Air Force Tankers: The Case Against Northrop (NOC) And EADS

The theater which is congressional politics would have missed an entire act if the porcine members who are re-elected for their ability to bring home the bacon to their districts had not raised a great cry of "foul" when the military passed over Boeing (NYSE: BA) for the contract to build $35 billion worth of tankers. To make matters worse the eventual value of the deal could move to $100 billion and one of the big winners was French company EADS.

According to Reuters "The Congressional delegation from the Seattle area said they were "outraged." Kansas Republican Rep. Todd Tiahrt vowed to seek a review of the decision "at the highest levels of the Pentagon and Congress" in hopes of reversing it." Another member of the House was even more pointed– "We should have an American tanker built by an American company with American workers. I cannot believe we would create French jobs in place of Kansas jobs."

Members who cannot keep employment high in their districts and are viewed as being soft on the French, a nation which has been throwing spit-balls at US foreign policy for several years, are both un-American and un-electable. Being paid to live in Washington and sup with lobbyists is a privilege reserved for those who can close deals for their districts and keep jobs at home.

The first flaw in this argument that Boeing should have gotten the contract because it is an American company resides in the truth that all of the companies in the bidding were multinationals. EADS will be doing much of its work on the tankers in Alabama. GE (NYSE: GE) will be supplying $5 billion in engines for the planes. If Boeing had gotten the contract the odds are near 100% that many of the components of the tankers would have come from suppliers outside the US.

The Air Force will be dragged before Congress to justify its decision of giving a large military contract to a consortium of companies which includes one based in France. It should be a good way for representatives from states which will not get some of the plumb jobs because Boeing lost out to preen for the cameras. They can object to what they cannot fix.

Perhaps Northrop Grumman (NYSE: NOC) and EADS got the business because they were the lowest bidder. But, why should that matter?

Douglas A. McIntyre