Air Force Tanker Bid – Jobs And More

Posted on Thu 03/18/2010 by


By William R. Hawkins

Last Thursday, President Barack Obama unveiled his plans to double U.S. exports over the next five years to spur job creation. With the official unemployment rate hovering near 10 percent (and the real rate much higher) and with some 8 million people having lost their jobs in the wake of the Wall Street debacle, looking at ways to boost production makes sense. “We can’t return to an economy where too much of our prosperity is based on fleeting bubbles and rampant speculation. We have to rebuild our economy on a new, stronger, more balanced foundation for the future – a foundation that will advance the American people’s prosperity at home, and support American leadership in the world,” said the President. In other words, an economy based more on steel than paper.

The problem is that focusing on only the export half of the trade balance will not be enough. In 2008, as the world slid into recession, the U.S. ran an $816.2 trade deficit in goods. Last year, even with the global slowdown, the U.S. still ran a $502.3 billion trade deficit in goods. If “recovery” means returning to higher deficits, then job creation will be very slow. The trade deficit measures the amount of economic stimulus that is being sent overseas rather than being used at home to support growth.

Markets are needed to support economic activity, but those markets can be either at home or abroad. Indeed, exports are best considered as a way to expand beyond the domestic market which for a large economy like the United States will always be the most accessible and vital foundation for national strength. In 2008, however, Americans had lost $2.1 trillion of their home market to imports from foreign producers. Which would be easier, recapturing half of this lost domestic market to balance accounts, or breaking into foreign markets of equivalent size?

In his speech at the Export-Import Bank, President Obama noted how Americans have “seen the plant across town shut down, jobs dry up, communities deteriorate” due to foreign competition. He said doubling exports would create two million jobs because “every $1 billion increase in exports supports more than 6,000 additional jobs. But the same is true when production is increased to replace imports. Millions of jobs had been lost in American manufacturing due to the trade deficit long before the recession hit. Those jobs need to be recovered to rebuild American economic stability, industrial capacity and national strength.

Consider the current controversy over buying a new aerial refueling tanker for the Air Force. These are the planes that give U.S. airpower its global reach. Boeing has built ever tanker the USAF has ever flown. In the name of “competition” the bidding was allowed to go international. The European Aeronautic Defence and Space Company (EADS) won the $35 billion contract for 179 KC-45A tankers based on the Airbus A330 airliner. EADS had recruited Northrop Grumman as its American face for the contest. At a Senate Armed Services Committee hearing on March 12, 2008, then Air Force Secretary Michael Wynne conceded that national economic factors had not been taken into account when assessing the EADS bid.

Boeing protested the EADS award and won. The Government Accountability Office (GAO) ruled that the Air Force unfairly evaluated the merits and overall cost of the Boeing bid, and urged the Air Force to reopen the bidding. The U.S. also won an unrelated case at the World Trade Organization against Airbus which, among other things, had improperly been given $5 billion in government subsidies to develop the A330 commercial airliner in competition with Boeing airliners.

The GAO decision was in June, 2008. Now, almost two years later, Northrop has announced that it will not rebid on the contract because it feels the revised USAF request favored Boeing’s smaller 767-based tanker over the larger, more expensive Airbus A330-based design. Aviation Week magazine quoted EADS North America Chief Executive Sean O’Keefe saying the company’s systems integration, program management and government compliance abilities were not mature enough to go it alone on the tanker contract.

The result of the mismanaged attempt to foster “free trade” in defense programs has been to delay the tanker project for several years. The new tanker will replace the KC-135 which was designed in the 1950s. The Pentagon should have simply worked with Boeing from the start to design the plane, get it into production, and preserve the U.S. industrial base in the process.

More is at stake than just the tankers. EADS was going to build an assembly plant in Mobile, Alabama. The plant was supposed to make the KC-45A look more American, but it was also going to be used to assembly civilian airliners, boosting Airbus’s ability to take more business away from Boeing. Though some jobs would have been created in Alabama, more jobs would have been lost in the Boeing production and supply chain in other parts of the country. Mobile had been chosen because it is a deep-water port, and EADS was planning to ship in most of the parts and sub-assemblies from European factories. The A330 has components built in Britain, Germany, France and Spain, the result of work sharing negotiations between governments.

Airbus has been experiencing both financial and technical problems in recent years and the tanker win would have helped to bail it out. But it makes no sense from an American perspective to rescue a major foreign rival. The U.S. aerospace industry ran a trade surplus in 2008 of $70 billion, one of the few bright spots in America’s international accounts. The industry is also key to national security. Nothing could be more foolish than for government policy to undermine this strategic manufacturing sector or add to the trade deficit. There is a reason that President Obama named Boeing’s President and CEO W. James McNerney to head his Export Council.

The European Commission is, of course, unhappy. On March 16th, Commissioner Karel De Gucht said, “It is highly regrettable that a major potential supplier would feel unable to bid for a contract of this type. Open procurement markets guarantee better competition and better value for money for the taxpayer.” His concern for American taxpayers is no more sincere than his concern for the American workers his firm would like to put out on the street. He merely wants Americans to send their tax money overseas to his constituents.

There have also been cries of “protectionism” from France and England. But the tankers are part of the U.S. defense establishment whose mission is to protect America, which includes its economy. During war, factories producing military equipment are targets for attack – but they are also targets during peace as well.

The weekly publication Defense News, which supports international competition as well as cooperation in the industry, said in a March 15th editorial, “Europe’s protests on this front ring hollow.”

Some years ago, the A400M transport plane “beat” Boeing’s C-17 to become Europe’s future airlifter, even though the American jet was proven and the European turboprop did not yet exist. Was that a fair competition or protectionism?

The point is, Europe wanted to develop a new transport plane to keep its industry busy.

And it was their governments’ prerogative to do so.

It is also the prerogative of Washington to maintain the U.S. defense industry at the highest level of capability and capacity as possible. It is not just about jobs. It is about protecting core elements of national strength. President Obama said “We need to secure our companies a level playing field.” But that is not enough. We need to guarantee American producers a home field advantage. Contributing Editor William R. Hawkins is a consultant specializing in international economic and national security issues. He is a former economics professor and Republican Congressional staff member.

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