Within days, the Obama Pentagon is expected to decide which supplier to rely upon for what is, arguably, the cornerstone of America’s ability to project power for the next 40 years: the next-generation aerial-refueling tanker known as the KC-X. The choice for this role - which is worth conservatively $40 billion - would seem to be a no-brainer. The obvious winning candidate to produce and maintain 179 tankers for decades to come would be a reliable, experienced and responsible U.S. manufacturer: Boeing.
It seems, however, that Team Obama is poised to entrust responsibility for this vital defense capability to a company that has none of those attributes - the European aerospace conglomerate EADS. The pretext apparently will be that the foreign competitor is offering a lower bid than its American counterpart.
This claim is preposterous on its face. The Lexington Institute’s Loren B. Thompson, one of Washington’s most respected defense-program and budget analysts, noted recently that each of the two bidders has to satisfy 372 mandatory performance requirements. “Thus, the key discriminator in who wins becomes price.” Meeting or substantially undercutting Boeing’s bid is problematic because the Airbus tanker based on the A330 is 28 percent larger, with 40 feet more wingspan than Boeing’s derivative of the 767. “It appears that is exactly what the European company plans to do, raising the obvious question of how such a bid is possible.”
How, indeed? The answer is not so hard to fathom if you look at the nature of EADS. As the Center for Security Policy documented in a white paper issued in September 2010, the company has relied on devious, unethical and unfair practices to buy into or otherwise win contracts. It has then relied upon massive subventions and/or cost overruns to stay afloat. For example, last June, the World Trade Organization estimated that EADS garnered about $20 billion in illegal subsidies from its European governmental owners.
Then there are EAD’s endemic problems with bribery and corruption. Eleven years ago, with the company’s Airbus sales in mind, former Director of Central Intelligence R. James Woolsey told Europeans in an op-ed in the Wall Street Journal: “Your companies’ products are often more costly, less technologically advanced or both, than your American competitors’. As a result you bribe a lot.”
In addition, EADS has been under investigation in France for the past five years in connection with alleged insider trading tied, presumably, to the company’s abysmal financial track record. In early February, the Paris judges said they were focusing the investigation on Daimler. In particular, EADS‘ massive cost overruns have gotten so bad lately that the German government has scheduled an emergency summit on Wednesday to discuss bailing out Daimler by nationalizing Daimler’s 7.5 percent stake in EADS. According to the Financial Times, EADS‘ losses cost Daimler 231 million euros in the last year alone. Is that really the kind of company we want the Pentagon to be keeping?Here is what U.S. taxpayers can expect in EADS‘ performance. The company’s A400M military transport plane program is surviving only because of a $4.6 billion bailout forced from European taxpayers in November 2010. The A400M program originally was to cost $27 billion; a recent study found that final costs could rise to $44 billion. The program is three to four years behind schedule.
It is not easy getting a company with such a dismal past cleared to win what may prove to be the largest Pentagon contract ever. In January 2010, then-Rep. Todd Tiahrt of Kansas wrote in Human Events: “Given the well-known corruption practices by EADS, it would make common sense that it not be awarded Pentagon contracts. In fact, Congress has passed the Foreign Corrupt Practices Act that bars companies who engage in bribery overseas from competing for United States government programs.
“The U.S. Department of Justice has appallingly interpreted the laws to cover only U.S.-based companies - therefore exempting EADS. But it gets worse. The federal government has gone even further and exempted EADS from the Buy American Act, the Berry Amendment, the International Trafficking and Arms Regulations and the Cost Accounting Standards. Complying with these expensive regulations is mandatory for any American company looking to do business with the Pentagon, but waived for a foreign competitor such as EADS.”
There also have been issues of technology theft and commercial espionage associated with EADS. With the Kremlin owning a 5 percent stake in the company, the security implications of such behavior cannot be minimized.
Taken together, the arguments against turning the future of a key determinant of America’s power-projection capability over to EADS are compelling. If the Obama administration persists in its efforts toward that end, it likely will find Congress less willing to ignore the strategic and economic repercussions of such a step. That is especially true insofar as doing so would give the lie to the universal mantra of politicians on both sides of the aisle promoting American competitiveness and the need to expand the number of skilled jobs here at home.
Alternatively, the Government Accountability Office may find irregularities in the KC-X award (notably, the Pentagon’s inexplicable sharing with EADS last November of proprietary, competition-sensitive data supplied by Boeing) that once again justify overturning an ill-managed award.
Either way, the real loser will be the service members who needed a reliable and capable new tanker years ago - and certainly deserve no less now.