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03 January 2010

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I agree with your assessment of the revised tanker RFP. The equal weighting of 373 "mandatory" selection criteria is illogical, and the demand for fixed-price commitments many years into the future is ridiculously risky for the offerors -- so much so that it will probably backfire by driving up prices charged to the customer. If I were Wes Bush or Jim McNerney, I would never sign up to such an open-ended commitment.

I also agree that dual sourcing may be the only politically feasible way of breaking the tanker logjam. But it isn't just politically expedient -- it would deliver more modern tankers faster to the joint force, and allow avoidance of many billions of dollars in maintenance costs on the current, decrepit fleet of Eisenhower tankers.

Having said that, though, I hasten to add that your assessment of the subsidies issue is wrong. If nations enter into legally binding agreements prohibiting specific sorts of behavior and then proceed to engage in that behavior, then their actions are by definition illegal. You can use the treaty terminology of "prohibited" if you wish, but that is just splitting hairs.

Furthermore, it is not true that the government is precluded from responding with sanctions, because once the World Trade Organization finding of unacceptable behavior is final -- now only weeks away -- the response is no longer "preemptive." Saying that Washington must wait until Europe has exhausted all its appeals would be like saying a convicted felon cannot be jailed until his case has been heard by the Supreme Court.

But there is a more fundamental point here about subsidies. For 40 years, European governments have conspired to destroy America's lead in the commercial transport market. They have largely succeeded due to the use of low-cost or no-cost launch aid that Europe does not even allege Boeing has received. To describe the subsidies controversy as no more that an argument between two self-serving companies twists reality at a time when the political support in America for free trade is eroding fast. The simple truth is that tens of thousands of Americans have lost their jobs and hundreds of billions of dollars in export earnings have been lost because Europe engaged in unfair, illegal trade practices.

Just about every major piece of hardware our warfighters have is supplied by... wait for it... One, Uno, Eins, supplier. What's the problem?

Boeing is the home team, we can rely on them giving us a proven, battle-ready tanker and supplying that tanker well into the future - world politics will play no role.

Boeing will never withhold parts nor will they ever surrender, leaving the USAF standing around with its pants down with the enemy on the horizon.

The same cannot be said for the Franco-tanker. Each and every current and retired KC-135 & KC-10 crew I have spoken with have come back with the same exact response to the question Boeing or Airbus. Do I even need to say what their answer has been?

I do appreciate Loren's comments, and I am always impressed when someone is checking my blog at 0-dark-26.

In my next installment on this issue, I will want to treat the volume of the purchasing somewhat separately from the issue of whether the procurement is split. If the total order quantity remains below the point of scale diseconomies for Airbus or Boeing, as their factories and supply chains are currently capitalized and organized, then one could double that replacement rate by just ordering more tankers from one vendor. Of course, at such a high rate, there may be further political or even industrial-strategic benefits to splitting the award.

As for the issue of semantics, I prefer the actual language from the WTO accord. It's possible that the signatories chose not to use the word "illegal" to emphasize that their perceived violations of the accord were to be adjudicated before the WTO before recourse to any domestic court system. I don't have that understanding just yet, but there *was* some reason that this term in common use--"illegal"--was not used in the treaty. I will look into that.

I do doubt that the EU will manage to get the preliminary finding overturned, and if the finding is indeed but a few weeks away, then this particular issue will soon be moot. I also would not try to claim (even if I wanted to do so) that Airbus's launch aid was economically efficient or politically reasonable. It's just that, as I'll discuss later, taking the past aid as a given, the pursuit of fairness (however that might be defined) may not be in the best interests of the US government in this matter.

I also might respond to Matthias Torchia's comments:

Not every major piece of military hardware in the US comes from a single supplier. Split awards have been rather common in shipbuilding, where the Navy has engaged pairs of yards to compete to build the same ships. Most notably and recently, this has been used in the Arleigh Burke-class destroyer program, where it appears to have contributed to a declining cost curve, adjusted for inflation, over time. That doesn't mean that it's necessarily a good idea in the case of the KC-X program; it's just that it's more common than Matthias claims.

Matthias also seems to be suggesting that an Airbus factory in Alabama can't be trusted to deliver aircraft to the USAF, and that Airbus's supply chain can't be trusted to deliver spare parts to the USAF, if a future French or German national government finds some grievance with Washington over which it wants to have an industrial spat. This is highly unlikely, for three reasons:

-- First, it has rarely happened in the past, and when it has, the effects have been manageable. The only recent notable case was the Swatch timing circuit matter of 2003, and that was resolved very quickly.
-- Second, and perhaps more significantly, Boeing and Airbus each source parts and assemblies from all over the world, so interrupting supplies to a US military customer could induce a nasty and debilitating retaliation. Would Vought find its shipments of A330 and A340 assemblies embargoed? It's just unthinkable.
-- Third, that's a one-time trick: after playing that ill-advised card, Washington would not buy anything sourced from the offending country for decades. Paris and Berlin are not that stupid, and by far.

Finally, I will note that I have not spoken with any USAF KC-10 or KC-135 crews about the competition. I have talked to a number of pilots of Boeing aircraft, over the years, who have expressed a preference for flying Boeing aircraft. I'm not a pilot, but word is, they're more fun to fly than Airbuses, because they tend to be less automated. It's that silk-scarf culture at work. Part of Airbus's marketing genius, however, was to recognize that this was commercially meaningless, because by and large, pilots don't buy airplanes. As a passenger, I find that the A330 is a particularly comfortable airplane, so I tend to prefer to fly in it when I cross the Atlantic. Airline managers might take note of that, but they definitely don't put a high premium on pilots' airframe preferences. Similarly, I'm not sure why the pilots' opinions about a political matter would matter to this competition; that's not an area of synergistic professional expertise. Thus, I'm not sure how surveying USAF tanker crews--or RAF, or RAAF, or Luftwaffe ones for that matter--would inform this question.

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