Boeing Waves Flag, Cries Foul

The Motley Fool ^ | March 7, 2008 | Jim Mueller

[Paleo Conservative]

The Air Force chose a replacement for its aging tanker fleet last week, but the uproar it provoked by choosing a partly foreign bidding team strikes me as deeply ironic.

Tanker jets refuel other planes in midair, allowing them to remain airborne longer. Two major defense contractors, Boeing (NYSE: BA) and the combined forces of Northrop Grumman (NYSE: NOC) and EADS North America, a subsidiary of EADS Group -- which also controls Boeing's archrival Airbus -- bid on the deal. Northrop and EADS won, raising the ire of Boeing union workers and some members of Congress, who would prefer that the military choose an all-American contractor.

Following the rules Here's the irony. First, Boeing and the Air Force were caught several years ago in a scandal involving an inflated lease of tankers from the company to the Air Force. When that came to light, Congress and the public pressured the Air Force to hold a fair and open competition for replacing the tankers. As a result, the Air Force couldn't use factors such as job creation or the location of manufacturing in determining who gets the contract.

Second, the Buy America Act, cited by many of the deal's opponents, actually allows the deal. Companies such as EADS, located in certain countries such as France, qualify under a "public interest" exception. Sue Payton, the Air Force official who made the award, explained Wednesday in a hearing to Congress that many of the legislators currently crying foul voted to approve that exception.

Next time, try harder Third, Boeing has a long history of providing tankers to the military. It "should" have gotten this deal. But according to Payton, Northrop Grumman "brought their A-game." Rep. John Murtha (D-Penn.), the chairman of the appropriations subcommittee investigating the deal, said that Boeing "did not sharpen their pencils." Apparently not. According to defense industry analyst Lauren Thompson, "There were five selection criteria. [Boeing] did not manage to beat the other team in even one of them."

Only U.S. goods are good enough? And fourth, the deal's prompted much wailing and gnashing of teeth from those who claim that foreigners are not good enough to build military hardware used to protect the United States. Only American companies have that right.

Sorry, guys -- that's just not true. EADS, for instance, supplies the UH-72A Lakota helicopter, used by the Army for homeland security operations. In the past, the military has purchased bombs from France, helicopter equipment from Italy, and aircraft engines from Britain.

The un-American solution The Air Force picked the best deal -- and then got shot down for following the rules set by the very people now attacking it. Boeing apparently couldn't be bothered to put forth its best effort during the bidding, but it's now likely to benefit from a political firestorm that's based on false assumptions.

The resulting uproar may prompt a change to the exceptions part of the Buy America Act. It could probably overturn the result of this particular deal. And it might lead to Boeing getting its way, not through a competitive bid process, but by either directly or indirectly twisting the arm of the U.S. government and its military.

That, my friends, is the least patriotic solution of all.

We want our troops to use the best equipment. If that means buying foreign goods, so be it. Using inferior equipment would be much worse for both for our troops and the people they're protecting.

Of course, we also want a strong economy. That means Boeing and other companies like General Motors (NYSE: GM) and Ford (NYSE: F) should knuckle down and use American ingenuity and hard work to beat foreign competition on a level playing field.

Better luck next time, Boeing. Maybe you and other American companies will take this lesson to heart and bring your A-game in the future. That's the American thing to do, after all.

[Banjoguy]

I haven’t read much about the technology transfer to not necessarily friendly foreign governments.

[Oztrich Boy]

I haven’t read much about the technology transfer to not necessarily friendly foreign governments.

It seens that EADS and the UK are prepared to overlook American transgressions, so the tech transfer of the European equipment won't be a problem

[NY Attitude]

lack of parts = operational availability goes in the $hitter.

[Paleo Conservative]

lack of parts = operational availability goes in the $hitter.

Lots of the maintenance parts are built in the US. The engines are GE CF6-80E1 built in the US. Also, Northrup/Grumman is in charge of all the parts that make it a tanker rather than just an ordinary A330F.

[Hillarys Gate Cult]

I think Boeing was told too late about the larger aircraft change. My guess is the only downside to the 777 would be delivery as Boeing is doing all it can to keep up with the airlines orders for 777s.

[DesScorp]

"...How about the B-70 cancellation after GE talked their way into a publicity shot that resulted in a midair and loss of the prototype"

The Valkyrie was canceled prior to that accident. The photo shoot had nothing to do with it. Robert McNamera decided that high altitude bombing was no longer viable, and that the primacy of the manned bomber must give way to the ICBM.

...Or the TFX program.

Another McNamera idea, one that actually backs up my point. The idea was a one-size-fits-all airplane that neither side wanted, but was forced on the services in the name of "business efficiency".

I have no problem with making defense contractors more accountable. But a superpower does not outsource weapons systems. If necessary, you get a license to build weapons (and ALL of their parts) that you need. If Northrop Grumman were building 100 percent of this airplane in the United States, fine, that's fair. But most of the parts are being fabricated in Europe. The spares are being produced there. Only the engines will be truly American made. If we get into a really bad spat with the EU, what's to stop Airbus from withholding spares? Hmm? Don't say it can't happen.

