Industry insiders say that Boeing clinched the hard-fought battle for the Air Force’s next-generation tanker last week by offering a rock-bottom price while rival EADS failed to bid as aggressively. Boeing had an intrinsic pricing advantage because it offered a smaller plane that cost much less to produce and operate. However, many observers — myself included — assumed EADS would tap European government subsidies to underbid Boeing the same way it often does in commercial-transport competitions. It probably did, but not to the extent required to compensate for the fact that each of its planes would burn over a ton more fuel per flight hour during a 40-year service life. It appears the European company became overly confident once it realized its tanker had bested Boeing in comparisons of warfighting effectiveness, and thus failed to offer a sufficiently low price. Or perhaps its European sponsors could not cover the high cost of beating the Boeing tanker after giving EADS extensive subsidies to deal with other challenges. I have written an extended analysis of how Boeing prevailed for Forbes that can be found here.
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