Illegal Subsidy Backs Airbus

Recently, the Geneva, Switzerland based World Trade Organization (WTO) issued a preliminary ruling that according to media reports held that European governments have provided billions of dollars in illegal subsidies to Airbus in an attempt to steal market share and U.S. jobs away from America-based Boeing.

The European Union and Airbus have a long track record of violating international trade law through illegal subsidies and something they call “launch aid.” This has been part of Airbus’s business model since its inception in the 1970s.

The stated objective of the European’s lawlessness has been to insure that Airbus wins the battle against Boeing. But here’s the dirty little secret. Airbus has cut into Boeing’s commercial airline business and stolen high paying American aerospace jobs – not by building superior planes, or providing more value to consumers, but by violating international trade law. In other words, by cheating. Now Airbus is trying to do the same thing with defense and national security procurement.

In addition to the illegal subsidies, Airbus systematically engages in a wide variety of unethical business practices. Reports of Airbus fraud, bribery and kickbacks are commonplace. While Boeing is constrained by the requirements of the Foreign Corrupt Practices Act that binds all U.S. companies and prohibits bribes and kickbacks, the Pentagon procurement team exempts Airbus from these same requirements.

Why would we require U.S. companies to be honest and transparent, but not require the same from European companies competing with them for our business?

But it gets worse. It is one thing for the European Union and Airbus to be cheaters, but it is entirely another for the U.S. Government to look the other way and try to reward Airbus for its illegal subsidies, corrupt practices, and blatant cheating. Nonetheless, that is exactly what the Air Force has done in the Tanker competition.

The Air Force has been trying to replace its aged aerial refueling tanker fleet (the average age of the aircraft is almost fifty years) for more than a decade.  In the last attempt at a competition — between Boeing and Airbus — when the Air Force evaluated the tanker bids, it became clear it wanted to give the contract to Airbus even though the Airbus tanker failed to meet the stated requirements and was more costly to purchase and maintain.

The Government Accountability Office (GAO) reviewed the Air Force’s evaluation and found that the Air Force did not follow its own basic requirements. Here are just three of the many oddities the GAO found.

First, the Air Force miscalculated the life-cycle costs and mistakenly concluded that the Airbus plane was cheaper. But during the GAO review, the Air Force admitted the error and that the Boeing tanker cost less to buy and to maintain. Second, the Air Force claimed that both planes met the stated military requirements. But the Air Force played with the computer models to create a bogus outcome. The GAO found that the Airbus tanker was simply unable to refuel all of the aircraft required by the military. Imagine that! Buying a refueling tanker that cant’t refuel all of the aircraft that need refueling!

Third, the Air Force claimed that Airbus would be the more reliable or less risky contractor. This was completely nonsensical. Boeing has built thousands of military refueling tankers. To date, Airbus has not delivered even one military tanker that is operationally certified.

The Boeing tanker is more capable; more survivable for the crew in the event of attack; and cheaper to buy, operate and maintain. But inexplicably, the Air Force ignored these facts and tried to award the contract to Airbus promising that another 40,000 high tech jobs would be moving to Toulouse, France.

The GAO’s rebuke of the Air Force’s procurement process was historic and revealing. Now the process has been restarted and it appears that the Air Force is up to the same old tricks. For example, if the Airbus tanker is selected, military airfields around the world will have to be upgraded and enlarged at a cost of billions to taxpayers to deal with a tanker that is too large to work at many current bases. This cost must be accurately factored into the bidding process. But the Air Force’s current evaluation of this cost factor dramatically understates the true costs. And now that the WTO has ruled that Airbus has received billions in illegal subsidies, the Air Force must factor in these illegal subsidies when calculating costs. But to date, the both the Defense Department and the Air Force have adamantly declined to do so.

Why is Pentagon trying to stack the deck against Boeing?

On a practical basis, we should not be purchasing anything so basic to our national security from Airbus — a company controlled by the governments of France, Germany, and Spain and partially owned by the government of Russia, among others. Boeing is an American company, with American workers and American loyalties.

On top of that, Boeing has most capable, safest, most reliable, and least expensive tanker on the planet. But given all the chicanery that has transpired, there is little reason to be confident that the current Air Force procurement plan will produce a fair tanker competition. Frankly, it appears that the Air Force will be daring the GAO to catch them again in bogus analysis, slanted evaluations, and complicity with Airbus’s “cheaters” business model that relies on illegal subsidies to undercut U.S. companies.

When I was a youngster, my parents drilled into my head that “cheaters never prosper.” Airbus has been testing that proposition for decades. Now the question is whether the Pentagon will do something about it. This is just one more reason to avoid the Airbus tanker.


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