[Erik Latranyi]

About 2000. Boeing was looking to add 9000 to their rosters.

Actually, the Northrop/EADS deal will create more American jobs than the Boeing offer....over the long run as the A330 Freighter line is moved to Alabama permanently.

The 2000 is only the inital numbers needed to get the Alabama line going for assembly and classified electronics installation.

[NY Attitude]

I am sure that Northrop Grumman can supply all of the parts it has personally subcontracted for from vendors located in the US. I am also very sure the A330 has many parts that are required for aircraft operation and flight are manufactured. I am not sure what the RFP requirements were but if a operational availability and a PNS of 90% wasn’t specified, than there may be some problems.

[Oztrich Boy]

I think Boeing was told too late about the larger aircraft change

Actually it wasn't. Both firms were told in 2005/06 that tanker and cargo/pax capacity was wanted.

Then at the beginning of 2007 Boeing got the criteria changed so that cargo/pax would be viewed as a bonus which would not have any bearing on the decision,

Boeing had held off deciding between 767/777 in the hope they could get the crtieria changed so they could use the contract to pay for the development of the 767-200LRF.

Naturally Northop-Grumman/EADS who had gone with the original (and were actually building the first aircraft for the contract) were mildly miffed.

As the article said Northop-Grumman brought their A game, Boeing was relying on its politicians.

[nickcarraway]

EADS does get unlimited subsidies from the governments of Europe.

[blue state conservative]

Boeing just posted a statement on their website after the debriefing with the Air Force that leaves little doubt they plan to file a protest, which will delay the contract award for several months, probably after the fall elections.

The money quote was along the lines of “press reports that the Airbus plane won by a wide margin could not be more inaccurate.” They implied they left the 3 hour meeting with more questions than answers and would decide on a protest over the weekend.

[phantomworker]

Good post. It bears repeating. Thanks.

[Paleo Conservative]

How are people at Boeing taking this?

[norton]

"I haven’t read much about the technology transfer to not necessarily friendly foreign governments."

Sadly, everyone is guilty.

We (US) wants to believe that industry and government are two entities & that contracts matter - not even close when dealing with socialist states - China is the worst & both Boeing and MacDac have gone along.

EADS is the euro example - government owns or absolutely controls industry and Northrup is their puppy dog.

In the US it's extortion rather than ownership.

PS: "technology transfer" applies to "commercial" and (in fact) "dual use" - I don't think they have drawings for the F22 yet, frequencies maybe, drawings not so - they're less urgently valuable.

(It's all good, we got toys, toothpaste, and obsolete semi-automatic rifles in return.)

[norton]

IIRC:
Managerial capability (inc subcontractors, engineering, etc.)...Do they have a plan, can they follow it, and can it work.
Responsiveness to RFP;
Technical (did they meet the specs - exceeding them is NOT a bonus - it is over pricing the desired product),
Contractual (schedule, pricing, schedule, etc.) and, Responsibility (corporate fiscal ability to perform), and
Price / Value.

Value and price (best price is NOT necessarily lowest bid) can be interpreted in a number of ways and can be manipulated in even more - feds could claim that every US government contract awarded to Boeing, Rockwell, North American, or Douglas was a hidden cost to the taxpayer.

PS: Criteria can change and be given different weights so long as they were made known to the bidders. Makes it a little harder to back into a decision, but hardly impossible.

[djf]

Being near Seattle, I’m hearing quite a bit about this.

Boeing apparently went to the negotiations MULTIPLE TIMES and asked about the size issue. They were assured MULTIPLE TIMES that the smaller plane was sufficient.

Now, they’re being told that a big part of the decision was based on the capacity issue.

Boeing could EASILY meet all the required specs and NOT be selling them planes that would require a huge change to the infrastructure and facilities. Not to mention that I am sure Boeing could handle the spare parts problem FAR BETTER than a foreign competitor.

[DesScorp]

“Actually, the Northrop/EADS deal will create more American jobs than the Boeing offer....over the long run as the A330 Freighter line is moved to Alabama permanently.”

That’s bull. Not even Northrop Grumman claims that.

[SW6906]

The exec at Boeing was ex-McDonald-Douglas guy Mike Sears.

Sears, Stonecipher, the Lockheed document scandal and every other "Boeing" scandal: Boeing got all of it when McD bought Boeing with Boeing's money.

[Paleo Conservative]

Well they wanted to buy McDonnel-Douglas due to their military contracts.

[lilylangtree]

Dunno. I read the article Human Events.com authored by Robert McGinnis posted 3/3/08 which explains that under Boeing a “sizable portion” would be produced in China, Japan and Italy. Under Northrop Grumman, the company is teamed with EADS. The Netherland-based EADS—a group that includes Russia—was formed in 2000 by a merger with German, French and Spanish firms. So the question remains—who’s the bigger threat to our defense system, China or Russia?