Friday, March 12, 2010

These are the Days of Our Lives

Now that spring break is upon us, I can take a bit more time to elaborate on the KC-X situation. As it is apparent by now, Northrop Grumman has elected not to submit a bid in response to the new tanker RFP. NGC will not file a protest either. CEO Wes Bush, while citing fiduciary responsibility to shareholders, has not been shy about NGC’s reasons: the new RFP is unfairly weighted towards Boeing.

Boeing Executive VP of Commercial Airplanes responded with "It's the longest-running soap opera since 'Days of Our Lives'. I'm not sure that we've seen the last episode." Days has been running since 1965…clearly someone has a flair for the dramatic. At least the media coverage on the matter is finally spicing up.

EADS has also released a statement to the effect that EADS North America will not make a go at the new RFP without NGC. EADS will be pursuing other contracts with the Pentagon and Homeland Security which are much smaller (1 billion-ish each). However, despite the plans to pursue more contracts stateside, none can compare to the growth the tanker contract would have provided for the consortium. The implication here is that the various platforms of EADS, heavily subsidizes by European governments, together would have experienced such organic growth from the KC-X contract that it would have significantly reduced its dependence on those contentious subsidies (or eliminated them altogether).

EADS North America CEO O’Keefe was careful to deny that this debacle was due to a movement of protectionism in the U.S. government. He instead cited the poor economic climate. Remember though, this drama far predates the bursting of any economic bubble.

The European side of EADS is not being so diplomatic about the issue. Retaliation is the impulse of the moment. Members of the European parliament are crying “protectionism” and both Prime Minister Brown and President Sarkozy have spoken out against the apparent outcome. “If they want to be spearheading the fight against protectionism, they shouldn't be setting the wrong example of protectionism…In life there is what you say and then there is what you do." Sarkozy said at a press conference held today with Brown.

There has been talk of retaliation by restricting the access of American firms to the defense industry of Europe. Coincidentally, this would seriously affect the bottom line of EADS ally and would be partner Northrop Grumman. NGC has sizeable contracts for Air Traffic Management, unmanned ground vehicles (and things with lasers that are beyond my tech capacity) in Europe. Meanwhile, NGC is moving its headquarters from LA to DC to get a better handle on Congress and the Pentagon.

Some are suggesting that the real motivator for the domestic preference is the USAF’s unwillingness to deal with WTO litigation against Airbus. Although not cited as a reason for the GAO ruling in favor of the unfairness claims of Boeing, the inclusion of the subsidized Airbus A330 in the NGC-EADS bid is in violation of federal acquisition laws. As long as we are going for the dramatic, this could be a grand production to avoid the legislative changes to make federal acquisitions law match trade policy discourse.

Bringing this blog full circle—if Boeing wants to make a Days of Our Lives reference, they should realize that they are Victor Kiriakis, a glorified drug dealer, and NGC is Stefano DiMira, the real boss in Salem who fakes his death, only to return more powerful than ever. Watch out Boeing, Alabama has your number (and they are bringing those dang Europeans as backup).

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