Airbus/Northrup Threat Revealing

Human Events ^ | 12/04/2009 | George Landrith

[Paul Ross]

Airbus/Northrop Threat Revealing
by George Landrith
Human Events, 12/04/2009

The Air Force has issued a preliminary Request for Proposal (RFP) specifying how companies can bid on the $35 billion contract to build the next fleet of air refueling tankers. A final RFP is due out soon.

The two bidders reviewing the preliminary RFP are Chicago-based Boeing, and a team made up of Airbus, based in Toulouse France, and Northrop Grumman, based in Los Angeles. Boeing has proposed building a tanker on its medium-sized B-767 commercial jetliner platform, while Airbus and Northrop have proposed building a tanker on Airbus’s larger A-330 commercial jetliner platform.

The last competition was overturned after the Government Accountability Office issued a report highly critical of the Air Force’s conduct, which they found had favored Airbus by conducting separate and unequal negotiations, offering Airbus extra credit for criteria Boeing was not made aware of. And, importantly, the GAO noted that the Air Force had waived critical requirements to keep the Airbus in the game.

This second competition was meant to offer each bidder clearer criteria, and treat both equally. Now, Airbus and Northrop are threatening to pull out of the competition unless the Air Force changes the RFP criteria to favor its larger, more expensive, less capable, and less survivable airplane.

On several fronts, Airbus’ threats to pull out unless its demands are met takes real nerve.

For starters, consider that Airbus has recently been found guilty by the World Trade Organization of taking illegal trade subsidies from European governments. Airbus has used these subsidies to undercut competitors like Boeing in bids just like the one being conducted by the Air Force. In what could only be called an abundance of generosity, the Air Force has said it will ignore Airbus’ illegal subsidies. This alone should be enough for Airbus to sit down and be quietly grateful, but apparently the French firm has come to feel entitled to the American defense contract, having been so pampered during the last competition.

Secondly, it’s a simple fact that the larger Airbus offering cannot operate from a large percentage of the runways currently used by Air Force tankers. This would mean the A330 tanker would either be less available, or US and allied airfields around the world would need to be reinforced and widened at huge expense. The previous competition did not take these construction costs or opportunity costs into account. This time around, these costs are being taken partially into account, for the very good reason that they will eventually have to be paid. If a homeowner were deciding between two boats, and the larger of the two would not fit in his garage, requiring him to build a new larger garage, then the larger boat might well be a poor bargain, no matter what its sale price might be. Same with the tanker. New runways and hangars are expensive, and the Air Force should take that into account up front.

Third, the larger Airbus A330 is less maneuverable than the Boeing B767, and -- as HUMAN EVENTS Editor Jed Babbin reported in July 2008 -- is unable to perform “breakaway” and “overrun” maneuvers critical to the safety of its mission. If for any reason, the tanker and the aircraft it is refueling fly too close together, the tanker is supposed to climb and accelerate, while the aircraft receiving fuel dives, thus ensuring a clean, safe separation, called a “breakaway.” The problem is that an Airbus A330 laden with fuel cannot climb and accelerate steeply or quickly enough to perform this maneuver. Its larger size and weight also prevents it from being able to speed up and “overrun” aircraft that end up positioned in front of the tanker, rather than behind it, at their rendezvous point. These are not trivial issues: they are essential to safe flight operations.

The Airbus-Northrop team has attempted to portray the larger size of the A330 as an asset, claiming that it carries more fuel, which is certainly true, and that it would also have lots of cargo and passenger space, which it would. But a tanker should first and foremost be a tanker. Secondary missions as a cargo or passenger plane would distract from its primary mission. Conducting secondary missions, and fitting on fewer runways means that the A330 tanker would be less available as a tanker, and all the extra fuel in the world does not help if it is not where it needs to be, when it needs to be there.

So, what Airbus and Northrop are demanding is that the Air Force ignore Airbus’ illegal trade subsidies, that it ignore all the additional construction and opportunity costs the A330 would add to the tanker program, and that it ignore the inability of the A330 to perform important safety maneuvers. And, Airbus and Northrop are also demanding that secondary missions are to be counted in their favor, even though warfighters are not asking for those secondary missions.

