France Set to Announce Purchase of EADS Tankers Without A Competition

Last week Aviation Week military editor Amy Butler, in a for subscribers only Aerospace Daily & Defense Report (Vol. 226,Issue 24), broke a bit of news of which no one seems to have grasped the significance. Specifically Ms. Butler reported that:

Plans for French President Nicolas Sarkozy to make a big announcement next month at the Farnborough Air Show related to his country's own refueling tanker program have apparently fizzled out after recent events in the United States, according to industry sources.

Sarkozy was set to announce that Paris was planning to buy A330-based tankers assembled at the yet-to-be built EADS North America manufacturing facility in Mobile, Ala. The country has a need for new refuelers, though a procurement strategy hasn't been released.

If this report is accurate, it means that France planned to buy EADS tankers without a competition. And, they hoped that because the tankers would be assembled in the US, everyone here would overlook the fact that this once again proves the hypocrisy of French defense firms.

These firms demand that they be allowed equal treatment for US defense contracts. Yet, behind the scenes, they seek to deny American companies the same rights in their country. Ed Morrisy on the Hot Air blog had a good post on this issue in March.

This is not the first time the France did not allow Boeing to compete in a defense contract. When the France asked for proposals for an air transport contract in 2004 they stipulated that the aircraft proposed must be of European conception. This effectively barred Boeing from participating.

It should be noted that the German's procured A310 tankers from EADS, also without a competition. Granted, the A310s retrofitted for this role were already in service with the German Air Force. But, given that the A310s were originally procured without a credible competition, and that the tanker retrofit contract opened the door for EADS to get into the tanker business, the German's procurement actions should be viewed with some suspicion.

It never ceases to amaze us here at Tanker War Blog how the KC-30 team was able to brand themselves as the defenders of the free-market; while at the same time, labeling all Boeing supporters rank protectionists. Though, we sense that this is about to change.

A case in point is an op-ed that ran in Sunday's Washington Post titled "5 Myths About the Death Of the American Factory". Myth 2 was especially interesting:

U.S. manufacturers can save themselves by investing in innovation.

Okay, but how much are you going to invest? U.S. private-sector companies can't put as much money into technology and research and development as foreign governments do to build up their sectors. As the chief executive of a technology firm with whom I've worked for many years says, "We're the best company in the world, but we can't compete with foreign governments." Consider Airbus. The European Union has put more than $15 billion into building this aircraft company from the ground up. Whatever you may think about the recent U.S. Air Force decision to buy tankers from Airbus rather than Boeing, one thing is clear: Through its subsidies, the E.U. has managed to build a highly competitive aircraft industry. South Korea has put more than $12 billion into its semiconductor industry to similar effect, severely harming the U.S. semiconductor manufacturing base.

At Tanker War Blog we continue to contend that the US government has a duty to balance the promotion of free trade with enforcement of free trade. Competition works great, if the all participants play by the rules of the free market, and if all countries agree to hold free and fair competitions.

If US defense companies are not allowed to compete at Away games in certain EU counties, then our government should ban those countries' competitors from Home games here in the US. Such action is not protectionism; it is enforcement of free market rules.

EPI Releases Tanker Jobs Study

A just released Economic Policy Institute (EPI) analysis of the Air Force tanker contract finds a significant difference in U.S. job creation between proposals by Boeing and the KC-30 team.

We at Tanker War Blog have only been able to glance over the report as of yet, but in a press release the Institute states:

Boeing would likely create at least twice as many US jobs as NG/Airbus under the 35 billion contract, according to EPI economist Robert Scott.

Also, at the end of the press release the Institute mentions EADS's prior inflated job statistics in regards to the Army light duty helo contract; an issue we had specifically questioned in the past:

Total employment impact estimates put forward by both bidders were higher than the figures arrived at by EPI, although the difference was far greater in the case of NG/Airbus. Scott said the claims by NG/Airbus were at least 45% higher, and as much as 179% higher, than what could be realistically expected. A previous contract for light duty helicopters awarded to Airbus parent company EADS failed to create even half of the U.S. jobs claimed.

It should be noted that EPI's methodology for categorizing and determining of what they call re-spending jobs is very different than the Commerce Department. In the report EPI determines the following:

Direct jobs:	Boeing 6,838	KC-30 Team 3,419
Indirect jobs:	Boeing 7,098	KC-30 Team 3,549
Re-spending jobs:	Boeing 14,770	KC-30 Team 7,385
Total Employment:	Boeing 28,707	KC-30 Team 14,353

In order to determine the truthfulness of the competitors previously claimed statistics, and compare the job numbers of Boeing and the KC-30 team, you need to understand that both their claims use Commerce Department nomenclature and methodology.

As we mentioned, EPI seems to use its own jobs model. What EPI labels separately as direct jobs and indirect jobs, the Commerce Department labels both as direct jobs. Second, what EPI calls re-spending jobs the Commerce Department calls indirect jobs. Lastly, while the EPI jobs model uses an implied average "re-spending" multiplier of 1.06, the Department of Commerce uses a multiplier of 2.3 for its indirect jobs calculations.

In other words EPI multiplies the sum of its direct and indirect job estimates by 1.06 to calculate the number of re-spending job that are created; while the Commerce Department model simply multiplies the number of direct jobs by 2.3 to calculate the number of indirect jobs created.

