U.S. flap on the aerial tanker could be self-defeating.
An outcry of protest erupted, particularly in some Congressional quarters. Political stakes became clear this fall when Secretary of Defense Gates suspended the competition for the Air Force tanker contract--in effect handing the decision over to the next administration. The process is being watched closely in Europe, and its outcome may have repercussions on the long-term outlook for transatlantic industrial defense cooperation within NATO. What should Europeans--and interested American taxpayers, too--be looking for in trying to decide what lies at the heart of the controversy and what it may portend about future trends in military aerospace?
Any review of the question has to start with the fact that the U.S. Air Force chose the Northrop Grumman-EADS tanker built on an Airbus A330 airframe because it wanted it. There will be negative repercussions, as outlined below, that choice were somehow reversed or overridden by what seemed to be purely nationalistic-framed U.S. political considerations. It is not irrelevant either that the "A330 tanker"--officially known as the KC45--has won four successive recent international competitions over its Boeing rival, which is a tanker on the airframe of the 767 airliner. Boeing has also sold its KC767s to Italy and Japan, though these contracts were nothing approaching the scale of the $4 billion order by the U.S. Air Force. The Italian Air Force has made no secret of its unhappiness with the current state of their 767 tanker program and has communicated this unhappiness to the U.S. Air Force. Overall, the recent record of national choices in four different countries--Australia, Britain, Saudi Arabia and United Arab Emirates--seems to confirm a market preference for this aircraft at this juncture.
In fact, the U.S. military has chosen foreign airframes as platforms in several recent competitive contracts, with U.S. prime contractors providing the systems-integration part of the package. For the Deepwater maritime-patrol aircraft, Lockheed Martin, the systems integrator, chose the Spanish manufacturer, CASA aircraft, over its own competing C-130J, based on the need to get the best-value airframe for the electronic and other onboard systems. The new Presidential helicopter is fitted with systems integrated by Lockheed Martin on the airframe of Agusta-Westland, an Italian company, and the new Army air-lifter will be built by a transatlantic team involving U.S. companies (L3 and Raytheon) for systems and a platform, the C-27J airframe, from Italy's Alenia. So what is different this time? For one thing, the tanker choice is a significantly larger order. And, of course, this time the controversial European partner is the owner of Airbus, the major non-American company in the field and Boeing's main global competitor.
Getting to the specifics of the case, the Air Force's choice turned on the fact that the KC45, with its A330 platform, fit with the Pentagon's evolving concept of 21st century air operations better than the Boeing tanker. The U.S. Air Force forcefully would have made this point if it had had time to go public with its approach before its top officials were dismissed this summer by Defense Secretary Robert Gates. Prior to his firing (for unrelated reasons), Air Force Secretary Michael Wynne had planned to use the Farnborough event as an opportunity to lay out the Air Force's vision of putting together the F-22 Raptor (which drew much admiration among professionals at the show), the forthcoming F-35 Joint Strike Fighter and the tanker as part of an integrated concept of how air operations should evolve in future.
Both the F-22 and F-35 are so-called "fifth generation" warplanes built around the integration of stealth with sensors. They will bring a double-punch of the special strengths likely to be needed in future combat because these warplanes and their electronics-and-sensor packages function as significant contributors to "network" air operations (fusing information and directions) while providing major strike capabilities. These fifth generation aircraft, if refueled aloft, can fly several missions, so it is a significant advantage that the A330 pumps gas more rapidly than its rival and also has the capability of refueling several airborne "assets" (manned and robotic). The on-board processing power of these two aircraft means that they will function as the centerpiece of air operations by providing reconnaissance and guidance and managing unmanned assets also. Indeed, the new air operations encompass synergy with ground forces as well as the U.S. has been evolving new forms of ground-air operations in the military operations in the Middle East.
History--in this case, the cycle of the commercial marketplace--means that at this juncture the A330 is simply a newer and better aircraft than the 767. That advantage will revert to Boeing in a few years when its Dreamliner comes on line. Right now, however, the A330 will have been coming off the assembly line for enough years for it to become available as a tanker with a significant cost advantage over the 767--thus a saving for the USAF. Put another way, the A330 will give the Air Force a larger aircraft that is capable of pumping fuel faster and for a longer period than the 767--for a comparable price. In addition, the new KC45 tankers (this was a USAF requirement for both competitors), with their A330 size, can themselves be refueled in flight. This offers fuel efficiencies because KC45's can take off with less than a full tank and then "top up" from the tankers they are replacing on station. So they can stay airborne for long periods of time, especially since the KC45 has space to provide sleeping quarters for the pilots. Put simply, the USAF gets a larger aircraft in the KC45, with the related performance advantages, at a comparable price to the competitor. This amounts to a net gain for the USAF.
