Time to Back Boeing

The Boeing Company yesterday filed a protest with the Government Accountability Office against the Bush administration‘s decision to award the U.S. Air Force’s contract for a new medium range air tanker to Northrop Grumman and its European partner, the French and German-controlled European Aeronautic Defence and Space Company for their KC-45A rather than Boeing‘s KC-767. The $35 billion decision to buy 179 aircraft — expected to grow to a $100 billion commitment to buy 600 in all– came as a bombshell to Boeing and has rocked the U.S. aerospace industry.

The GAO protest has the legal effect of stopping action on the contract, unless the Air Force decides to override the stoppage on national security grounds. Boeing could then still go to the US Court of Federal Claims to obtain an injunction while the dispute is settled. Meanwhile, congressmen and senators on either side of the aisle are up in arms over the Air Force decision.

The controversy on Capitol Hill crosses party lines but follows an otherwise predictable pattern. Congressmen and senators from states where Boeing and its industry partners who would have been involved in the program are furious at the decision. States where Northrop Grumman and its partners have plants, or can be expected to build or expand them, are all for it.

But in fact the decision is one of the worst procurement decisions to have been made in recent history. It may rank with the Clinton administration’s decision to green light the Future Intelligence Architecture — the next generation of space reconnaissance satellites that had to be scrapped by the Bush administration after $4 billion had already been spent on them, or the Bush administration‘s own expensive Future Combat Systems program which requires currently twice as many lines of software — more than 65 million — than was already planned, and which is still beset by problems.

First, at a practical level, the EADS-Northrop Grumman plan is to actually build the new KC-45A air tankers in plants all across Europe, in different countries, and then finally fly or ship the parts to the United States for them to be integrated at a new plant to be built in Alabama. No high tech program of such complexity involving so much work in so many different countries has ever been attempted before. It beggars the imagination to assume that the program will flow on time as smoothly and effortless as the European businessmen convinced the Washington bureaucrats that it would. EADS even posted up a $446 million loss for the 2007 financial year.

EADS and Northrop Grumman have proposed converting the existing A330 Airbus — the great rival of Boeing airliners in the world market — into a tanker that could carry more fuel than the proposed Boeing aircraft. This is especially ironic since Boeing in recent years has been wiping the floor with hugely-subsidized Airbus and in practice state supplanted Airbus in world markets for civilian airliners.

Also, Boeing has more successful experience than any other aircraft company in the world in building air tankers and heavy bombers with extraordinary longevity and reliability. The Boeing B-52 Stratofortress, after all, is the longest-flying and serving jet bomber or jet combat aircraft in history with a uniformly successful operational record now lasting longer than half a century. The new air tankers are to replace exceptionally successful Boeing products, the KC-135s that have been flying since the Eisenhower administration. Boeing expertise has kept them reliable and safe even into the 21st century. By contrast, EADS has had no experience whatsoever in this field, which is why it now has to partner with Northrop Grumman.

On paper, the Northrop Grumman did look more attractive to the U.S. Air Force and to Pentagon analysts than Boeing’s. But paper proposals always do.

One of the biggest traps that has bedeviled U.S. military procurement decisions over the past decade — and it is where the Clinton administration went spectacularly wrong over the FIA satellites program — is to naively believe the rosy scenarios about speed, reliability and cheapness offered by contractors who are hungry to expand into building weapons and transport systems they have had no experience with.

Neither the companies making those promises nor the adjudicators judged with assessing them ever seem to bother thinking about Lord Kelvin‘s Second Law of Thermodynamics: all organization in the universe naturally tends towards a state of entropy, or chaos. More colloquially, generations of Americans have applied that universal principle as Murphy’s Law: anything that can go wrong will go wrong.

Relying on overseas sourcing for a key weapons system is something every great power through history has sensibly tried to avoid. In this case, it would also be bad business. With a weak dollar likely to go south far more quickly if a big-spending liberal Democrat gets lucky in November making a $35 billion commitment that is likely to grow to $100 billion for a full fleet of 600 air tankers for an overseas company that does its business in the euro-zone may not be the wisest course of action for any U.S. administration.

Reversing the decision against Boeing would be unprecedented for such an enormous defense procurement deal, but there has to be a first time for everything. Nor would it be a victory for protectionism in the United States. On the contrary, reassessing the contract would be a huge blow against the fortress of protectionism that is being currently erected in the European Community. EADS and Airbus are testaments to the power of state intervention and favoritism propping up huge corporations pushing through prestigious but non-competitive programs. Boeing has labored against them in the civilian airliner market for years.

Supporters of the deal claim that no strategic loss of technology would be involved as the technology to build air refueling tankers has been around for half a century. But they have neglected to note what the effects the gravitational power of $100 billion in added investment and revenues in aerospace will be on the U.S. and European aerospace industries. Boeing and its industry teammates will be forced to lay off scores of thousands of their most valuable engineers, designers and technicians. Once lost, that kind of experience and expertise is almost impossible to re-assemble again.

Even as it is, the U.S. aerospace industry has only one seventh of the employees it had a quarter century ago under President Ronald Reagan. By contrast, EADS will receive the resources to hire and train thousands more engineers and technicians. This one decision therefore would make a mockery of the Bush administration‘s long-promised efforts to maintain and expand the traditional U.S. lead in global aerospace and high tech industries.

Boeing says losing the contract would cost it and its partners the creation of 44,000 jobs in the United States. EADS-Northrop advocates counter that their program would create 19,000 jobs, primarily in Alabama, where the assembly plant for their new air tanker is to be located. But in fact the contract EADS signed does not obligate it to create those jobs in the United States, or any jobs at all for that matter.

The GAO has 100 days to issue a ruling on the dispute. Even if it finds strongly in favor of Boeing, its recommendations have no binding power. Any action to reverse the decision would have to be taken by Congress. Prominent conservative Republicans, especially Rep. Duncan Hunter of California, an expert on defense matters, have vowed to fight the decision. Conservatives around the country should wish them good luck.