Why Is the US Spending $35 Billion on Air Tankers From Europe?
Beware of French companies bearing air tankers, warns John Rosenthal, especially companies that have links to Saddam Hussein.
Writing on the Weekly Standard’s “The Blog” about the Pentagon’s awarding of a reported $35 billion tanker jet contract to EADS, John Noonan notes: “There had been doubts as to whether the Air Force, and Congress, would award such a massive contract to a French firm, but a thaw in relations following the election of Nicolas Sarkozy may have eased concerns.” But why should a thaw in relations following the election of Nicolas Sarkozy ease concerns? If this was indeed the Pentagon’s thinking, then it is egregiously short-term thinking. Nicolas Sarkozy may act like a king, but he is not one. He has been elected to a five-year term that ends in May 2012. Who knows if the first planes will even be delivered by then?
Moreover, EADS is not a French firm. It is for all intents and purposes a Franco-German one, in which the French state, more precisely, is one of the principal shareholders. According to the latest figures provided by the firm, the French holding company SOGEADE owns 27.5% of EADS stock and the German firm Daimler owns 22.5%. A Spanish state holding company, SEPI, controls a significantly smaller share (5.5%). SOGEADE is jointly owned by the French state and the French armaments manufacturer cum publisher Lagardère. The French state alone owns 15% of EADS stock. Lagardère is in the midst of selling off half of its prior 15% share. When the sell-off is complete, Lagardère will be left with 7.5% of EADS stock and the French holding company SOGEADE as a whole with 22.5%, equivalent to the German share.
A further peculiarity of the EADS ownership structure should be noted, moreover. While EADS continues to identify Daimler as owner of 22.5% of its capital and the German company continues to control 22.5% of EADS voting rights, in February 2007 Daimler in fact sold a third of these shares (representing 7.5% of the total capital of EADS) to a consortium of banks assembled expressly for this purpose by the German government. Private banks put up 60% of the necessary investment and German public banks the remaining 40%. This means that German public banks — the federal Bank for Reconstruction (KfW) and banks of the individual German states — currently own some 3% of the capital of EADS. The bank consortium is supposed to retain the shares for three years, until July 1, 2010, at which point it is free to sell them in turn. The German state, however, will have the first purchase option on the shares. (Sources: Focus, Der Tagesspiegel)
This is to say that by 2010, Germany could officially join France as one of the principal shareholders in EADS.
Now, if it should at some point become French or German policy to oppose a given American military operation, how can one be sure that the French or German governments will not use the obvious leverage that the EADS tanker deal gives them in order to undermine or prevent it? Given that these are the very countries that spearheaded the opposition to the American-led invasion of Iraq, it does not take a particularly long historical memory in order to be convinced that such a possibility is not merely hypothetical.
There are, moreover, serious reasons to have doubts too about the appropriateness of entrusting a defense contract to a group involving the French state’s private partner in EADS, Lagardère. In early 2003, it was widely reported in the English-language media that Montana Management, a front company for Saddam Hussein, owned a significant stake in Lagardère. The 2003 reports focused specifically on Lagardère’s publishing arm, Hachette, and placed the value of the Montana Management stake at $90 million. But a UN list prepared pursuant to Security Council Resolution 1483 notes that Montana Management owned shares in both Hachette (8.4%) and the French defense contractor Matra (2.5%) prior to their fusion in the Lagardère Group. A recent (December 2007) report in the French daily Le Figaro estimates the total current value of the Montana Management stake in Lagardère to be €200 million (or $300 million). As required by UNSC Resolution 1483, these assets appear to have been frozen. But their owner appears still to be Montana Management principal Khalaf al-Dulaymi — described in the above-cited UN document as the one-time “director of investments” of the Iraqi Intelligence Service. “Iraqi lawyers have demanded the seizure of the property of Dulaymi,” Le Figaro report notes, “…but Dulaymi has opposed the move.”
Finally, it might be worthwhile recalling here the curious episode that occurred in September 2003, when following the overthrow of Saddam Hussein, Polish troops reported finding “French-made” Roland-3 anti-aircraft missiles in Iraq. The report was predictably dismissed as unfounded by the French government. As so happens, the Roland anti-aircraft missile is manufactured by the “Euromissile” subsidiary of none other than EADS.
John Rosenthal is a contributing editor for World Politics Review.