In other words, Airbus and Northrop seem to be demanding that the Air Force do what it did last time -- rig the bidding process so that Airbus can’t lose. Or else, they will not even bother to offer a bid. This is a haughty attitude indeed. The Air Force should not dignify the threat with a response.

Airbus has been given every conceivable courtesy, to the point of receiving unfair advantages in this competition. If with all these advantages it still cannot compete, and cannot even be polite, then the Air Force should thank them, and move on.

George Landrith is the President of the Frontiers of Freedom Institute and a graduate of the University of Virginia School of Law, where he was Business Editor of the Virginia Journal of Law and Politics. As an adjunct professor at the George Mason School of Law, Mr. Landrith has taught constitutional law, appellate advocacy, and legal writing.

[Paul Ross]

False. Have you seen the dollar exchange rate lately? Airbus has every incentive to set up a US production line...

But they don't. And they won't. You surmise that..."why give away your best bargaining chip by announcing that you are going to set up shop in the US anyway.

Bargaining chip?!!

That is nuts from a procurement and political standpoint...if you are trying to persuade Americans that you are credible when a European State-run make-work operation purports to be interested in transferring its European jobs to the U.S....

Rooooooooight....!

The reluctance to set up shop is not for bargaining purposes. It is because they never intend to. Instead, once they get the contract, they intend to stiff Alabama...and America. And they will then get away with it. Just like they are with their subsidies right now.

[Paul Ross]

And if you want to shut Airbus out of US military procurements, that goes both ways, e.g. no more Lockheed Martins for Poland in the future.

Poland is not EADS/Airbus.

[Paul Ross]

...and as you can see from the graph someone else put up, the plane that will be built here is far superior to the Boeing competitor.

The IFARFA model was disproved by the GAO evaluation. Garbage in, garbage out.

[AFreeBird]

Thanks! I personally am sick of all the political maneuvers while the USAF is flying tankers dating to the Eisenhower administration.

You mean the ones refueling bombers dating to the Eisenhower administration?

[Paul Ross]

And it’s obvious that you know nothing of Alabama because if you did you wouldn’t have used the term “Alabaman” to describe people from this state as everyone who has ever spent even a day in the state knows that an i goes between the m and the a in that word.

Alabamian? So? I am from Minnesota (the state which looks forward to global warming). We have our own idiosyncracies, but you don't here me making a big deal out of your possible ignorance thereof.

It is my understanding that EADS has every intention of building those planes here

You mean modifying, and final assembly. Their proposal was a meager 1,200 Alabama jobs before they "politically corrected" it upwards...

[Paul Ross]

As there is no more MDD,...

Actually, that isn't quite true. Boeing is being run by mostly MDD execs.

You want U.S. competition...force a divestiture with an antitrust action.

[Paul Ross]

If you really think that after Mercedes and Volkwagen, the pride and joy of German engineering, set up new factories (again, driven by currency exchange rates) in the US...

Notice, they aren't state-run. They aren't state-subsidized over 30% like Airbus. And they didn't wait for a huge defense contract.

[Hulka]

>Yes, but that’s standard operating procedure, Boeing has just as much tried to influence the RFP in their favor.<<

Correct. Pre-RFP release, as did EADS. POSTS RFP, now, that is a different story as the whining of EADS proves.

>> And do you really believe that Boeing had nothing to do with overturning the previous decision for Northrop/EADS?<<

Yes, that was GAO, not the Air force, not the Congress, not the president. Boeing filed a legal protest, the first time in 10-years, and the GAO conducted an independent analysis. . .not congress.

>>The first thing they did was certainly to call their congressmen. In the end it always comes to playing politics.<<

Calling your congressman post selection is a risky deal unless you are confident an independent analysis can prove ineptness, grievous error or just plain mistake was done. Congress can only bluster and perhaps withhold funding (wasn’t done in this case). Congress can support the call for GAO analysis, but the congressman is at risk because, as you proved quite clearly, any interest will be seen as partisan and not motivated by the public interest.

