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03/03/2008: "Bad Day For Boeing - And America"

In a decision considered by most to be a significant upset, the Air Force on Friday awarded a $40 billion contract to Northrop Grumman and their partner, Airbus parent corporation EADS, to build the new fleet of tanker aircraft. The award was a blow to Boeing, which was presumed to be the winning contractor - right up to the point of the announcement.

Now I should state for the record that I am both a Boeing employee and shareholder, so the decision could have some effect on me. But I'm far enough away from the tanker part of the company - and small enough of a shareholder - that I don't think it's coloring my opinion.

The loss is a huge one for Boeing, who built the existing tankers and was expected to build the replacements almost by default. But Boeing made mistakes along the way - most notably, the improper hiring of a Pentagon procurement executive tied to an earlier tanker deal. Boeing may - and I stress that I have no idea if this is true - have used the assumption of success to justify not sharpening the pencil quite as much as they might have on the contract.

To the credit of the NG/EADS entry, it beats the Boeing plane in several ways. It holds more fuel and can carry more passengers, and is based on a more modern commercial airliner (Airbus A330 versus Boeing 767). But EADS also several years back hired the NG executive who led the tanker group (it's currently run by the guy who was his deputy), and has spent significantly to bolster their reputation in Washington (read: lobbyists). So they did their part to win hearts and minds as well. As one article put it, "I guess all those Christmas parties finally paid off."

Here's my biggest beef with the deal: You keep hearing people talk about the need to buy American. In an increasingly global economy, the US is getting it's ass handed to it around the world by competitors who are hungrier - literally and figuratively - than we are. I understand if American Airlines decides to buy Airbus - I don't like it, but I understand it - because at the end of the day, they are beholden to their stockholders. But the stockholders of the Air Force are the US taxpayers, and I think most of them would understand - and probably expect - the Air Force choosing Boeing over Airbus even if it meant getting a little less or paying a little more.

Without sounding like some kind of conspiracy theorist, there's a reason that countries have borders, and sometimes those borders need defending. I'm not saying that war is in the offing with England, France or Germany, but if it happened, would you really want your warfighter using tools designed, built and supported by the other side? Ask the Iranians how that worked out when they needed spare parts for those F-14s we sold the Shah ...

One additional ramification of this deal will be the creation of a new EADS factory in Alabama to perform final assembly of the tankers. Of course, we all know that they'll be building Airbuses there as well - if not not, certainly in the near future. Once that starts, we're going to see what it's like to be on the receiving end of the global economy instead of the giving end ... and don't plan on getting any lube.

A huge win for EADS, a big hit for Boeing - and the landscape is forever changed.