"I hope for nothing. I fear nothing. I am free."

"Δεν ελπίζω τίποτε. Δεν φοβʊμαι τίποτε. Είμαι λεύτερος."
Epitaph, Nikos Kazantzakis

Friday, March 7, 2008

Democrats and Patriotism: The shockwaves of the USAF tanker deal and the election for president

I have barely started this blog, and I am already violating my own rules by exceeding the 1,000 word limit originally promised. I apologize. Some readers suggested that I expand on some points, and also update on developments.

The shockwaves of the U.S. Air Force announcement on February 29, recommending the selection of an airborne tanker based on a passenger aircraft produced by Boeing’s arch-rival, Europe’s Airbus, have also reached the race for presidency. Democratic Senators Barack Obama and Hillary Clinton, caught in a tight competition for their party’s nomination, eager to grab on to any opportunity to outshine the other’s patriotism, blasted the decision. For the purpose of the Democratic primaries this may be a passing issue. But it is likely to come back during the race against Senator John McCain – where the Democrats will try to outdo the Republicans at their own game and show up their red pedigree. McCain is also likely to be targeted more directly for his role in foiling the Boeing deal five years ago, primarily by initiating the investigation that uncovered corruption and inefficient spending practices. But the Democrats should tread with care over this one, because this is could be a double edged sword.

Not surprisingly, the pressure to ‘investigate’ the proposed deal, which initially involves four development aircraft and subsequently 175 more, a package worth as much as $40 billion over a 15 year period, has picked up momentum in Congress. That is what the people’s representatives do: they work for their clients – be they their constituents or the employers of their voters. And the lawmakers are pulling all the stops. Indeed, it seems like every possible jingoistic, protectionist argument is being taken out of the closet for this one. In addition to the classic ‘jobs will be lost to foreigners’ whining, the traditional charges that Airbus receives government subsidies, now the threat to American national security canard has raised its ugly head, since it is a well known fact that Europeans are ‘unreliable’ allies.

All this, of course, ignores three very important facts about this deal. First, it involves Northrop-Grumman, a venerable red, white and blue American defense contractor with projects like the Nimitz class aircraft carriers and the B-2 Stealth bomber among its contributions to U.S. national security. Northrop-Grumman will serve as the prime contractor in this project and this will contribute to bolstering the third largest defense contractor, and by extension the ability of the U.S. defense industry to meet both qualitatively and quantitatively, the needs of the U.S. armed forces. Created in a merger of two Cold War mainstays of the U.S. aerospace industry in 1994, the company managed to survive further consolidation in the industry when the government did not authorize a Lockheed offer to buy it. The likelihood that the tanker contract will grow to as much as a $100 billion deal over the coming decades is a major boost for Northrop-Grumman. The reduction of the bloated Cold War defense industry to two behemoths – Boeing and Lockheed – seemed like a natural evolution of a changing security environment. But there is a limit to the kind of streamlining that the defense industry can be allowed to undergo – certainly in light of the security challenges the U.S. is likely to face in the future.

Second, 60% of the selected aircraft, designated by the USAF as the KC-45A and based on the Airbus 330 passenger jet, will be built in the U.S., in new plants in Alabama and Mississippi. Not only will this provide jobs for as many as 25,000 Americans, according to Northrop-Grumman projections, it will also require parts from hundreds of U.S. manufacturers, and of course American-made engines, that General Electric will provide. It will also not take away jobs from Boeing, which has its hands full already with a number of projects, an orders list that is spilling at the rim, as well as upcoming programs for the Pentagon, such as a new rescue helicopter contract worth an estimated $10 billion. Added to this is the natural know-how exchange that emerges from this type of cooperation, which will benefit both the American and European partners in this venture, and by extension the technological base of both.

Third, and while Boeing would beg to differ, in a process that historically does not always guarantee that the best package or system is selected, the USAF made the right choice. Indeed, most independent analysts agree: the Airbus 330 is the better platform for the aerial refueling needs of the U.S. armed services on the basis of the known criteria. It is a more efficient aircraft, in great part because it is a newer design, particularly its wing. It is a larger aircraft than its rejected 767 competitor, capable of carrying at least 20% more fuel and even more cargo, but not as large as the 777, which is what Boeing would have offered had, as it now claims, not been led to believe that size was not the relevant issue. Its operational requirements, specifically the runway length it requires for take off, are slightly worse than the smaller 767, but much better than the 777, at maximum loads. It is a more expensive aircraft per unit than the 767, but its operating costs are lower, its fuel consumption is lower, and it has longer radius of operation than its Boeing rival. Furthermore, it is a tested model, in operation for more than a decade, and as far as the cost of new infrastructure for the upkeep and ground operations revolving around the use of the aircraft, similar expenses would have been incurred in introducing the 767.

