Wednesday, March 2, 2011
Stage 2: Get home
When the Muse sings into the ear of Boeing's Homer, he will record that as of 2011 Boeing's epic battle with EADS was finished. But already storm clouds are gathering as EADS murmurs darkly of legal challenges to come. And will the hero manage to complete the voyage and return home by issuing rich dividends to its shareholders?
After much controversy and two unsuccessful tries, The New York Times reports that Chicago-based company Boeing received a $35 Billion contract from the Air Force last week. Boeing beat out favored European Aeronautic Defense and Space Company (EADS) for the opportunity to build 179 aerial fueling tankers. The contract is for $35 billion, but it could eventually balloon to $100 billion. This award comes after years of trying to replace aging fueltankers, some of which have been around since the Eisenhower administration.
We've recounted the backstory before here and here. Long story short: U.S. awards $35 billion contract for about 180 aerial-refueling tanker aircraft to European company (EADS) working with U.S. corporation. Other U.S. corporation (Boeing) cries foul and challenges the bid process. U.S. calls for a do-over and this time Boeing wins.
Forbes's Loren Thompson explains how Boeing did so here. In sum, both bidders had established that they could get the job done, but Boeing offered a smaller plane at a lower price. Thompson is eating crow because he had predicted that EADS would win, but that was because he assumed that EADS would lower its prices with the help of government subsidies as it had done in the past. It didn't happen this time, and so it will be Freedom Fries on all U.S. refueling flights from here on in.
The Pentagon (pictured) determined that Boeing’s bid was more than 1% below EADS after weighing factors such as bid price, cost to operate the tankers over 40 years, and how each model met their wartime needs. EADS, who contends to have the bigger and better plane to Boeing’s “high-risk concept aircraft,” had 10 days from the award to appeal the decision with the Government Accountability Office. However, the Wall Street Journal reports that after meeting with the Pentagon on Monday to debrief, EADS is still “evaluating.” They better get a move on- they have until this Saturday
Whether or not EADS can challenge the award will turn on how successful the government was in creating a bulletproof bid process. Because this contract fight was so vexed and because the U.S. needs the new tankers so badly, it designed a rigorous bid process designed to remove any possible claim of bias. Bear in mind, resourceful Boeing and patient U.S. Air Force, Zeus does not bring all men's plans to fulfillment.
The contract is a victory for Kansas and Washington State, where Boeing manufactures and assembles its planes. However, states such as Alabama, where EADS was to build the tankers under its bid, feel cheated by the decision, with one Alabama lawmaker chalking it up to “Chicago politics.” This bid could also irritate European leaders, and derail any efforts to get European companies to bid on defense and other contracts.
Another loser in this deal could be the American people. While this is a victory for many Americans in terms of employment, is the Department of Defense really fueling planes with 50s era tankers? The bidding process for this has taken 10 years with three failed attempts only extending our use of these tankers. The Boeing contract will not provide all the 179 new tankers until 2017. In 2017 many of the existing fueling tankers will be approaching 70. Since the tankers are extremely important to U.S. Air Force operations, further delays in the contracting process could compromise U.S. national security.
[Katherine Freeman & JT]