Team Infidel
Forum Spin Doctor
Wall Street Journal
June 20, 2008
Pg. 3
Debate Reignites Over Globalization Of Military Market
By August Cole and Daniel Michaels
The ruling this week that the Defense Department erred in its biggest-ever trans-Atlantic defense contract could have a ripple effect, emboldening U.S. politicians who want to stop the Pentagon from buying European weapons systems and shaking the Continent's confidence in U.S. defense markets.
The Government Accountability Office said Wednesday that the Air Force botched a $40 billion contract to buy new planes that refuel other aircraft in midair. In February, a Northrop Grumman Corp.-led team, which included European Aeronautic Defence & Space Co., beat out Boeing Co. to provide 179 tanker jets. Boeing protested soon after its 767-based design lost to Northrop's bigger A330 tanker. The ruling could force the Pentagon to restart the bidding process.
While the ruling was based on legal, not political, criteria, it touches on a sensitive subject. The Pentagon has been increasingly willing to buy foreign-made equipment, including the president's next helicopter. European companies have been angling to get a bigger piece of the more than $500 billion Defense Department budget, or about half of all global weapons outlays. In addition to winning U.S. contracts, European companies such as Italy's Finmeccanica SpA and United Kingdom-based BAE Systems PLC's U.S. arm have acquired U.S. defense companies.
At the same time, U.S. companies are looking to European and other international markets to remain open, in order to counterbalance an expected slowdown in Defense Department spending, which has been at its highest level since World War II. Military aerospace exports totaled $12.9 billion in 2007, while equivalent imports were $3 billion, according to the Aerospace Industries Association.
"The key issue is not the GAO decision but the Defense Department's response, which will really tell you about our continued openness to foreign competition," said Jeffrey Bialos, a partner at Sutherland Asbill & Brennan in Washington and a former deputy undersecretary of defense during the Clinton administration who has been involved in bid protests and international defense issues.
"We're still reviewing the GAO report to determine what the situation is and what the full impact will be," said a Defense Department spokesman. The Air Force has 60 days to respond to the GAO.
At the political level, the issue is being exacerbated by the election campaign and the flagging economy. Congress immediately pledged to further scrutinize what the Air Force does next. Lawmakers, unlike the military, can weigh the impact of jobs at American companies when deciding which weapons programs to fund or which to cut.
"Obviously, Congress needs to play a stronger oversight role in what happens next," said Washington Democrat Sen. Maria Cantwell, a vocal Boeing backer who has been a constant critic of the Air Force's decision, after the GAO report.
There is longstanding tension in Washington between those who want to protect U.S. jobs and keep foreign weapons out of the hands of U.S. forces, and proponents of globalization in the defense markets.
"The American worker who...pays for the defense of the free world ought to be able to make [equipment for] the defense of the free world," said California Rep. Duncan Hunter, who is the ranking Republican on the House Armed Services Committee.
Several Europeans noted that the tanker contract was particularly sensitive because of its size, almost $40 billion, and because the future of Boeing's 767 production line hinged on winning it.
But the Northrop and EADS win pushed the boundaries further than previous partnerships and threatened to give Airbus its first production facility in the U.S. At a recent defense conference in Brussels, Lockheed Martin Corp.'s chairman and chief executive, Bob Stevens, told attendees that the tie-up was an important milestone.
"The decision by the [U.S. Air Force] to purchase Airbus tankers reinforces the openness of U.S. markets and is the most recent example of the growing willingness of the U.S. to look to global sources for vital equipment," Mr. Stevens said.
Northrop Grumman declined to comment. Boeing also declined to comment.
European aerospace executives and defense analysts said the GAO's decision would not help trans-Atlantic cooperation, but they were divided on the long-term impact.
EADS officials noted that the GAO's ruling was procedural and not on the merits of the products. Still, they saw politics in the decision. "It's not pleasant to see a bit of a political environment getting a foothold," said Airbus Executive Vice President for Strategy and Planning Christian Scherer. Mr. Scherer suggested that if the selection is ultimately overturned for what Europeans consider to be political reasons, it could put a chill on relations. "I think we will have to draw some conclusions on the way to conduct business" in the U.S., he said.
The GAO's decision came just as French President Nicolas Sarkozy is thawing long-frosty defense relations with the U.S. and the North Atlantic Treaty Organization.
Alex Ashbourne, a defense analyst in London, said the GAO's decision could slow the rapprochement. "It will confirm both sides' worst prejudices of the other," Ms. Ashbourne said.
