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In Defense of Airbus

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By TERRENCE GUAY By TERRENCE GUAY

The Tampa Tribune

Published: March 21, 2008

The Pentagon's decision to award a $35 billion contract to the parent company of Europe's Airbus has provoked a storm of controversy. The EADS-Northrop Grumman team was selected over Boeing to supply the Air Force with 179 refueling tankers - the second largest Pentagon contract ever.

For Boeing, which won a similar contract in 2003 and then saw it rescinded when it came to light that an Air Force procurement official landed a plum position with the aerospace company, the new award is a serious blow. The company's supporters in Congress and the states of Washington and Kansas are furious. Their complaints are economic (the Pentagon should be supporting American companies, not foreign ones) and political (Europeans should not be rewarded for their minimal support of U.S. actions in Afghanistan and Iraq).

But what has been lost in the discussions over the past two weeks is that it is no longer accurate to describe Boeing as an "American" company, nor EADS/Airbus as a "European" one. It is much more accurate to describe both companies as "transatlantic" or even "international."

Take Boeing. In the 1960s, only 2 percent of the content of Boeing's 727 was non-American. By the mid-1990s, this had increased to 30 percent in the 777 model. Going forward, at least 70 percent of the 787 Dreamliner will be built outside the United States, mostly in Japan.

Likewise, Airbus is becoming increasingly "American." Airbus buys about $6 billion worth of U.S. goods a year, supporting 140,000 jobs in 40 states. About 100,000 U.S. workers make parts for the Airbus A380 superjumbo, and the company will build a new plant in Alabama to assemble the tankers, resulting in 2,500 new jobs and supporting 25,000 around the United States.

Rising global demand for aircraft will blur further the identities of Boeing and Airbus in the coming years. Airbus estimates that China alone will need 2,929 large aircraft worth $349 billion between 2006 and 2025. Given these figures, China is destined to be a major market for both Boeing and Airbus, so the rivalry to "win" China is likely to be extremely intense. Airbus has already agreed to build an assembly plant in Tianjin for the A320, and it is almost certain that both companies will produce more in China in an effort to sell more there.

Given the multinational nature of all of these aerospace companies, the outrage over the tanker deal is clearly misplaced. Members of Congress are being hypocritical when, on the one hand, they fume over general government waste of taxpayer dollars while, on the other hand, they are furious that the Pentagon made a decision that it feels offers the best value for money.

Fear that Europeans will gain from the Pentagon's largesse ignores the fact that U.S. companies have dominated the global arms trade since the end of the Cold War, and that European defense ministries buy far more from U.S. firms than European companies sell to the Pentagon.

More importantly, Americans should be concerned about the extent to which the United States offers a business environment that supports high-skilled jobs in the aerospace sector, regardless of the nationality of the company providing them. Ensuring a pool of well-trained engineers, technicians, and production workers is far more important than who is paying them. Unfortunately, that task, which requires better support for education, job training, and scientific research, is far more complicated and less amenable to sound bites than the current blather over refueling tankers.

Terrence Guay is clinical associate professor of international business at Penn State's Smeal College of Business.

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