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13 Comments
1. Ken:I could be wrong, but I remember reading that those tankers would be manufactured or at least assembled in the States, which sort of negates the whole leverage argument. Besides, I dont believe for a second that either France or Germany would be willing to sacrifice that much money to make a political statement.
Mar 5, 2008 - 5:01 am 2. Tom:The other half of the reason that is not stated in the article is that Boeing (the only US based company that could handle such a deal. And how much of their shares are owned by who knows whom?) tried to scam the American taxpayer with the tanker lease deal. Giving them this contract would be the equivalent of saying “Its ok to scam us, just don’t get caught”
Two reasons for the US buying from this company that I can think of.
One, the performance of the French aircraft was superior in all aspects to that of the Boeing one. This was probably the primary reason for the selection.
Second, the Airbus aircraft the French tanker is based off of will continue to be in production for many years to come. This makes sourcing replacement parts cheaper and easier. The Boeing aircraft the tanker was to be based off of would end production fairly soon and this would drive the long term maintenance costs through the roof as now all needed parts would be limited run factory pieces or custom pieces.
Cheers,
Tom
Mar 5, 2008 - 6:29 am 3. MikeT:You left out the fact that if EADS gets this contract that their partner in this is Northrop Grumman, one of the top three integrators in the United States. Do you really think that Northrop Grumman is going to stake the future of its aircraft contracts on just trusting EADS, instead of going over these planes that it will be delivering from top to bottom?
Boeing has been having a series of corruption and national security problems for a while now. It’s about time the chickens come home to roost for them. If that means that workers get laid off in Kansas then so be it. If the IT integrators around Northern Virginia behaved that way, many of us would be without jobs as well.
Mar 5, 2008 - 7:34 am 4. Wolf Pangloss:Third reason to add to Tom’s two excellent reasons. Northrop-Grumman is the US half of the winning tanker deal, which is NOT a French aircraft though it is based on an Airbus design. The majority of work in the NG proposal will be of American manufacture, in American facilities, with American workers. NG has not won a piloted military plane program since the B2, and NG presented the best proposal by a million miles. Boeing’s proposal was quite frankly not even responsive to the RFP.
Those who are getting mad at the decision should blame Boeing for putting out such a shoddy proposal.
Mar 5, 2008 - 7:43 am 5. Larry:This is the same Airbus that came out with the A380, after Boeing determined that they could never get their development budget back from a double-decker, even though it would have been a lot cheaper for them to modify a 747 than it was for Airbus to design the A380 from scratch.
Does “Concorde” ring any bells?
Mar 5, 2008 - 12:35 pm 6. Larry:I suspect that Wolf is generally right. The Boeing counterpart to the A340 is the 777, and yet they proposed a smaller 767-based tanker, probably because the 777-based tanker hadn’t been developed yet. Either they thought they could get away with it, or they weren’t interested. It’s hard to tell which. A 777-based tanker would have been much more responsive.
Boeing doubly shot themselves in the foot, because now, Airbus will be making commercial aircraft in Alabama, negating a lot of the advantage Boeing has with the weak dollar.
I have no idea what they were thinking.
Mar 5, 2008 - 12:43 pm 7. do_not_spindle:Boeing wanted to keep the 767 line running (they did this before with the 707/KC135,AWACS airframes with the last ones coming off the line in the mid-late 70s, I think) and had already done the design work for the failed leasing deal.
What I’ve read in the trade press, the 777 would have been comparable to the NG/EADS plane, but more expensive and not available as quickly. Plus, Boeing has plenty of orders for the 777 and didn’t want to compromise commercial sales with competing military sales for many of the same components and assembly capacity.
But basically, Boeing screwed up.
Depending on which engines are used, the NG/EADS plane may have way more than 50% of it’s value in the US from avionics, engines, and final assembly, even if 100% of the airframe comes from Airbus and European suppliers.
Mar 5, 2008 - 7:29 pm 8. Dusty:“Writing on the Weekly Standard’s “The Blog” about the Pentagon’s awarding of a reported $35 billion tanker jet contract to EADS …”
Typical MSM style reporting. It’s Northrup-Grumman/EADs consortium. Northrup is an American company. The Contract is not with EADS for $35B. The split, from what I’ve seen is 45%/55% respectively.
John Noonan got it right in his opening paragraph, Mr Rosenthal, so why can’t you?
