This week the GAO decided to sustain Boeing’s protest of the Pentagon’s recent award of a $35 billion refueling tanker contract to a transatlantic consortium led by Northrop Grumman. This decision has caused much surprise and unease among European political observers and aerospace and defense industry insiders. In essence, the independent investigative arm of Congress tasked with evaluating the award process (to build 179 next-generation KC-X aerial refueling tankers) came to the conclusion “that the Air Force had made a number of significant errors that could have affected the outcome of what was a close competition between Boeing and Northrop Grumman.” As a result, the GAO recommended that the “Air Force reopen discussion with the offerers, obtain revised proposals, re-evaluate the revised proposals, and make a new source selection decision, consistent with the GAO’s decision.” While the 69-page classified decision is non-binding, the Pentagon is widely expected to follow the GAO’s recommendations. The fear now on the other side of the Atlantic is that the GAO report could pave the way for a Boeing-induced, politically-motivated effort on Capitol Hill to unravel a landmark procurement contract that is viewed as crucially important for fostering closer defense industrial cooperation between the United States and several of its key European NATO allies, including France and Germany. So far, after all, transatlantic aerospace and defense trade (the success of Airbus in commercial aviation notwithstanding) has essentially been a “one-way street” leading from the United States to Europe. In this context, the Pentagon’s recent award of the tanker contract to Northrop Grumman and EADS was judged by Europe as the most visible sign yet that the protectionist “Fortress America” mentality that was so prevalent in Washington for so long was finally coming to an end. EADS, for its part, has urged European governments to remain calm about the the GAO decision to prevent “pouring oil into the fire”; a piece of advice largely heeded by the political leaders in France, Germany, Spain, and the UK. The GAO report did not say that the Boeing tanker was better than the Airbus tanker. In fact, virtually all of the American and European aerospace folks that I talked to in Washington said exactly the opposite: that the Airbus tanker offers more “bang for the buck” to the U.S. armed forces and American taxpayers. Whatever the eventual outcome of the Pentagon’s re-opened procurement decision process, this week’s GAO report has further transformed the multi-billion dollar tanker deal into a high-stakes political battlefield which will probably be characterized by even more congressional lobbying and advertisement efforts waged by Boeing and Northrop Grumman. Matters are of course made more complicated by the fact that the tanker deal controversy comes in the middle of a U.S. presidential election and will probably be decided by a future McCain or Obama administration (both candidates have previously called for a reopening of the Pentagon bidding process). Finally, many European industry insiders believe that the real reason Boeing is fighting the Northrop Grumman/EADS tanker award so aggressively is that it could ultimately provide Airbus with its first-ever assembly and manufacturing presence in the United States–a strategically important move that would significantly boost the European aircraft manufacturers long-term international competitiveness by providing a natural hedge against the massive fluctuations in the Euro-Dollar exchange rate. At the moment, for example, the weak dollar provides Boeing with significant cost advantages in its export markets while the strong Euro, in turn, eats into Airbus’s dollar-denominated international sales.