It is hard to overturn a decision the customer made. . .unless it was done badly, and GAO recommended, not directed, the selection be set-aside. GAO had no power to throw out the selection, it was the Air Force and OSD that did that (once a closer look was done).

>>You have to keep in mind that the USAF already agreed to lease Boeing tankers - at criminally overpriced rates. Only after Boeing’s bribery became public was the deal nixed.<<

Let’s see, Darlene Druyan had no role to play in that? She was the most corrupt SAF/AQ in the history of the Air Force and went to prison for it, as did a Boeing executive. . .and one paid hefty fines. Oh, by the way, it wasn’t the government that cried foul and turned in the CEO and COO, it was Boeing personnel and the crime was limited to TWO people in the company and the company turned them in.

So, the CEO and the COO were found to be guilty and yet you tar the entire company, the honest people, for something that was done nearly a decade ago, and with none of the guilty players still in the company?

Curious your thoughts; given the recent WTO ruling that EADS received subsidies and these subsidies were never factored into the RDT&E, procurement and O&M estimated costs submitted by EADS in their proposal to the Air Force, is that somehow fair? Boeing had to factor in those costs. . .why shouldn’t EADS?

I am waiting to read about the WTO and the sanctions EADS has to pony-up. . .like adding past subsidies to current prices (as is WTO history of assessing and collecting fines). In that case, it would be a monumental over-inflated price to pay for an EADS tanker, as the fine/penalties would have to be added to the tanker price, and those costs would be pushed to the American taxpayer. . .is that fair, for Americans to pay the European fines of a European company? Curious again, how fair is that, to punish the American taxpayer for EADS/European crimes?

>>Then they agreed to buy the planes from Northrop/EADS, but that was also overturned due to political pressure alledging a sloppy selection process.<<

GAO succumbing to political pressure? Interesting. . . .”alleged sloppy” selection process that was fully and factually documented in the GAO ruling. You have read the GAO ruling, right? Point by point factual refutation of the “alleged” sloppiness, please.

>>This isn’t the first round, we’ve been here twice before! And blaming the other guy for trying to get a competitive advantage when you yourself resorted to bribery the first time, well, that’s chuzpa.<<

The lease was nearly a decade ago and Boeing’s first proposal did nothing of the kind (bribery and such). Boeing KNEW they were under a microscope and took pains to keep it clean and upfront.

For the European and EADS to threaten to take their ball and go home if the entire USAF doesn’t bend to their will, to change the requirement POST RFP RELEASE is chutzpa to the extreme.

Let the RFP fly as it is, as Gates signed off on it, as the Air Force vetted it through OSD/ATL all the way to Gates.

Besides, as one of the talking heads on Good Morning Briton said on the day of the first announcement, “This will give Europeans power to influence Americans if they try and do something silly like Iraq again.” Then the conversation briefly said just stop deliveries and parts to make the “Americans behave.” (I was there, leaving my hotel on Piccadilly, when that statement was made. heard it myself.)

[Hulka]

McDonnell-Douglas is a wholly-owned subsidiary of Boeing. . .just to be clear.

[tgusa]

KC-135

[Wuli]

Was Northrup the outfit that sold missile/satellite technology to China, back in Clintoon’s day?

[AFreeBird]

yea, I know the designation..

[AFreeBird]

Besides, as one of the talking heads on Good Morning Briton said on the day of the first announcement, “This will give Europeans power to influence Americans if they try and do something silly like Iraq again.” Then the conversation briefly said just stop deliveries and parts to make the “Americans behave.” (I was there, leaving my hotel on Piccadilly, when that statement was made. heard it myself.)

Which is why strategic American military assets should come from an American supplier. And while I understand that said supplier can and do contract out to foreign suppliers for parts, they can if need be, pull those back "in-house" so to speak.

Which is kinda hard to do when your primary airframe is being designed AND built overseas by a foreign company, controlled by foreign governments.

[wolf78]

Notice, they aren't state-run.

