Tanker Wars: Failing To Consider Subsidies Rewards Wrongdoing, Undermines Free Trade

Later this week, the House of Representatives will decide whether the Pentagon should be directed to consider European aircraft subsidies in comparing proposals to develop the Air Force’s next aerial-refueling tanker. If you think that sounds boring, then you probably don’t understand what has happened to America’s commercial aircraft industry over the last generation. Two of the three U.S. producers of airliners have been forced out of the business, and the sole survivor, Boeing, has seen its global market share cut nearly in half. The reason for the decline is traceable to one cause: European aircraft subsidies.

What happened was that four European governments gave many billions of dollars in subsidies to Airbus to develop planes that could compete with the airliners built by Boeing. The subsidies enabled Airbus to field a full family of airliners much faster than any purely commercial company could have, and to beat Boeing on price even when Airbus products cost more to build. According to a definitive assessment recently completed by the impartial World Trade Organization, none of the commercial transports currently marketed by Airbus ever would have been built without subsidies that are now prohibited. That applies in particular to the Airbus A330 being offered as an alternative to the Boeing 767 tanker, which is the most subsidized transport Airbus has ever built.

Europe has tried to obscure the real issues in this tawdry tale by filing a complaint with the WTO asserting that Boeing gets similar help from the U.S. government, but that charge is a lie. Over 80% of the government subsidies that the A330 received were launch aid, and Boeing gets no launch aid at all from Washington. Quite the opposite: much of the time the government is holding Boeing’s feet to the fire to compel performance on federal contracts, which is no help at all in its commercial competition with Airbus. When it comes to selling airliners in the global market, Boeing is on its own, whereas Airbus is backed by the full faith and credit of four European governments.

So in the competition for the Air Force tanker contract, there is a free-enterprise candidate and there is a socialist candidate. Failing to take Airbus subsidies into account when comparing the rival tanker proposals rewards Airbus for competing unfairly, and punishes Boeing for playing by the rules. It helps socialism to triumph over free enterprise in securing a $35 billion contract that will be paid for by U.S. taxpayers — taxpayers who are expected to live by the same rules Boeing does. Pentagon policymakers don’t want to deal with all the complications involved in adjusting the price of the Airbus plane to reflect the role of subsidies, but when the Europeans say they intend to underbid Boeing using a plane that sells for $60 million more than the Boeing plane does, that is a clear signal that they are not bidding fairly.

There’s a reason why Northrop Grumman pulled out of the tanker competition and its Airbus partner stayed in. Northrop has to make a profit. Airbus just needs to keep its government benefactors happy. America has already lost 65,000 jobs in the aerospace sector by allowing that happiness to be bought using unfair trading practices. Do we really want such predatory behavior to now spread into military procurement, where U.S. taxpayers will end up rewarding Airbus for its wrongdoing? If we don’t, then there must be accountability for using prohibited subsidies.