June 20, 2008
Pg. 3
Debate Reignites Over Globalization Of Military Market
By August Cole and Daniel Michaels
The ruling this week that the Defense Department erred in its biggest-ever trans-Atlantic defense contract could have a ripple effect, emboldening U.S. politicians who want to stop the Pentagon from buying European weapons systems and shaking the Continent's confidence in U.S. defense markets.
The Government Accountability Office said Wednesday that the Air Force botched a $40 billion contract to buy new planes that refuel other aircraft in midair. In February, a Northrop Grumman Corp.-led team, which included European Aeronautic Defence & Space Co., beat out Boeing Co. to provide 179 tanker jets. Boeing protested soon after its 767-based design lost to Northrop's bigger A330 tanker. The ruling could force the Pentagon to restart the bidding process.
While the ruling was based on legal, not political, criteria, it touches on a sensitive subject. The Pentagon has been increasingly willing to buy foreign-made equipment, including the president's next helicopter. European companies have been angling to get a bigger piece of the more than $500 billion Defense Department budget, or about half of all global weapons outlays. In addition to winning U.S. contracts, European companies such as Italy's Finmeccanica SpA and United Kingdom-based BAE Systems PLC's U.S. arm have acquired U.S. defense companies.
At the same time, U.S. companies are looking to European and other international markets to remain open, in order to counterbalance an expected slowdown in Defense Department spending, which has been at its highest level since World War II. Military aerospace exports totaled $12.9 billion in 2007, while equivalent imports were $3 billion, according to the Aerospace Industries Association.
"The key issue is not the GAO decision but the Defense Department's response, which will really tell you about our continued openness to foreign competition," said Jeffrey Bialos, a partner at Sutherland Asbill & Brennan in Washington and a former deputy undersecretary of defense during the Clinton administration who has been involved in bid protests and international defense issues.
"We're still reviewing the GAO report to determine what the situation is and what the full impact will be," said a Defense Department spokesman. The Air Force has 60 days to respond to the GAO.
At the political level, the issue is being exacerbated by the election campaign and the flagging economy. Congress immediately pledged to further scrutinize what the Air Force does next. Lawmakers, unlike the military, can weigh the impact of jobs at American companies when deciding which weapons programs to fund or which to cut.
"Obviously, Congress needs to play a stronger oversight role in what happens next," said Washington Democrat Sen. Maria Cantwell, a vocal Boeing backer who has been a constant critic of the Air Force's decision, after the GAO report.
There is longstanding tension in Washington between those who want to protect U.S. jobs and keep foreign weapons out of the hands of U.S. forces, and proponents of globalization in the defense markets.
"The American worker who...pays for the defense of the free world ought to be able to make [equipment for] the defense of the free world," said California Rep. Duncan Hunter, who is the ranking Republican on the House Armed Services Committee.
Several Europeans noted that the tanker contract was particularly sensitive because of its size, almost $40 billion, and because the future of Boeing's 767 production line hinged on winning it.
But the Northrop and EADS win pushed the boundaries further than previous partnerships and threatened to give Airbus its first production facility in the U.S. At a recent defense conference in Brussels, Lockheed Martin Corp.'s chairman and chief executive, Bob Stevens, told attendees that the tie-up was an important milestone.
"The decision by the [U.S. Air Force] to purchase Airbus tankers reinforces the openness of U.S. markets and is the most recent example of the growing willingness of the U.S. to look to global sources for vital equipment," Mr. Stevens said.
Northrop Grumman declined to comment. Boeing also declined to comment.
European aerospace executives and defense analysts said the GAO's decision would not help trans-Atlantic cooperation, but they were divided on the long-term impact.
EADS officials noted that the GAO's ruling was procedural and not on the merits of the products. Still, they saw politics in the decision. "It's not pleasant to see a bit of a political environment getting a foothold," said Airbus Executive Vice President for Strategy and Planning Christian Scherer. Mr. Scherer suggested that if the selection is ultimately overturned for what Europeans consider to be political reasons, it could put a chill on relations. "I think we will have to draw some conclusions on the way to conduct business" in the U.S., he said.
The GAO's decision came just as French President Nicolas Sarkozy is thawing long-frosty defense relations with the U.S. and the North Atlantic Treaty Organization.
Alex Ashbourne, a defense analyst in London, said the GAO's decision could slow the rapprochement. "It will confirm both sides' worst prejudices of the other," Ms. Ashbourne said.