Archive for May, 2010

House Adds Language to Force Pentagon to Consider Subsidies to Defense Authorization Bill

The House of Representatives in their vote on the 2011 Defense Authorization Bill added an amendment sponsored by Washington and Kansas members to force the Pentagon to consider the WTO ruling on illegal subsidies when it comes time to consider EADS’ (EADS:P) bid. The Pentagon has made it clear in the past that their contracting and acquisition laws and regulations do not allow them to factor that into their cost evaluations. This language if it is in the final version of the bill when it is passed after Conference will supposedly make them do that.

One question though is the Air Force plans to receive bids on July and announce a decision in the late Fall. There is a good chance that the source selection if it follows that schedule will be complete before the bill makes it out of Congress. While the Authorization Act often is done before the Appropriations one it is often not complete by 30 September as it should be. The Pentagon could also argue to ignore the language setting up some sort of court fight. EADS could also adjust their prices to take into account the effect of the WTO ruling.

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Boeing Unloads National Security Risks of “EADS”

Using the example of EADS (EADS:P) marketing a helicopter in Iran in 2005 Boeing (BA) is raising the idea that a successful EADS win of the KC-X might be a security risk. EADS North America of course has shot back that the issue is really not a part of this contest and that the U.S. Defense Department has not issues with their participation. It is really not a fair criticism in this situation. Boeing has certainly sold aircraft to many different nations some of whom are not friendly to the U.S. right now.

The idea of dual placed loyalties for a competitor such as EADS that is located overseas is not an uncommon criticism in these situations. Ideally there would be multiple domestic sources for any government contract but especially defense related ones. The problem is for the KC-X there is only two real world sources for this type of aircraft and only one is American. The real issue here is the decline of the U.S. industrial base over the last twenty-five years.

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Congress Continues To Try And Micromange KC-X Process

In the latest move by Congress to try and get the U.S. Air Force and DoD to consider the WTO rulings on EADS (EADS:P) subsidies, legislation has been introduced that will require at least a report by the Pentagon on their affect on the competition.

Congressman Adam Smith (D-WA) (No shock there?) is trying to amend the 2011 Defense Authorization Act to require the Air Force to detail the advantage the subsidies gives EADS prior to issuing the contract. Since the DoD cannot consider the ruling in awarding the contract this at least gets a record out of the effect (if any) on the contest.

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Latest KC-X Article At BNET: Government

This is the latest post I wrote for BNET: Government entitled “KC-X Aerial Tanker Contract Starting To Become A Farce”.

It starts “The Air Force’s ten-year effort to purchase a new aerial tanker continues rapidly seems to be disintegrating. The third attempt at awarding a contract for what has now become one of the most critical needs for the Department of Defense has been roiled by international trade, politics and concerns about the whole approach.”

You may read the rest here.

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Boeing Restates Intent To Bid

Following reports last week that Boeing (BA) was considering not submitting a bid for the KC-X contract the company reiterated its interest today. The previous reports said that Boeing was concerned with the fixed price aspects of the contract but now the story is that the company believes EADS (EADS:P) due to its subsidies could assume more risk in their proposal.

It would be almost impossible now for the company not to bid due to all of the support it has gotten for getting the contract.

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Reports Boeing Unhappy With Fixed Price KC-X Contract

Last week reports started to come out that Boeing (BA) may not bid on the KC-X new aerial tanker program. This was due to concerns that the Air Force’s plans for a fixed price development and first production contract may not allow the company to make a profit.

Boeing has denied these reports and it would certainly seem strange for them not to after all of the arguing and noise about giving the contract to them for American jobs. There is though real concern that the contract may limit the ability of the winner to make money on it. In the past fixed price contracts for development often have not worked costing the contractor millions that it can only hope to make up on production.

It would be somewhat ironic that the Pentagon’s desire to limit their cost and exposure would cause even more delays to this critical program. One that is so critical that a sixty day delay in the RFP process has been attacked by legislators, media, retired military and unions.

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Congress Wants WTO Taken Into Account In KC-X Bidding

Kansas legislators in both the House and Senate are planning to introduce a bill that would require the Pentagon to take WTO rulings into account. The Department of Defense has maintained that in accordance with U.S. laws and regulations that those matters cannot be considered or punished in contract awards. If it did that would be a violation of the WTO itself.

The bill would allow price adjustments to be made in bids to reflect illegal subsidies rulings. The legislators, Senator Brownback (R-KS) and Congressman Tiahart (R-KS), claim it would be applicable to any defense contract but it is obviously targeted at EADS (EADS:P) and their KC-X bid. The legislators claim that without taking these subsidies into account the price of the A330 based tanker will be artificially low.

They would prefer the contract go to Boeing (BA) who would do substantial work in Kansas on their tanker program.

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No Shock Here – Washington State Politicians Support Boeing

In this report the Governor of Washington, Ms. Gregoire, and Senator Patty Murray make clear that awarding the KC-X contract to Boeing (BA) will protect jobs in that state. The two Democrats rightly point out that several thousand jobs at Boeing support the 767 program as well as supply parts and components to the company.

In another not surprise the two showed up at a rally with union members and local officials.

Once again the U.S. finds itself in this situation due to the severe reduction in the defense industrial base twenty years ago that leaves only Boeing and its competitor European company EADS (EADS:P). For there to be any chance at competition with a goal of saving money for the Pentagon the two have to bid against each other – jobs or not.

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U.S. Policy On Selling Weapon Systems Overseas Balanced By Protectionism

Here is an article I wrote at BNET: Government discussing efforts within the Defense Department to reform technology transfer and the International Trafficking in Arms Regulations (ITAR) with the goal of spurring U.S. weapon sales overseas. This contrasts with efforts among legislators, unions, the media and others to try to protect U.S. jobs by limiting foreign competition. The biggest example being the KC-X contest.

In it I write “There is nothing inherently protectionist about Gates’s proposals, which seek to streamline the ITAR and export control rules to make it easier for companies like Boeing (BA) and Lockheed Martin (LMT) to sell overseas. At the same time, though, some unions and members of Congress, such as the two Washington Senators, Cantwell and Murray, are resisting EADS’s (EADS:P) effort to bid on the $25 billion KC-X aerial tanker program.”

You made read the full article here.

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Boeing Reorganizes To Form Division For KC-X

Boeing (BA) announced yesterday that they are forming a new division within the company called “Airlift and Tankers” (A&T). This group will have responsibly for the C-17 production and the hopefully capture of the KC-X and production of the KC-767 tanker.

Jean Chamberlin will be assigned as vice president and general manger of A&T.

The group will face serious challenges in the future if the KC-X is not won as C-17 production is winding down for the Air Force and the number of overseas sales is not large. There continues to be support in Congress to keep the C-17 going and if the KC-X contract does go to another source that pressure will only increase.

Good Luck to Ms. Chamberlin in her new job.

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