Playing with fire

The renewed effort by Boeing and its supporters to focus on the WTO ruling against Airbus on illegal subsidies in the KC-X competition (see preceding post) is playing with fire.

The hyperbole by Washington State’s Members of Congress is particularly shrill.

The Reuters article linked in the preceding post reports some key issues that need to be remembered: there remains a pending ruling on the EU complaint that Boeing received illegal subsidies; both sides can appeal; and if the US unilaterally imposes penalties, which a Congressional law mandating consideration of the ruling would amount to, this violated WTO rules.

The effort by Washington State’s delegation and Sen. Sam Brownback of Kansas, where Boeing’s KC-767s would be modified, to introduce and pass a law requiring consideration of the WTO action probably would not get passed. EADS backers Sens. Richard Shelby and Jeff Sessions (R-EADS/AL) probably would filibuster and we don’t think there would be a coalition large enough to invoke cloture (break the filibuster).

Even if cloture failed, we’re not entirely sure President Obama wouldn’t veto the bill. Obama places a lot of stock in Defense Secretary Robert Gates, and we learned that Defense asked EADS to bid in order to provide competition. Gates may well oppose this Congressional meddling. And he is no apparent friend of Boeing. Gates said he would urge Obama to veto the entire Defense appropriation bill if Congress adds back in funding for the Boeing C-17, a program Gates is trying once again to end with the current orders.

This brings us to another point in addition to the pending WTO ruling on Boeing subsidies. Boeing and its supporters risk angering Gates and the Air Force. It would be very easy for DOD to cut current and future Boeing programs or award contracts to Boeing competitors in payback for this bungled meddling in the tanker procurement. Boeing got hit hard in the FY2010 budget and DOD is working on the FY2011 budget now (the fiscal year begins October 1). And even if Boeing survived the FY2011 budget, there is FY2012 and FY2013. Gates, who originally intended to stay on for one year, shows no sign of retiring.

The Boeing effort on subsidies, backed by its Congressional supporters, could very well backfire on other procurement programs.

And then there is the subsidy issue. Although Boeing CEO Jim McNerney downplays the potential adverse ruling to Boeing (see the previous post), Airbus is convinced that the WTO ruling will be against Boeing and will involve larger amounts than Airbus was tagged off base with.

If Airbus is correct, it will be embarrasing to Boeing and its supporters, who have said Boeing is virtuous on this issue, or that any violation will “pale” to the Airbus launch aid. But this is hardly the point: illegal is illegal, and for those who want to disqualify Airbus or compute the penalties, remember the old saying: Be careful what you ask for.

4 Comments on “Playing with fire

  1. “Boeing and its supporters risk angering Gates and the Air Force.”

    That point was passed in March 2007 when Boeing filed their protest. At this point, given DOD’s “pull out all the stops” machinations to allow EADS into the fray, none of this is unexpected.

    War without end…remember. No tanker for a long, long time.

  2. Correction: Before I get “anetted” to death over the error in the year, Boeing filed their protest in March 2008.

  3. This contest has been all about political brinksmanship since NG first made the threat to withdrawl in 2007 if the rules included in the draft RfP weren’t changed. NG played the game of chicken very well in the previous round and Boeing’s supporters are playing a game of chicken right now with the Pentagon. In fact if NG hadn’t played the hardball game with the Pentagon in the first round it is very difficult to see how they could have one with the original draft RfP.

    It should be noted that while the rules of the game are pretty much set, how those rules are interpreted and put into play aren’t. I don’t think Boeing’s supporters care whether or not the WTO ruling is included, they do care a great deal about how the Pentagon runs any potential risk analysis or attributes any additional costs to each program. It should be remembered that in the last round the Pentagon added $5.1 billion to Boeing’s cost and only $774 to NG/EADS costs thus allowing NG/EADS to squeak ahead in the Life Cycle Cost analysis which was worth 20 percent of the score for the previous contest.

    In much the same way that McCain was reminding the Air Force of the political risk of not having a competition and probably not getting a tanker if the rules of the previous contest weren’t changed Boeing’s supporters are playing the exact same game here of reminding the DoD of the political risk of tilting the analysis towards the KC-30. Before someone argues that well maybe they should, that’s not the point I’m making. The point I am making is that politics have the guiding principle in this contest and Boeing supporters are attempting to politically guide the process in the same way that NG guided the process in the last round.

    Given the fact that EADS has not been able to find a US partner, and Lockheed’s recent anouncement that they would switch sides in the Presidential Helicopter contest and abandon their European partner I would say that the pressure is having an effect just as McCain’s pressure in the last round definitely had an effect on the contest.

  4. Pingback: Hoisted on own petard? « Leeham News and Comment

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