Archive for WTO

Recent Tanker News Link Round Up

The site has been quiet since the award of the KC-46A contract to Boeing (BA), but here are some links to articles about different aspects of the program and the companies involved in the contest:

Boeing is slowly releasing information about the KC-46A design.

World Trade Organization softens ruling against EADS (EADS:P). Boeing and U.S. still claim victory.

House puts strong cost controls on KC-46A with mandatory reporting requirements for Air Force.

First Australian KC-30 arrives at RAAF base for introduction into service.

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Reports Final Proposals Due Next Week for KC-X

Both Boeing (BA) and EADS NA (EADS:P) have met with the U.S. Air Force reportedly to discuss final changes to the KC-X RFP. The companies have until 11 February to submit their final revisions to their proposed solutions to the new aerial tanking requirement.

Boeing has said that they will update their proposal although EADS NA has said they may not. Swirling around all of this final burst of activity is the concerns by some in Congress, the media and at the bidders about the accidental release of information by the U.S. Air Force to each team as well as the two World Trade Organizations (WTO) rulings on both companies receiving illegal subsidies.

Some Boeing supporters in Congress are now saying that the data release gives EADS an advantage and that there should be deeper investigations. The Air Force “reassigned” two personnel as punishment and Congress did have hearings last week about the matter. Washington state, Illinois and Kansas legislators all from states that stand to gain work if Boeing wins sent a letter to the DOD IG asking them to look to see if the data released skewed the contest in EADS’ favor.

All of these conditions make it seem inevitable that there will be a protest to the contract award no matter who wins it. There will also be political pressure from supporters of both companies to review the contract and make sure that there favored winner was not treated unfairly.

All this adds up to further delays in replacing the KC-135 systems made during the Cold War. Once again this problem has been created by the disappearance from the U.S. industrial base of multiple suppliers of large aircraft. Currently only Boeing and EADS make aircraft acceptable to the Air Force to meet this requirement. If there is to be even a modicum of competition the two have to be involved which leads us to the current ugly situation of charges and counter charges of favoritism, jingoism and bias.

This will probably be the biggest contract awarded for the next decade by the Defense Department and is critical to both companies maintaining a foothold in the large military aircraft business worldwide which is leading us to the current situation which does not seem like it will end well.

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WTO Report States Boeing Received Illegal Aid Effect on KC-X Undetermined

In the latest round of the back-and-forth at the World Trade Organization (WTO) between the United States and the European Union (EU) over airline development and sales the report on Boeing (BA) was leaked to the press and found that the Chicago based company received illegal subsidies from the U.S. Government and four states. In September this finding was also leaked as a preliminary to the completion of the final report.

Earlier last year the WTO had ruled in favor of the U.S. in their complaint about launch aid for EADS’ (EADS:P) Airbus products. Since that time there have been those in Congress trying to rewrite acquisition law and regulations so that the illegal aid to EADS would be taken into account in the upcoming KC-X new aerial tanker decision on which Boeing and EADS submitted bids for the initial $39 billion contract.

The findings by the WTO that both sides provided illegal aid that caused unfair competition to the other should lead to negotiations to settle the matter. The normal WTO punishment of having the losing company pay back the economic affect on the other will probably not happen due to the large amounts involved.

The two decisions may aid the Pentagon in deciding the KC-X contract as it possibly removes the issue from the competition and might limit some chances for a protest by the loser. The Pentagon has made clear for months that it cannot take into account the WTO rulings in their source selection and evaluation hence the attempts by Boeing’s supporters in the legislative branch to change the rules.

Now with both bidders confirmed to have benefited from illegal subsidies of some sort it hopefully will remove the issue and allow a competition based on merits and meeting the requirements as defined by the Air Force and Defense Department.

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House Votes to Require Pentagon to Consider “Unfair Competitive Advantage”

The House of Representatives winding down the lame duck session voted today to pass legislation forcing the Pentagon to take into consideration in source selection whether one of the bidders has an unfair competitive advantage. While not naming any names the law is oriented towards EADS (EADS:P) bid for the new KC-X aerial tanker program. The law has little chance of being considered in the Senate anytime in the next few days.

This is fallout from the World Trade Organization (WTO) ruling earlier this year that EADS had received illegal subsidies from European nations. This was mainly in the form of “launch aid” loans that would only be paid back if the aircraft were profitable but also included tax breaks and infrastructure funding. The Pentagon has made clear that U.S. procurement law and regulation do not allow these types of rulings to be a factor so Boeing (BA) supporters in the House and Senate have been making efforts to change the law so that EADS will not have a “competitive advantage”.

The WTO has also made a ruling against the European counter claim against Boeing that it had received some aid from the U.S. government.

The KC-X is in this situation as there are currently only two Western companies that are able to build this aircraft. In order to gain any competition with a goal of cost savings Boeing and EADS must be considered. A wild card attempt by U.S. Aerospace teamed with Ukrainian manufacturer Antonov was not considered.

If you think Congress is upset about EADS think about how they would react to an Antonov win no matter how cost effective or capable it would have been.

Until the Air Force makes its source selection decision known this kind of fighting will continue. Protests by the loser are also to be expected as the KC-X saga enters its tenth year.

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Effort to Add EADS Subsidies Consideration to Defense Authorization Bill Fails

Senator Murray (D-WA) and Senator Brownback (R-KS) attempted to attach an amendment to the Senate’s 2011 Defense Authorization Bill today that would force the Defense Department and U.S. Air Force to take into account the World Trade Organization (WTO) ruling on subsidies to EADS (EADS:P) by European governments. Due to the fact that the bill did not win enough votes to advance mainly due to the attempt by the Democratic leadership to add the repeal of “Don’t Ask/Don’t Tell” policy on gays in the military the amendment wasn’t considered.

