Cry Baby Boeing

Posted by Deepish Thinker on March 11, 2008
Current Events, US Politics

It appears that poor loser Boeing is going to appeal the Air Force’s decision to buy Northrop Grumman/Airbus tankers on the grounds that choosing the winner based on which proposal gave the best value for taxpayer money was patently unfair.

Whatever spurious reasons Boeing actually comes up with for challenging the contract, the real issue is whether the Air Force can weather the political storm it’s decision has created. The key concerns are jobs, the award of a lucrative contract to a foreign company and national security. All these concerns will receive plenty of air time, but none have any real foundation.

Perhaps the most ridiculous claim to date is that the decision will somehow cost thousands of American jobs. Both Boeing and Airbus have global supply chains with a high degree of overlap. US suppliers, who are barely keeping up with with demand for parts for civilian planes, may see a small decline in future orders from Boeing, which will likely be offset by increased orders from Airbus.

Boeing itself will have to shut down it’s 767 production line sooner than it might like. However this will only be a pause for retooling. The company currently has an epic backlog of civilian aircraft orders, which means that there is precisely zero chance of layoffs.

You could argue that Boeing might have hired more people in the future had it won. Of course these hypothetical jobs are balanced by the actual hiring Northrop Grumman will be doing in Alabama, where the Airbus tankers are to be assembled.

The national preference and national security concerns are only marginally less idiotic. EADS (the corporate parent of Airbus) is a joint French/German company. France and Germany are of course close NATO allies, who already have access to any military secrets likely to be involved in what is essentially a flying fuel truck.

If anything, the Airbus tanker represents a major opportunity to strengthen trans-Atlantic military co-operation. Committing to a partly European tanker is an obviously friendly gesture, which may will be reciprocated in the form of better access to the European market for US military suppliers. Over the long run, a reduction in irrational national preference biases in arms purchases would increase supplier competition and decrease costs for all NATO countries. In addition, it would likely result in greater commonality of equipment, and thus greater interoperability, amongst NATO forces.

Perhaps the most important aspect of the whole situation is that Air Force has demonstrated the ability to make a purchasing decision based solely on military considerations. This will, assuming the decision is allowed to stand, have a very salubrious effect on future acquisition contests. If suppliers get the idea that their efforts are best spent on engineering rather than lobbying, the result will be a military that is both better equipped and much less expensive.

The only real losers will be Boeing shareholders. Right from the start, Boeing’s tanker proposal was basically a scam designed to keep the obsolete 767 in production. This would have been a fabulous deal for Boeing. The development and tooling costs for the 767 were paid off long ago, so every additional 767 sold would have had a very pleasing effect on the bottom line.

While I’m sure Boeing stockholders are rooting for the Airbus deal to be overturned, such an outcome would be a travesty of justice and a gross insult to common sense. Still, this is an election year, so anything is possible.