Larger geopolitical dimensions of defense thinking come into play, too. In recent years, the U.S. has been pushing the most significant coalition-aircraft program in history in the form of the Joint Strike Fighter (F-35), which will be used by all the U.S. air services together with those of several allied nations. Its prime contractor is Lockheed Martin, but this U.S. company is responsible for building less than 40 percent of the aircraft. In every F-35, around 20 percent of the aircraft will have been built abroad, so no F-35 can fly without foreign content. It is now well accepted in the U.S. security establishment that the time has come when it is safe to partner in this manner with companies in allied countries. Indeed, NATO increasingly has been treated by policymakers as part of the defense industrial base in the U.S., much like Europeans have done.
Some Congressional critics of the USAF decision have made the claim that an industrial partnership with Europe to build the tanker will be a dangerous development because it implies "off-shoring" a significant U.S. defense-industrial capability. How can that comport with the trend already at work in the F-35? Asked about the tanker controversy when he appeared at the Farnborough Air Show, the program director for the F-35, General Davis, noted that modern aircraft are being globally sourced. U.S. allies know this. So arguments to the effect that the U.S. needs only nationally-sourced aircraft offers a crippling contradiction and disavowal to the F-35 program that Washington is promoting to U.S. allies. As Davis put it at the Air Show, "I grew up in the segregated South which is analogous to the way we used to build aircraft. The South is now fully integrated and much like the global sourcing for aircraft we blend various parts and systems into an integrated product. To argue that we need a national solution to aircraft production would be like going back to segregation. It just does not make sense." This was a message frequently directed to U.S. military officials at the show: that reversing the tanker decision on nationalistic grounds could have a devastating and chilling effect on the F-35 program.
Ironically, for industry insiders, Boeing itself is pursuing international-sourcing as the strategy for its next commercial aircraft. It has developed a very innovative model along these lines for its next-generation commercial aircraft: the Dreamliner promises to be the most heavily foreign-sourced commercial aircraft ever built in the United States. Some reports put the U.S. content as low as 50 percent or even less. Even the 767 tanker itself will have significant foreign content. So the arguments of some Congressional critics of the USAF tanker decision fly in the face of the logic of Boeing's own global strategy.
Aerospace projects are already significantly transatlantic in nature. Major manufacturers such as Boeing, Airbus, Brazil's Embraer and Canada's Bombardier rely on transatlantic suppliers and sub-contractors for systems to be integrated into new aircraft on the territory of the mother company. But this final assembly facility is not the center of the aerospace universe; it has simply become a focal point in a global supply chain. In that sense, the emergence of a "Northrop-led A330 tanker" is simply a function of aerospace globalization.
Geography plays a very different role in another part of the debate--the different U.S. regional focus of the two competing consortia. This is a consideration that Congress members know a great deal about: that they benefit from having industrial heavyweights bring jobs and taxes into electoral districts. Across the country from Boeing's home state of Washington in the Pacific Northwest, a major new aerospace corridor has emerged in the southeastern U.S., running from Virginia through Texas. Both the F-35 and the new tanker would be finally assembled in the South. Airbus is already deeply committed to this new center; the A350 is set to get major components manufactured there and many other Airbus and Boeing suppliers are now operating in the region. The A330 tanker is set to be finished and assembled in Mobile, Alabama: a contract that will confirm the emergence of this region as a serious and competitive new pole in aerospace and defense. This trend, significantly driven by Airbus, can only cause concern to people with stakes in the traditional aerospace stronghold in Washington state.
