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American Air Force Dumps Boeing for Airbus Tanker 2008 March 17 © 2008, Libertiny Financial LLC
Am I against global free trade?
Of course not. Although I do have reservations about the trade terms that our federal government have agreed to within the NAFTA countries, Europe and Asia. However, those issues revolve around our government’s inability to negotiate good terms on behalf of America.
Having had the opportunity to regularly visit my family and friends in Europe and Asia helps me to realize that we need to take the gloves off when it comes to negotiating with them. After all, America is the relative newcomer to the global business game since we’ve only been playing for less than 300 years. We’re neophytes. Yet, we treat everyone else as if they were the emerging economy.
In particular China. They’ve been a capitalistic, freed trade society for thousands of years. They know what they’re doing. I don’t begrudge anyone for cutting the best possible deal that they can. After all, that’s what a government is supposed to do—look out for their own people.
How does this relate to the Airbus deal?
Technical Would you want a heart surgeon to work on you who has minimal experience in heart surgery? As an engineer, the technical merits and capabilities of each of the underlying commercial aircraft can be debated for years to come. However, Boeing has considerably more experience with the task and subsequent design and manufacturing requirements for an aerial fueling vehicle than Airbus. Experience in mission critical equipment is frequently the deciding factor on whether equipment is successful over the long-term of its operational life.
Money As a taxpayer, the Boeing proposal also costs less than the Airbus proposal--sans the Airbus subsidies. At this point in our recession, we don’t need a more expensive alternative. We need a proven team that provides a cost efficient solution.
Politics Boeing was the initial winner in this competition prior to the unfortunate scandal that was revealed to the public. So this reversal of the original decision appears to have at least some elements of a political decision instead of one based purely on experience, equipment performance, and cost.
More Politics The Europeans argue that Boeing continues to be subsidized by the American government. That was a fairly accurate assessment 30 years ago. Maybe even 20 years ago.
There can be no argument that EADS/Airbus is a subsidized business by several European governments. Bankruptcy has loomed over their business many times, but the government bailout in one form or another was always there for them.
Boeing and EADS are presently “suing” each other in the “court” of the World Trade Organization (WTO) as Boeing claims that the financial assistance EADS has received from various European Union member governments, referred to as “launch aid,” amounts to billions of dollars in illegal government subsidies.
Subsidizing a business allows for artificially lower prices. After all, the money to be made on the contract isn’t for the airplanes themselves, the real money is in the extended service contracts. More than likely, 40 to 50 years of service contracts. Call it product dumping or just a “loss leader,” the EADS subsidizes help to artificially lower the bid price on the contract.
The Bottom Line: Boeing offers superior experience and a cost efficient aircraft. Remove the subsidies and the EADS/Airbus proposal does not match it.
I’m all for global free trade—when it’s fair. |
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