Third in a Series
Dec. 20, 2021, © Leeham News: When EADS, then the name of the parent of Airbus, decided to go it alone and bid for the US Air Force contract for the KC-X aerial refueling tanker, officials knew it was an uphill battle.
Despite winning the contract in Round Two, with Northrop Grumman as the lead, the parameters of the competition changed. No longer would the A330-200-based tanker get credit for its greater capabilities that won it the contract in Round Two. Now, the ancient Boeing KC-135 was the baseline to meet. Any bidders—Boeing and EADS—would receive only a pass-fail rating for meeting the baseline.
If the bid price was within 1% of each other, then EADS would receive credit for the extra capacity afforded the A330 tanker over Boeing’s KC-767 offer.
The pass-fail approach caused Northrop to take one look at decide to withdraw from the competition. EADS officials made the decision to proceed anyway, knowing now that winning was unlikely.
“My bet was on the day we made the decision to compete for that the odds were probably one in five,” recalls Sean O’Keefe, then the president of EADS North America. O’Keefe had been administrator of NASA and he knew the Pentagon processes well. Defense Secretary Bob Gates was a friend.
“By the time we were done with it, the actual proposal, I confidently shifted my own thinking to say, ‘It’s probably more like one in three.’ We’ve really reduced the risk that much and made it that much more competitive a proposal going forward,” O’Keefe said. “Is this a certainty? No. Is it worth taking a trip on this? Why not?”
Extraneous factors concerning the production rate ramp-up of the A320 were described in Part 2 of this series.
“That was one of the other things we valued. We thought, ‘Okay, what’s the risk here?’” O’Keefe told LNA. “At the end of the day, the risk is three to one. It’s not going to be terrific in terms of winning it, but boy, all the work you’d have to do to do for either the 320 line or Mobile or this for KC-45 was similar. It wasn’t the same by any means, but it was very, very similar.
“We’re marching down towards doing this anyway. How we actually spread the capital expenses and all and that kind of stuff is something we’ve got time as this plays out to figure out how to do that and what exactly that would take.”
The competition between Boeing and Northrop Grumman in Round Two and with EADS in Round Three was bitter, so bitter that Defense Secretary Gates criticized everybody in his memoir, Duty. But O’Keefe said it was nothing unexpected.
“There are a lot of things that could have been, might have been done differently. I frankly didn’t find that competition to be anywhere near as onerous or unexpected as what would have been expected, with all due respect to your profession. The competition between Airbus and Boeing on commercial airplanes has never been something for the light of heart, either. This was hardly unexpected, and it wasn’t something that surprised me,” O’Keefe said.
Already some of the past tactics have been unveiled. A Kansas state senator wrote an Op-Ed playing the Buy American card on Boeing’s behalf, calling the A330 a European airplane despite its large US content and Lockheed’s pledge to assemble the aircraft in the USA. The tired, old illegal subsidy card also has been rolled out.
“It was not an unexpected campaign tactic the last time,” O’Keefe said. “I think you’d have to ask Boeing what their intent is in terms of how they intend to run it this time. I think that the players in this exercise, Lockheed Martin and Airbus, are now fully prepared to deal with that. They’ve got to be quite cognizant of the fact that that’s exactly the way it may yet be run again. That wasn’t a surprise.
“This was tough stuff. It was bare-knuckle. But that’s exactly the same way to running commercial campaigns. That’s exactly the same technique that Boeing used on many of the US air carriers as to why it was they stayed with Boeing. Frankly, American, United, Delta, at that time, USAir, all made different decisions, which earned them lots of criticism by Boeing, but that was not an unknown characteristic and tactic that really played into the game,” O’Keefe said.
Part 4 picks up on Jan. 3, 2022, following the Christmas-New Year’s holidays. Boeing is now the incumbent supplier to the USAF. But its contract performance has been dismal. Airbus’ A330 MRTT has won nearly all sales outside the US. Will this make a difference to the USAF?
My book, Air Wars, The Global Combat Between Airbus and Boeing, recounts the bitter battle between Airbus and Boeing to win the contract for the Air Force’s KC-X aerial refueling tanker. It also goes into the ramifications of the original tanker scandal at Boeing and subsequent impacts on other aspects at Boeing Commercial Airplanes. Some excerpts:
The idea of Airbus supplying the USAF with such a high-profile airplane, especially in lieu of Boeing, amounted to blasphemy among some U.S. elected officials, Boeing employees, and even some persons in the Armed Services. Airbus came from nowhere in 1974 to capture 50 percent of the mainline commercial airplane market by 2005. McDonnell Douglas not only had exited the commercial airplane market but was now part of Boeing. Many blamed Airbus’s success on government subsidies, complaining that Boeing didn’t get any and was disadvantaged as a result.
There is no doubt that Airbus had government support. The French, German and Spanish governments invested heavily in Airbus, subsidizing early programs. But many European aircraft programs since World War II had significant government support. Still, they were commercial disasters. The Concorde is probably the prime example.
In 2004, the U.S. renounced the 1994 trade agreement governing subsidies to commercial airplane development, and the U.S. Trade Representative, at Boeing’s behest, filed a complaint with the WTO, charging that Airbus received illegal subsidies.
There are those in many circles who believe Boeing initiated the complaint to divert attention from its tanker scandal. Airbus and its parent, EADS as it was then known, were and are firmly convinced this was the case. Only Boeing principals know whether this was the motive, but it doesn’t matter: The subsidies truly were considered unfair competition by Boeing, and officials were determined to put an end to them.
Boeing’s parallel strategy was clearly to tarnish Airbus in the coming tanker competition. Without turning this into a detailed examination of the subsidy issue, Boeing certainly succeeded in Congress in ripping Airbus to shreds. Over at the USAF, however, there were other dynamics involved.