Notice: Neither is EADS. It has been in the 70s, but today there's only the French state owning 13.7% of EADS. Daimler owns 22.4% of EADS, which is a bit more. And yeah, by the way, the state of Lower Saxony owns 20% of Volkswagen. Hasn't stopped either from building factories in the US. You see, I chose these examples intentionally.

They aren't state-subsidized over 30% like Airbus.

The real subsidy is of course much lower, because the 30% refers to special loans with artificially low interest rates and a risk-sharing portion. Which is bad enough (don't get me wrong: all subsidies everywhere should be illegal), but far from 30%, yet not that far from the subsidies Boeing receives from Japan and US state governments.

If you want to criticize EADS, get your facts straight. I've seen people argue that EADS' subsidies are worse than Boeing's subsidies (I've heard the counter-argument as well) because they reduce the risk upfront compared to tax breaks that help the bottom line later on. Which is a valid point. Your argument is not.

And they will then get away with it. Just like they are with their subsidies right now.

Ah, that old chestnut again. The problem is: The US never renegotiated the 1992 trade agreement with the EU, otherwise they could have easily banned subsidies for both sides. So now the US is taking Airbus to the WTO, while the EU is taking Boeing to the WTO.

EU takes US to the WTO over subsidies granted to Boeing

In the end both the pot and the kettle will be called black. Quelle suprise.

[wolf78]

Correct. Pre-RFP release, as did EADS. POSTS RFP, now, that is a different story as the whining of EADS proves.

While Boeing whined after EADS got the deal the last time - and succeeded. In the end one side will always call it whining while the other calls it "legitimate concerns".

So, the CEO and the COO were found to be guilty and yet you tar the entire company, the honest people, for something that was done nearly a decade ago, and with none of the guilty players still in the company?

I'm not tarring the whole company, I'm just pointing out the histrionics of some commentators. This isn't kindergarten, of course both sides will try to do everything to get the deal, so just the conspiracy angle is ridiculous. And as to "only the CEO and COO were guilty": A CEO and COO can also run a company into the ground and all the honest folks still lose their jobs, so you can't seperate company from leadership a 100% (in general, not only at Boeing).

Curious your thoughts; given the recent WTO ruling that EADS received subsidies and these subsidies were never factored into the RDT&E, procurement and O&M estimated costs submitted by EADS in their proposal to the Air Force, is that somehow fair? Boeing had to factor in those costs. . .why shouldn’t EADS?

Take a look at my link above. It's just the first ruling of two cases, one against Airbus/EADS and one against Boeing. You'd have to wait for the second ruling and factor that in as well.

Curious again, how fair is that, to punish the American taxpayer for EADS/European crimes?

Expect both Airbus and Boeing to be fined. Both sides could have gotten away with it, if they had stayed silent, but they needed to take it to the WTO. We'll have to see, but I expect buyers to be punished either way.

Let the RFP fly as it is, as Gates signed off on it, as the Air Force vetted it through OSD/ATL all the way to Gates.

Look: Boeing should be able to win this one easily. The production line for the smaller, less complex 767 is all payed for and written off. Factor in the expensive Euro for the European made EADS parts, Boeing should be able to deliver at 15-20% lower prices. The fact that they don't and rather maximize profits from the old 767 line speaks for itself.

McDonnell-Douglas is a wholly-owned subsidiary of Boeing. . .just to be clear.

I know. As you said, there isn't a third player in the mix, it EADS/Airbus or Boeing.

[wolf78]

Which is why strategic American military assets should come from an American supplier. And while I understand that said supplier can and do contract out to foreign suppliers for parts, they can if need be, pull those back "in-house" so to speak.

Which is still somewhat the case for the 767 (wouldn't be possible with the 787 which is one-third Japanese), correct. Northrop argues that EADS is just a subcontractor and a barebone aircraft is just a large piece of what eventually will become a tanker. But you do realize that the engines for Northrop/EADS - crucial for wartime readyness - are American made anyway?

Which is kinda hard to do when your primary airframe is being designed AND built overseas by a foreign company, controlled by foreign governments.

