Saturday, February 26, 2011

Thoughts on Boeing's win of the KC-X aerial refueling tanker contest

I’ve been avidly following the Airbus vs. Boeing (vs. Antonov) saga for the KC-X tanker aircraft contest for many months now. I’ve gobbled every important development in this interesting competition, and frankly, I’m not too surprised by Boeing’s win. Although I did have a strong feeling that it’s obvious that America would award a prized military contract to only an American company, my feeling was definitely not so strong as to make me predict Boeing’s win on my newly-launched Predictions blog.

I have a conspiracy theory about Boeing's win, explained by the following three points:
  1. It was already decided by the US that Boeing would be awarded this contract. In fact, it was obvious – it’s unthinkable that the Americans would risk depending on a European company for a strategic piece of their defense setup for many decades to come. How the political climate of the world is going to change in the next few decades, nobody can predict. America doesn't know what type of relation it’ll have with European countries in, say, 2035. So, the Americans effectively used EADS North America to squeeze the best deal out of Boeing. They knew they’re gonna award it to Boeing, but they just wanted Boeing to give them the cheapest deal possible. In the end, it’s a win-win-win outcome for America – its Air Force gets the cheapest possible deal, America gets an American company to build the product, and the Americans also get to humiliate the Europeans.
  2. The Europeans knew all too well that Boeing would be awarded this decades-long contract. They participated will full (apparent) seriousness, lost like a hero (and gained sympathy as a result), so as to set a strong pretext for European governments buying only European products in their own subsequent procurements (presumably, by now they're sick of the US talking about free markets and consistently acting in a protectionist manner).
  3. The US Air Force and Boeing were probably sleeping together since the very start of this contract. After EADS North America submitted its final bid, that bid was secretly disclosed to Boeing and Boeing covertly submitted a carefully revised bid, ensuring its victory (and also ensuring that any appeals or complaints by EADS to GAO, etc., are easily won by the updated Boeing offer).
In summary, it was all too clear right from the start that Boeing would be awarded this contract. All those discussions about cost, performance, technology, etc., ignored the most fundamental and most important fact – that Boeing is an American company (and also a jewel in America’s crown) offering the only truly American tanker, and that only an American-made tanker can deliver the maximum economic benefit to the American economy (no matter how much EADS North America trumpeted that its tanker is also truly American, the fact remains that it’s a European product that benefits Europe more than it benefits America, and that the money earned by EADS North America would’ve been sucked back by Europe). Why should an ailing America give billions of dollars to Europe when it can very well give that money to American companies (and thus American people), without compromising in any way? Why should America, a nation that uses every evil tactic to help Boeing sell stuff in the world, buy stuff for itself from a European company?

Equally importantly (perhaps even more), had the US bought a European product worth so many billions, the political fallout in the US would’ve been almost catastrophic. This contract wasn't merely a military contract. It was also an economic and political contract. Boeing's win can be summarized in three words - foreign risk, economic benefit, and sheer politics.

Through this win, Boeing has hurt Airbus in several ways:
  • Humiliation.
  • EADS’ desire to establish a factory in the US for its A330-based freighters is effectively killed for now.
  • Boeing’s dying 767 product gets a fresh life, bringing tremendous commercial benefits (for example, the profits from this contract effectively act as a huge subsidy for Boeing, and will be used against Airbus).
  • Post this win, a rejuvenated Boeing tanker product will compete more fiercely against the Airbus A330 MRTT for worldwide tanker procurements. 
Cleverly, and for obvious reasons, post this win, Boeing’s statements seem to have dropped the words America and American entirely (anyone who is aware of Boeing’s and EADS’ fierce campaigns for this contest is all too aware of Boeing’s overuse of the American-made tanker card in this supposedly fair contest).