Senior executives at Boeing have grown pessimistic about their prospects for prevailing in the latest Air Force tanker competition. Their counterparts at competitors EADS — the parent company of Airbus — are correspondingly confident. This is surprising, because the Boeing entry in the competition has much lower life-cycle costs than the bigger EADS entry, while still carrying much more fuel than the plane it would replace. Many observers thought that when Northrop Grumman dropped out of the tanker competition and EADS had to go it along, the European company would be hobbled in competing against Boeing. So what went wrong for Boeing?
The biggest thing that went wrong was that the Air Force chose to ignore a ruling by the world’s preeminent trade body that Airbus has engaged in a 40-year pattern of predatory business practices to expand its share of the commercial transport market. The reason this matters is that the two rivals are both offering modified airliners in their tanker proposals, and the Airbus entry was built using $5.7 billion in illegal subsidies. By failing to take that finding into account, the Air Force has enabled Airbus to price its plane more aggressively than any purely commercial company could, leveling what otherwise would have been a huge disparity in the acquisition cost of the two planes.
A second and related factor is that the Air Force has calculated the post-production life-cycle cost of the Airbus plane using assumptions that tend to minimize the higher cost of operating a bigger plane. Because the EADS entry has 40 more feet of wingspan than the Boeing plane and corresponding greater weight, it burns over a ton more fuel per flight hour. Its dimensions are so much bigger than those of the Eisenhower-era tankers being replaced that the Air Force will need to modify hangars and other ground infrastructure to accommodate the EADS plane. But Boeing’s team is convinced the Air Force has failed to capture the full life-cycle burden of fuel and construction for the bigger plane, and thus made the Airbus transport look more affordable than it really is.
A third factor is the calculation of warfighting effectiveness ratings — the metrics which the Air Force inadvertently released to the wrong teams last month. As in the first round of competition, the complex warfighting model used to calculate effectiveness in stressing wartime scenarios continues to favor the larger Airbus plane due to its greater fuel-carrying capacity. But what many outside observers have failed to note is that the success of the EADS entry in that comparison is tied directly to the fact that its planes were allowed to access bases denied to the Boeing planes. The Airbus tanker literally cannot complete the specified missions without access to those bases, and yet Boeing was not allowed access in the modeling of comparative wartime performance.
A fourth factor weighing against Boeing in the comparisons is a pattern of allowances made for the EADS entry that amounted to bending the rules to keep its proposal viable. First, the Air Force delayed the deadline for the EADS proposal. Second, it allowed EADS to respond late to engineering inquiries from evaluators. Third, it deleted a performance requirement concerning secure communications from the solicitation because EADS could not meet it. Fourth, it waived duties on the importation of certain key parts required in the EADS plane. Finally, it sought to minimize EADS wrongdoing in viewing competition-sensitive information that Boeing did not view. Cumulatively, these various instances can be construed as a pattern of bias favoring the European team.
Boeing has not concluded from all this that the tanker competition is irretrievably lost, but I have. When the customer allows a team to bid below cost by leveraging illegal subsidies, understates operational cost differences, permits only one team to access key bases in warfighting models, and repeatedly bends rules in favor a particular side, the outcome is obvious. The question is what Boeing intends to do about it.
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