It is sort of confusing, but in the end if you use EPIs job creation analysis but the Commerce Department nomenclature and 2.3 multiplier you can adequately compare the past job claims:

Direct jobs:
Boeing claim: 13,497	Boeing EPI/Commerce hybrid estimate: 13,936
KC-30 claim: 14,147	KC-30 EPI/Commerce hybrid estimate: 6,968

Indirect jobs:
Boeing claim: 30,600	Boeing EPI/Commerce hybrid estimate: 32,053
KC-30 claim: 34,190	KC-30 EPI/Commerce hybrid estimate: 16,026

Total jobs:
Boeing claim: 44,097	Boeing EPI/Commerce hybrid estimate: 45,989
KC-30 claim: 48,000	KC-30 EPI/Commerce hybrid estimate: 22,994

So the bottom line is that Boeing seems to have fairly estimated is jobs numbers. But, the KC-30 team has grossly exaggerated its contribution to the economy and will produce not only half the jobs as Boeing but less than half of the jobs they claim.

It is also very interesting that the EPI/Commerce Department hybrid estimate we came up with is about the same number of jobs the KC-30 team originally stated prior to the KC-X contract selection. Or as a Seattle Post-Intelligencer article stated:

The Northrop team originally projected that the new tanker contract would create about 25,000 U.S. jobs. Amid the uproar following the Air Force announcement, the team increased its jobs creation claim to 48,000 jobs.

Remember, Senators Maria Cantwell (WA), Debbie Stabenow (MI), Patty Murray (WA), and Ron Wyden (OR) last month sent a letter to Secretary of Commerce Carlos Gutierrez and Secretary of Labor Elaine Chao asking them to verify the claims made by KC-30 team concerning the creation of U.S. jobs.

Given the fact that the KC-30 team claims more US jobs than Boeing while also admitting the KC-30 has less US content, we can't imagine why it is taking Mr. Gutierrez or Ms. Chao so long to determine what EPI has already figured out.

Note: Jobs claims for Boeing were taken from the EPI report. And, jobs claims for the KC-30 Team are were taken from Leeham Companies, LLC's state by state listing, which is identical to the job claim numbers the KC-30 team has distributed to offices on the Hill.

More EADS $$$ = Less US Jobs

Given that in 2007 EADS was supposedly hard at work engineering "America's New Tanker" and was ramping up production of Army's light utility helicopter (a contract they won in June 2006 worth up to $3 billion for 352 helicopters), one would expect the numbers for US workers at EADS to be skyrocketing.

You would be right to expect this, but you would also be very wrong. It turns out that the exact opposite has happened. In EADS's newly released 2007 Annual Report (Book Three) on page 73, EADS list its US employees for the past three years as follows:

Dec 31, 2005.......1877 US employees

Dec 31, 2006.......1932 US employees

Dec 31, 2007.......1777 US employees

While we at Tanker War Blog expect these numbers to go up in 2008 (how can they possibly go down?), we find it more than a bit curious that after their previous billion dollar DoD contract EADS ended up cutting its US workforce.

So until their Dec 31, 2008 statistics are released, we would warn the American public to be very sceptical of EADS's proclaimed commitment to "in-source" U.S. jobs.

Timber! Falling Faith In US Trade Policy

A central theme of this blog has always been that the tanker issue is not really about Boeing vs. Northrop Grumman or Boeing vs. the USAF, but in fact Boeing and US aerospace workers vs. Airbus and the illegal subsidies it receives.

At Tanker War Blog we contend that the US government has a duty to balance the promotion of free trade with enforcement of free trade. Blindly clinging to the idea that competition and market forces will result in fair trade is folly. Competition doesn't work when the playing field is tilted toward one side or one of the competitors is given an unfair advantage.

Some of us at TWB had hoped that the Executive Branch would realize its mistake in buying an illegally subsidized product like the EADS/Airbus A330 and stop the tanker contract. But others here, who have long since lost faith in US trade policy, have pointed out that even when the administration seemingly stands up for fair trade it may in fact be just lining insider's pockets.

A case in point is the 2006 timber trade settlement with Canada. The Seattle Post-Intelligencer in a recent article by Robert McClure asks the question:

Is it an illegal $1 billion slush fund for Bush administration friends in the timber industry, extorted from Canada and designed to evade congressional oversight?

Or is it a fairly negotiated end to an expensive trade war that's "the best thing that has happened to private forest land conservation in the United States in 100 years?"

Given that at least one of the groups to receive money from the settlement, the U.S. Endowment for Forestry & Communities ($200 million), was hastily set up during the settlement and established just before the deal was finalized, it is probably right to ask these questions. The article also notes that the deal was monitored by Harriet Myers, then still the President's chief lawyer, so suspicions should be heightened all the more.

At Tanker War Blog we believe our government should stand for fair trade and look after the interests of US workers and consumers in trade disputes and not just industry and party insiders. We firmly believe this is also what the American people want.

We further believe that if there was proper enforcement of free trade EADS would never have been allowed participate in the tanker contract.

It is also becoming clearer to us that only Congress has the will and the ability to properly solve disputes such as the tanker controversy.