Traditional party politics color the situation, too. The aerospace-related jobs being created in the South are not union jobs. That situation is appealing to companies starting business in a region devoid of strong trade-union organization. It is viewed quite differently by the Democratic Party, which sees this development as an inroad on the part of its electoral base connected to organized labor. What we are seeing is a parallel in the aerospace industry to what has happened in the automobile industry. Again, this seems to fit larger trends in the United States, which are not always as straight-forward as some protectionists often claim. For purposes of illustration, take the likely outcome that would have followed a success by trade union organizers to prevent the South from becoming a major production center of automobiles. If that drive had succeeded--which it did not--it might have protected union jobs in Detroit's established motor industry. But the larger result would have been that today's Americans would be importing many more cars from abroad as their only alternative to the troubled U.S. industry, and, by extension, ceding more industrial jobs abroad. Again, the prospect of seeing the A330 tanker built in Alabama is part of the global industrial shift in aerospace. No military procurement official in Europe would miss the signal if that logic is twisted by industrial protectionism in Congress.
Though Boeing supporters in Congress have done their best to obscure the point, Northrop Grumman has actually won out against Boeing on several recent major Air Force defense contracts. This is simply the latest and biggest. This reality suggests a disconnect in some Congressional rhetoric suggesting that Boeing has--and deserves--a U.S. monopoly on large aircraft. That may be true (whether it is desirable is another question), but in reality the Boeing claim really only applies to finishing commercial airliners, not to defense production, as shown by the fact that the U.S. Air Force chose the Northrop product which uses a foreign airframe.
Some Democrats have tried to score political points by criticizing Senator John McCain, the conservative presidential candidate, as a "secret Airbus supporter." For this, they cite his objections in 2002 to a controversial (and ultimately cancelled) Pentagon plan to lease a fleet of refueling tankers from Boeing. That contract did not stand up to scrutiny once a group of influential Senators, including McCain and also John Warner, the former Chairman of the Senate Armed Services Committee, discovered that it lacked any element of competition designed to determine the cost-benefits and other elements of best lifetime value for the USAF. McCain and Warner, among others, pushed for competition to determine the proper choice for the U.S. Air Force.
If international competition is a sin in defense contracting, then McCain is almost surely guilty. The verdict is still out for Obama. The bottom line, however, is that if this view prevails in the next administration, it will be at the expense of allies and of hopes for strongly expanding the transatlantic defense-industrial base on which future force modernization depends.
Global highlights and local sidelights culled from the media (June - August 2008)
BRUSSELS: Golden Arches Triumph in Europe
McDonald's, the fast-food chain reviled in Europe as the symbol of American crass, has conquered an enthusiastic crowd of consumer fans... in Europe.
The company reports that the European market is its most lucrative region in terms of revenue: last year's sales were approximately one billion dollars higher in Europe than in the United States.
"Europe is now McDonald's largest region by revenues, despite having roughly one-quarter the number of outlets as the U.S. Last year, revenues from company stores and royalties from franchisees topped $8.9 billion in Europe, compared with $7.9 billion in the U.S," a company statement said.
Can the surge in European enthusiasm be explained entirely by the strength of the euro compared to a comparatively weak dollar? The disparity helps, of course, but there is more to it than that, according to the man credited with engineering the turnaround in McDonald's fortunes and image, Denis Hennequin, president of the company's operations in Europe.
He attributes the chain's new popularity with European consumers to a massive remodeling that overhauled the look and feel of one out of three McDonald's in Europe. The idea was to capture cultural differences between Europeans and Americans and then fit the fast food into "golden arches" that have had a makeover to European styles. For example, many Americans "eat on the go" (70 percent of McDonald's U.S. sales come from its drive-throughs) whereas Europeans tend to look for more of a "restaurant experience." And of course price matters: many European countries levy lower value-added taxes on establishments categorizes as "fast food" rather than full-service restaurants.
Nowadays McDonald's, founded in the U.S. in 1940, generates over half of its income from outside of the United States. In Russia, which boasts the company's highest sales and profits worldwide on a per-restaurant basis, McDonald's plans to have 230 outlets in operation by the end of 2008.
Meanwhile, Starbucks, another giant international American chain, can take inspiration from the success it has had in Europe and apply it to the U.S., where it will be forced to close some 600 stores due to declining revenue.
--Business Week, July 22, 2008
Robbin F. Laird is president of ICSA, LLC, a firm specializing in defense, industrial analysis and strategic assessments.
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|Author:||Laird, Robbin F.|
|Date:||Sep 22, 2008|
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