . . . so they don't trip over each other in wartime."
But Northrop's A330 is also much more expensive--each modified A330 would cost roughly $160 million, as opposed to the $120 million price tag on the KC-767. Of course, Northrop might be willing to negotiate on the price. It's partner, EADS, can always fall back on massive subsidies from European governments. Thompson says that, at the end of the day, he "suspect[s] they will underbid" Boeing because they "don't operate under the same business practices." Meaning they don't have to worry so much about turning a profit--Airbus "almost always underbids Boeing in commercial competition."
But the reason Boeing is likely to win the contract has more to do with politics than anything else. Airbus is a European company, and worse, it's closely connected to the French government. Would the Air Force be flying French planes if Northrop wins the contract? Well, not really. They'll actually be built in Alabama, but just because your Toyota was made in the States doesn't mean you're driving an American car.
Which brings us back to Ms. Butler's terrific post. It seems that the folks from Northrop have been sending out promotional items to hype their bid. Writes Butler,
Perhaps Northrop has a slightly better aircraft, and perhaps the higher cost can be negotiated down a bit, and perhaps Boeing ought to be penalized for prior unethical conduct that was only exposed by the persistence of Senator McCain--but can the Pentagon really hand one of the largest contracts in history to EADS? To the French? Thompson says that the "French connection . . . won't have much bearing on the Air Force's decision." But on Capitol Hill, that's a different story. Thompson says that on the Hill, the French connection is likely to be a big problem.
Despite all Boeing's prior bad acts, the company has been, according to one Senate aide, "cleaner than Jesus" in this latest competition. Which means the folks in Congress can find a way to award the contract to Boeing without the appearance of any impropriety. But how could they explain sending our tax dollars to France?