Tanker Wars: Contract Award to Airbus Coincides with Damning WTO Findings

The Air Force is likely to announce the winner of its tanker competition in March — the same timeframe in which the World Trade Organization (WTO) will release two different reports casting Airbus business practices in a negative light. The first WTO report, which has already been completed, will find that competitor Boeing received prohibited trade subsidies totaling a modest $3 billion over the last several decades. That amount averages less than the value of a single widebody jet per year over the period covered. The second report will largely reject a European appeal of the WTO’s earlier finding that Airbus received about $20 billion in illegal subsidies during the same period. The disparity in findings with regard to the two tanker rivals by the world’s preeminent trade body will undoubtedly play into the controversy surrounding award of the tanker contract to Airbus.

Airbus is going to win largely on the basis of aggressive pricing — the same way it bests Boeing in commercial competitions. The WTO has found that the European company’s ability to under-price Boeing is directly traceable to a pattern of illegal trade subsidies from four European countries. In the case of the A330 transport that Airbus parent EADS is bidding in the tanker competition, the company received $5.7 billion in improper trade subsidies, without which the plane probably could not have been developed at all. The WTO found in its final report on the matter last year that the European subsidies not only enabled Airbus to develop airliners faster than a purely commercial company like Boeing could have, but to price them lower to grab market share. European nations appealed that ruling, but the WTO will uphold its core findings when it rules on the appeal in February or March.

The final report on Boeing’s subsidies, although done, will remain confidential until it is translated into several languages — a process that will result in it becoming available to the public sometime in February. But you don’t have to see the precise language to predict the political fallout the two WTO reports will have. The U.S. Air Force will be awarding a $40 billion program to the Europeans because of attractive pricing at the same time the World Trade Organization is highlighting the illegal methods Airbus has used to under-price its rival. When the Air Force is asked how the winning team was able to price its planes competitively with the Boeing offering even though they weigh 28 percent more and have 40 feet more wingspan, the service will have no answer. It decided not to even read the earlier WTO reports, much less adjust the price to eliminate the advantage conferred by improper payments.

It didn’t help Boeing’s cause in the tanker competition that the Air Force rated the planes using a warfighting model in which Airbus tankers were allowed to land at bases from which Boeing’s planes were excluded. It also didn’t help that the Air Force discounted the high operational costs of using the bigger Airbus plane — which burns over a ton more fuel per flight hour than the Boeing plane, even though both planes are much bigger than the Eisenhower-era tankers being replaced. But the core of the controversy arising in the aftermath of the tanker award will be that the winner has been rewarded for a multi-decade pattern of illegal trade practices, which enabled it to bid a lower price than the company that largely avoided such practices. The centerpiece of the European strategy in the tanker competition from Day One has always been to offer a concessionary price that Boeing could not match. Now it has found an ally in the U.S. Air Force to help destroy more American jobs.