Airbus wants to move the "old" A330 production line to the US anyway and set up a freighter business there, while Europe gets the new A350. And if Microsoft has to show its source code to the German government if they want to get business, I'm sure Airbus will will show the USAF some of the blueprints.

[MHalblaub]

The IFARFA model was disproved by the GAO evaluation. Garbage in, garbage out.

Really? Can you show me on which page?

http://www.gao.gov/decisions/bidpro/311344.pdf

I found that:

IFARA Factor Evaluation
Boeing also challenges the Air Force’s evaluation of the firms’ proposals under the IFARA evaluation factor. Boeing complains that the Air Force unreasonably concluded that Northrop Grumman’s proposed aircraft was superior to Boeing’s under this factor based only upon the fleet effectiveness value and without considering evaluated major insights and observations, which Boeing asserts favored its proposal. See Boeing’s Comments at 146. Our review of the record discloses that the SSAC and SSA did consider the agency’s evaluated insights and observations in their evaluation of the firms’ proposals under this factor, and therefore find no basis to object to the agency’s evaluation.

[MHalblaub]

The bid was for a replacement for the KC-135, not the KC-10. If the replacement tanker was to replace the KC-10, then the EADS bid would make sense. But the bid was for a mid-size tanker and therefore their bid did not.

Air Force has to replace its KC-135 tanker fleet but that doesn't mean Air Force has to stop thinking about the future and therefor couldn't choose a bigger aircraft.

Basically, I would like to see a line-by-line analysis of the GAO report and any fact-based arguments refuting the GAO report.

GAO decision: http://www.gao.gov/decisions/bidpro/311344.pdf

Nowhere you could find a statement by GAO that the Boeing offer was compliant. The new RFP dropped the wing mounted refueling system because Boeing isn't able to deliver them. So how honest was Boeing's last offer with wing pods?

What NG/EADS is upset about you can read here:
http://leehamnews.wordpress.com/2009/12/07/usaf-used-criteria-gao-rejected-in-new-drfp-kc-30-backers/

1. The GAO rejected a Boeing complaint that the USAF valued the KC-30’s short-field performance yet the USAF now calls this a non-mandatory factor;
2. The GAO rejected a complaint that the USAF unfairly lengthened Boeing’s delivery schedule; the current DRFP removed this entirely;
3. The GAO rejected Boeing’s complaint that the USAF assigned Boeing an unacceptable high risk for its schedule but this risk assessment was removed from the new DRFP;
4. Boeing complained the USAF’s past-performance criteria was unreasonable, a complaint rejected by the GAO; but the Air Force “significantly diminished” past performance in the current DRFP;
5. Boeing complained the Air Force undervalued Boeing’s advantage in technical manuals, a complaint rejected by the GAO; Northrop says this is now a mandatory requirement and that Boeing’s design is specified.

Air Force calculats fuel costs according to this formular:

costs = (Offeror's Fuel Burn)x(40 years)(179 aircraft)x(KC-135 Average Yearly Flying Hours (489h))x(Adjusted Annual Fuel Price)x(Present Value Discount)

I can see two errors within this formular.

[wolf78]

GAO succumbing to political pressure? Interesting. . . .”alleged sloppy” selection process that was fully and factually documented in the GAO ruling. You have read the GAO ruling, right?

Have you? Out of 100 Boeing complaints the GAO rejected 92 and agreed with 8. Yet instead of fixing those 8 the new RFP among other things now mandates Boeing's style of writing manuals and values toilet water delivery capacity over fuel delivery capacity. The GAO ruling is one thing, but the new RFP is the result of intense lobbying and political shenanigans.

[MHalblaub]

“Yet instead of fixing those 8 the new RFP among other things now mandates Boeing's style of writing manuals and values toilet water delivery capacity over fuel delivery capacity.”

That isn't true. Water flow at lavatories is as important as fuel offload capabilities.

Senator Jeff Sessions gives an overview about how the new RFP is prefers a less capable aircraft.
http://www.freerepublic.com/focus/f-news/2408699/posts