Analysts urge boycott of French whine
“Get over it,” wrote Leeham Co. analyst Scott Hamilton. “And move on.”
Both Hamilton and Teal Group analyst Richard Aboulafia have come out in the past week with commentaries chastizing the European response to the recent decision by Northrop Grumman to not enter a bid for the tanker, a decision that effectvely froze joint-venture partner EADS out of consideration.
Their consensus opinion: the “toxic rubish” being spewed by European politicians — particularly the French — is deliberately missing the point, ignores many obvious facts and is at the very least, disingenuous.
“Their comments are fine examples of the pot calling the kettle black,” wrote Aboulafia.
Hamilton, writing in his blog, agreed. “As for Europe, and France in particular, whining about U.S. protectionism — well, we view this with the same amount of skepticism as we view job claims by Boeing and Northrop advanced during the competition. That is to say, bull-puckey.”
When French officials say they can’t understand how the Nothrop/EADS bid was the winner in 2008, only to be effectively shut out in 2010, they’re applying selective memory, Aboulafia wrote this week in his monthly letter to clients. Northrop’s 2008 bid was only made possible because Republicans in Congress — notably Sen. John McCain, the party’s presidential nominee — had applied significant pressure on the Pentagon to change the bid specifications to make Northrop’s larger, Airbus-based tanker more competitive, even though the Air Force had originally sought a smaller tanker to replace its aging KC-135s.
The Republican political pressure “shifted the contract in Northrop/EADS’s favor,” he wrote. “That’s right. The political party that gave us Freedom Fries also promoted a European tanker design.”
Politics likely did play a factor in the Pentagon’s most-recent decision to specify a preference for a smaller jet in this round of tanker bidding, Aboulafia continued — but it was internal American politics.
In 2008, Republicans ran America, he noted, but in 2010, the Democrats are in charge. “A key factor that tipped the (Request for Proposal) towards Boeing was that the people in charge of KC-X made a rational calculation: a Boeing tanker, supported by Democrats, would face fewer political challenges and would have a better chance of securing funding, than Northrop/EADS’s Republican-backed tanker. If the Republicans were in charge instead of the Democrats, EADS would have an excellent chance. EADS simply backed the wrong horse. That’s not protectionism. That’s U.S. party politics.”
The business realities also changed between 2008 and 2010, Aboulafia said. “In 2008, EADS had the ability to offer a heavy discount on their plane,” he wrote. “Given losses on the A380 and A400M since then, they no longer have that flexibility. Meanwhile, Northrop Grumman has a new CEO, Wes Bush. He is taking a completely new view of the company’s future, and has no skin in the KC-X game.”
For Hamilton, the issue is simple: the U.S. Air Force wanted to replace its old KC-135s with similarly sized KC-767s, particularly given the current Pentagon budget realities. “Smaller airplanes are less costly to buy and to operate than larger airplanes,” he wrote. “There simply is no getting around this.”
His assessment agreed with District 751 President Tom Wroblewski’s. The union leader had written in his March column in the AeroMechanic newsletter that the Northrop/EADS plane was simply too big to meet the Air Force’s needs. “Not only is the KC-767 itself less expensive than the competing Airbus plane, but going with Boeing means that the Air Force won’t have to spend billions more rebuilding aiports and hangers.”
The Pentagon’s greatest mistake, Hamilton continued, was to not make this preference for “just a tanker” — instead of the proposed Northrop/EADS tanker-freighter hybrid — crystal clear before the start of this latest round of bidding.
“It would have saved everyone a lot of agony,” he wrote. “The Department of Defense is free to set whatever specifications it desires and it can also begin with a sole-source contract should it chose to do so. Our complaint about Round 3 is that it had become clear that DOD wanted ‘just’ a tanker this time but went through the charade of holding a competition of a tanker vs a Multi-Role Tanker Transport. These are two very different airplanes.”
Hamilton also dismissed European outrage over alleged American protectionism, noting that European protectionism has handicapped development of the A400M military transport — with serious consequences. The A400M debacle is “directly related to the engine selection for the transport.” he wrote. “Airbus wanted to go with Pratt & Whitney. The European politicians dictated that a new engine be developed by European companies. The resulting delays and costs to Airbus threatened the entire company.”
And if France ever was serious about open defense markets on both sides of the Atlantic, it already blew a prime chance to prove it, Hamilton added. “France last year said it plans to replace its KC-135s with KC-30s built by Airbus. What about opening this opportunity to Boeing? We know the answer to this.”
French politicians know all this, but they’re deliberately ignoring it in their public statements, Aboulafia said. “What are these paranoid demagogues thinking? Accusations of protectionism typically serve one purpose: to justify ‘retaliatory’ protectionism. Look for renewed pressure on E.U. countries to buy European weapons systems and not U.S. ones.”
Also expect some hot-headed name-calling, Aboulafia wrote: “Pierre Lellouche, France’s European Affairs Minister, is a blithering idiot. There. I said it.”
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