Mar 5, 2008 - 7:40 pm 9. MarkD:I’m a UTC stockholder, and would like to have seen the Boeing proposal win so Pratt and Whitney would have gotten the engine contract. My preference aside, I haven’t heard an argument why the Northrop Grumman/EADS proposal should not be accepted.
It appears that the more capable plane won. Unless the Air Force mission actually requires more, smaller capacity tankers, there is no compelling reason for the Boeing proposal to be accepted.
Mar 6, 2008 - 8:10 am 10. Larry:Not to mention the fact that the Boeing planes aren’t 100% American, either. They buy pieces from a number of countries, including large fuselage sections from Japan. So it’s never clear what the exact American content in either plane is.
Mar 6, 2008 - 11:45 am 11. Hank:I am willing to bet Boeing screwed up their bid. The rest of the arguments in favor of Airbus fall flat. It is true that the 767 airframe and the PW4000 engine are older designs and near the end of their product life cycle, but that does not mean they will not be supported. There are thousends of these engines and airframes in service and will be for years. Pratt & Whitney will supply engine parts for these engines and Boeing will supply spare parts for the airframes. In fact, P&W still supplies spare parts for engines that were made in the 1970s, and both manufacturers are still suppling spare parts for the KC-135s currently in service. So spare parts is not a problem. As to the relative merits of the two aircraft, I doubt the Airbus is superior. I have spoken with maintenance people at US and foreign airlines, ones I have spoken with all prefer Boeing over Airbus.
All that aside, real problem with this deal is that US citizens will see their tax money go overseas to pay for one of the biggest defense contracts in history. It is madness.
My wife is not even a US citizen, and she is horrified by this deal. Here is hoping congress imposes a little sanity and kills the Airbus taker deal.
Mar 6, 2008 - 1:19 pm 12. reminder:http://seattletimes.nwsource.com/html/businesstechnology/2004121472_airbus12.html
http://www.weeklystandard.com/weblogs/TWSFP/2008/02/air_force_buys_french_tanker.asp
http://www.airliners.net/discussions/non_aviation/read.main/1843181/
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Hannity’s mention of “weapons with French labels on them” apparently referred to French Roland missiles, which “U.S. troops and journalists have seen … at some [Iraqi] weapons sites,” according to an October 5, 2003, Associated Press report. But the AP also noted that while Poland initially reported that the French missiles were produced in 2003, the Polish government quickly recognized that the report was “incorrect.” France stopped exporting Roland missiles in 1986 and stopped producing them completely in 1993, according to the French Foreign Ministry.
International human rights organization Amnesty International has documented that both French and U.S. companies supplied weapons technology to Iraq prior to the 1991 Gulf War:
Before the 1991 Gulf War, at least 20 countries were accused of involvement in building up the technological basis for different Iraqi weapons programs, in particular the chemical weapons program. In December 2002, the Iraqi government submitted a 12,000-page dossier to the UN [United Nations] naming companies from the UK, France, Russia, the USA and China as suppliers of weapons technology to Iraq. … The dossier claims that 24 US firms sold Iraq weapons including nuclear and rocket technology and that some “50 subsidiaries of foreign enterprises conducted their arms business with Iraq from the US”. … Although most of the trade ended in 1991 at the outbreak of the Gulf War, Russia, China and reportedly Portugal traded arms with Iraq after 1991 in breach of UN resolutions.
A December 30, 2002, report in The Washington Post further chronicled America’s role in providing Iraq with weapons technology prior to the arms embargo: “The administrations of Ronald Reagan and George H.W. Bush authorized the sale to Iraq of numerous items that had both military and civilian applications, including poisonous chemicals and deadly biological viruses, such as anthrax and bubonic plague.” The Post also documented that the U.S. provided “billions of dollars of credits” to supply the Iraqi war effort, according to former National Security Council official Howard Teicher, and that upon gaining entrance into Iraq following the Gulf War, U.N. weapons inspectors “compiled long lists of chemicals, missile components, and computers from American suppliers, including such household names as Union Carbide and Honeywell, which were being used for military purposes.”
The Washington Post reported on October 8, 2004, that several French companies have been accused of selling weapons technology to Iraq after the embargo. But the Post noted that “U.S. weapons inspectors found no clear evidence” that French government officials were involved in or aware of those deals, and it is unclear whether reported offers from French companies to Iraq were ever consummated.
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