Jeremy Warner's Outlook: US again reverses ferret on tanker order

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The Independent Online

So let me see if I've got this right. Airbus, owned by EADS, is invited to bid for America's biggest defence contract in years, a $40bn order to supply the United States Air Force with refuelling tankers. Only it knows it has little hope of securing the order because whether Airbus comes up with the better tender or not, the Americans will always find a way of awarding the contract to their own homegrown aircraft manufacturer, Boeing.

Let's get real. The world's largest defence budget is hardly going to be applied to supporting jobs and technological innovation in Toulouse. There's scarcely any point in having a budget at all if you can't play pork-barrel politics with it.

Then, oh joy of joys, it turns out that Boeing has won the contract by corrupt means, even if it hardly seemed necessary to resort to them. Shock and awe, the Europeans are awarded the contract.

But not so fast. First the process has to be vetted by the US Government Accountability Office, which – surprise, surprise – finds that Boeing hasn't been given a fair crack of the whip and throws the whole thing back into the melting pot.

Protectionism? Not really. This is what governments do with defence contracts. A few crumbs get left for the foreigners so as to encourage a competitive tender, but the real biggies are always reserved for domestic contractors.

The Pentagon could have saved everyone a lot of time and effort had it told Airbus at the outset that even if it won the contract it could never expect actually to carry it out. As if giving the work to Europe wasn't bad enough, the Franco-German partnership that is EADS even managed to duck out of Iraq.

Meanwhile, BAE Systems' decision two years ago to sell its 20 per cent stake in Airbus to EADS looks ever more prescient. Even without the US tanker contract, the order book seems healthy enough, but much of this work is only in the form of options, which can easily be cancelled in the vicious cyclical downturn now being experienced by the airline industry. As a consequence, EADS shares are flat on their back, which is where they will remain, at least until jet fuel prices start to ease back again.

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