To protect or not

The competition between Boeing and EADS/Northrop concerning the USAF tanker offer went to an end last week when Northrop decided to pull out. The whole story started back in 2004 after charges against Boeing were filed and some of its top executives fired as a result. The senator McCain wanted a fair competition on this contract. It was for EADS and Airbus a good opportunity to enter the US market and to diversify its production and source of income.  The contract is estimated at 35 billion dollars and is only the first part of 3 phases.

If EADS is a European company, the incorporation of Northrop, a Californian defence firm, was supposed to help with this negative image and it also planned to build a factory in the USA to manufacture the tankers based on a version of the civilian A330. On the other hand, Boeing would build its tanker, based on the smaller 767, in USA too; however it is arguable that the Boeing tanker would have an all American plane as most of its components are outsourced abroad.

This end of the competition is mainly due as what is seen as some form of protectionism by the USA in favouring Boeing. Indeed the first leg, in February 2008, of the competition was won by EADS/Northrop but Boeing protested that the plane of its rival was not conform, even though it was deemed better, to the contract. As a result the offer was remade and this time Northrop felt it had to pull out. Its CEO observed that this contract clearly favoured Boeing.

The EU commission threatened to bring the whole case in front of the WTO and the leaders of France and the United Kingdom Mr Sarkozy and Mr Brown, amongst others, showed their disapproval of such a behaviour especially since protectionism is “a policy that the USA usually warns other countries against.”

So what was the whole point of opening the competition to foreign companies? I could understand that the USA would keep their defence market closed, although they do not like to be put away on this basis abroad, but this opening of the competition showed that it was not the general feeling at the moment to do it this way. The EADS/Northrop joint venture would also create some jobs in the USA in a non-unioned company (Northrop) whereas Boeing is and thus is susceptible to strikes. Did the American leaders think that Boeing was so good at its business that no-one could do better than them and this competition was just a show for fair competition? It seems unlikely that the US leaders would be that naive. Is it favouritism from Obama as he was the former senator of Illinois and that Boeing has some of its offices in Chicago? That would be quite naive too.

However the facts remain that it is another feud between the EU and the USA in the trade sector.  This contract might have an influence on how the F35 JSF will happen. Indeed, it is overdue and its price still rising. If the USA does not act smoothly with its European allies, why should they expect them to continue to act in a polite manner? Even the United Kingdom, the best ally of the USA, is unhappy. Competition is rising everywhere in the world; I would not advocate starting a mini trade war between strong allies.

-C