The World Trade Organization has handed Boeing’s friends on Capitol Hill a powerful tool to block award of the Air Force’s next tanker to any offeror using an Airbus airframe. The Northrop Grumman team competing against Boeing for the award has been expected to offer a modified Airbus A330 in the pending re-competition. However, the WTO report raises doubts about whether the A330 airliner would have been developed without launch subsidies that the trade organization now deems illegal. Although the Air Force tried to anticipate the possibility of such a ruling in its process for conducting the re-competition, it doesn’t take a genius to figure out what will happen if Boeing loses: a formal protest (probably sustained) followed by obstructionist legislation, leading to another long delay.
It’s important to understand that this controversy is about more than which commercial-transport producer dominates the global market. When U.S. tax subsidies to exporters were ruled illegal several years ago, they were repealed at considerable cost to companies like Caterpillar, GE and Boeing. Europe cannot hope to escape penalties now that it is the target of a similar ruling. Airbus will have to clean up its act and suffer some sort of sanction. And as long as the specter of illegal subsidies hangs over its planes, it will be politically impossible to have a fair winner-take-all competition for the future tanker.
What that means in practical terms is that there isn’t going to be a new tanker unless the award is split between both teams. That prospect actually has major operational and budgetary advantages over time, but unfortunately they aren’t likely to materialize while Robert Gates is defense secretary. He wants to save money in the near term by awarding all the planes to one team, and then buying them at a relatively slow pace (around 15 planes per year, to replace 450 Eisenhower-era tankers). Unfortunately, that requires the Air Force to pay $20 billion in avoidable expenses to keep aging tankers flying until they are replaced. The service also ends up getting a less flexible fleet for addressing diverse contingencies. But the WTO ruling has made the Gates approach politically unworkable, so it’s time to take another look at Congressman Murtha’s proposal for competitive dual sourcing of next-generation tankers.
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