The two whose states stand to gain several thousand jobs if Boeing (BA) wins the KC-X contract will have to wait for this bill to be re-considered or add the amendment to another one. Certainly there are Senators from Alabama and other Southern states who favor EADS who might try to work against the amendment.

Currently the U.S. military cannot consider these kind of trade disputes and rulings in their source selection which is why the attempt was made to add the rule.

This continues to show that the fight for this contract will continue in Congress, the media and across the internet.

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WTO Reported As Ruling Against Boeing in Subsidy Case

A few months ago the World Trade Organization (WTO) ruled that EADS (EADS:P) had received illegal subsidies from various European governments in the form of launch aid loans and tax breaks. The decision was quickly seized upon by Boeing (BA) supporters who want the Department of Defense and the U.S. Air Force to take the advantage these subsidies gave EADS into account in their source selection for the KC-X aerial tanker.

At the same time the WTO was considering a complaint by European governments that Boeing’s (BA) many years of contracts from the American government also aided them in developing their products and reducing their costs. The results of that case were leaked today and they indicate that the WTO will provide some criticism of the U.S. support.

This then was quoted by EADS’ American allies to reiterate the need for these not to be considered in the decision of who will win the contract to build over $35 billion of new tankers.

Because the rulings will not be exactly even and cancel each other out the argument will still go on even as the WTO leaves the issue. Unfortunately the decline of the world’s industrial base to where there are only two Western companies able to build this type of aircraft have led to this situation.

There is no easy resolution to the problem and no decision by the U.S.A.F. that will placate everybody. Once again the chance of a protest seems to be a given.

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Amid Annoncing Orders Boeing and EADS Snipe About KC-X

The two civil airliner giants both attended the Farnborough Air Show with Boeing (BA) conducting the first overseas flight of the new 787 and EADS (EADS:P) sending an A380. Both companies announced substantial orders from a variety of airlines and leasing agents while also taking the time to criticize their opposition’s bids for the KC-X new Air Force aerial tanker.

Boeing received an order for sixty 737 aircraft from Mr. Udvar-Hazy’s new leasing company as well as Emirates Airlines needing thirty 777 wide body aircraft. GE’s leasing company also bought forty 737 aircraft and Avalon twelve. Royal Jordanian airline purchased three of the new 787.

EADS got an order from Russia’s Aeroflot for eleven A330. That carrier already operates sixty-four A320 and 10 A330. Hong Kong Air followed with a plan to buy fifteen of the new A350 XWB, the equivalent of the composite 787, and ten A330. The Chilean carrier LAN also bought fifty A320.

All-in-all both companies felt very good about their orders and the future of the airline industry. There are hopes that the world economy is recovering and this will lead to more sales and greater investment in new equipment.

At the same time the two companies sniped at each other about the ongoing U.S. Air Force KC-X aerial tanker contract. Boeing submitted a bid to use their new 767 variant, NewGen Tanker, to replace the aging KC-135 fleet. EADS has based their proposal around the A330 like they did with their last proposal.

Boeing is making clear that they will offered a very competitive price based on their reducing production costs by leaning out their line. Boeing believes that in the end the contest will be decided on price and they plan on having the best price including lifetime operating costs.

EADS agrees that price is important but at the Air Show the CEO, Mr. Gallois, made clear that there won’t be a sacrifice of profit to just win the contract. Due to problems with the A380 and the A400M transport aircraft EADS has some financial issues to face and while it might be attractive to win the contract the company may not really be able to afford to not have some money made on it. The size of the recent commercial orders indicate that the military contract while it would open the European company up to a new market is not critical to their future.

The European Union (EU) has appealed the recent WTO ruling that their aid to EADS amounted to an illegal subsidy. The company and leaders in Europe have also decried the decision by the trade body to delay their ruling on the similar Boeing case. Boeing’s allies in the U.S. have used the WTO decision to say that EADS has an unfair advantage in the KC-X competition as it received the subsidies. EADS and the EU is countering by saying that the U.S. military contracts over the last fifty years to Boeing are the same thing.

The Pentagon has made it quite clear that despite the desires of some in Congress they cannot take the WTO decision into account in their source selection.

It will be a long hot summer at this rate, and when the decision is announced in November the chance of a protest by one of the losers is very high. The contract is a key military one in the next few decades no matter what each company says about it. Winning the contract will give them a leg up on their competitors for the future orders for tankers and aid them in getting more and better commercial contracts.

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Defense Procurement News Post on WTO Report

Here is an article I wrote at our sister site, Defense Procurement News, about the WTO subsidies report and the KC-X contract.

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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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The WTO Will Not Play A Role in KC-X Dispute

The World Trade Organization (WTO) which is expected to announce formally its ruling against EADS (EADS:P) for receiving illegal subsidies to support Airbus airliners and is also considering a complaint against the U.S. and Boeing (BA) announced that it does not intervene in military contracts and cannot be involved in the KC-X dispute between the U.S. and Europe.

The chance of France or the E.U. filing a complaint over the terms of the proposal which are seen as limiting EADS chances to bid seems remote. Certainly President Sarkozy of France has raised the issue with President Obama. The Air Force has extended the deadline for proposal submission sixty days to allow EADS to submit a proposal if they want.

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