For its part, Boeing is crying ‘foul’ and demanded a quick briefing by the relevant Air Force officials, justifying their selection. Such a meeting is scheduled to take place today, March 7, after which Boeing will decide whether to file an official complaint with the Government Accountability Office, the Congressional watchdog. Analysts and company officers have said that Boeing is not likely to pursue the matter after the debriefing, unless it emerges that there was “an irregularity in the proposal phase.” Boeing, half of whose $35 billion annual revenue comes from military contracts, is not interested to risk other projects by ruining its ties with the Pentagon.

Boeing knows that if there is anyone to blame for losing the multi-billion dollar project, it is Boeing itself. This began with the corrupt practices that led to the cancellation in 2003 of a project to lease aerial tankers from Boeing, the resignation of its CEO Phil Condit, prison sentences for two officials, and one suicide. Even so, on Wall Street the Boeing bid was considered the favorite in spite poor past performance and questionable cost estimates. For example, Boeing had experienced a series of setbacks in other programs, delivering 767-type aerial tankers to Italy and Japan late and experiencing difficulties with the development and production of its much touted 787 passenger jet.

Air Force officials involved in the decision rejected criticism pointing out that the proposal that won was chosen on merit. Secretary of Defense Robert Gates also backed the decision, stressing the fairness of the competition and explaining that the defense industry was becoming increasingly globalised. Indeed, judging from some of the comments from lawmakers in Congress, it is as if they had not realized that the U.S. is part of a global economy. One union leader went further, calling the deal “a subsidy for the French government,” playing on biases against French policies and wrongly ascribing Airbus and its parent company, European Aeronautic, Defense and Space (EADS), a purely French pedigree. Congressman John Murtha, chairman of the House Defense Appropriations Subcommittee, went as far as to point out that even though European member-states of NATO did not provide additional troops for the mission in Afghanistan, a major U.S. military contract was being awarded to the European consortium.

But the interesting development is that Murtha and other Democrats in Congress chose to target Republican presidential candidate, Senator John McCain for his role in killing the original Boeing deal of 2003. A Democratic Congressman from Illinois, Rahm Emmanuel, where Boeing is now headquartered, accused McCain of being responsible “for sending jobs overseas.” In a statement McCain was quoted as standing by his decision to stop the 2003 Boeing deal, and said that “I have always insisted that the Air Force buy major weapons through fair and open competition.” McCain had also stressed that impact on American jobs is not the main issue here but what is important is “to create the best weapons system we can at minimum cost to taxpayers.”

The presidential hopeful, Barack Obama, a Democratic Senator from Illinois, expressed shock and opposition to the deal. On this issue, he was not supporting change, for a change. His competitor for the Democratic nomination, Senator Hillary Clinton of New York said she could not understand how Airbus, against which the United States brought a suit at the World Trade Organization in 2004 for illegal subsidies, could win the tender. Of course, Clinton should be reminded that there is a counter-suit against Boeing in the same organization for what Airbus claims are essentially subsidies in the form of Pentagon military contracts, which bolster its passenger jet activities.

It is likely that after the fog clears over who the Democratic nominee will be, one of the issues McCain will be attacked on is his role in foiling Boeing’s bid to win the air tanker contract. It is one of the few areas they can challenge McCain on security. And the line will follow doubts about the wisdom of relying on foreign powers to provide parts for a system necessary for American defense. But this would be a mistake for two main reasons.

First, as Secretary of Defense Gates already noted, there is an increasing globalizing of the defense industry. While this is the first time in more than six decades that the U.S. has opted for a major strategic system, in such great numbers, produced by its allies, the real shift in policy was initiated when it was agreed to allow allies to ‘buy’ into the development of the Joint Strike Fighter in 2002. This introduced a major change in the willingness to ‘share’ technological know-how by the Pentagon and the American defense industry. This was followed by the symbolic but poignant decision to opt for a European helicopter, and in collaboration with the largest U.S. defense contractor, Lockheed, will provide a replacement for Marine One, used to ferry the President and other senior officials. Autarchy in defense production is a thing of bygone eras – both because of costs, technologies, alliance politics and shifting international conditions.

Second, and perhaps most importantly, this deal is a watershed in what it symbolizes for the western alliance. This is a sign of a new trend – motivated by a new understanding that the U.S. cannot go it alone, whether in Afghanistan or in future challenges. The recognition that its allies can provide the cutting edge technology for a system that is crucially important to American power projection and the ability of the western alliance to safeguard shared interests globally is a change in Washington. Just as this shift should not go unnoticed in European capitals, it is equally important for American politicians, and especially those aspiring to become the next Commander in Chief, to overcome biases whose demise is long overdue.
Michalis Firillas
7 March, 2008

1 comment:

conefor4200 said...

Obama and Clinton can not make an educated review of this deal. I do not believe that they know more about the deal than read in the headlines.

The USAF has analyzed the matter thoroughly, and awarded the order accordingly.

Obama and Clinton are displaying again their non-qualification for the job.