As Boeing (BA) Pushes Congress, It Risks Business In Europe

March 7, 2008 by Douglas A. McIntyre

The management of EADS sits in Europe watching pork-eating members of Congress talk about the hearings they will hold in an attempt to change the Air Force’s decision to buy $35 billion in air tankers from the Airbus parent and Northrop Grumman (NYSE: NOC). It should come as no surprise that the members leading the charge are from Washington State and Kansas where Boeing (NYSE: BA), which lost the contract, has factories.

The shouting about the Boeing set-back has turned surly and menacing. Some politicians believe that since the French did not support the US in Afghanistan and Iraq, they do not deserve to get US military money for the tanker project. Several House members are concerned that EADS may steal technology secrets during the project of building the planes.

The US has a complaint against Airbus at the WTO alleging unfair trade practices. Perhaps that is enough of an excuse for moving the contract back to Boeing.

The real argument, of course, is about jobs. The Congressmen and Senators in states where Boeing plants operate cannot go back to voters there and say that they did nothing to help the locals get better employment.

Congressman John Murtha, who chairs the House of Representatives Appropriations subcommittee, went so far as to say "This is as political as anything that we do. This committee funds this program. All this committee has to do is stop the money, and this program is not going to go forward," according to Reuters.

But, Congress risks an aerospace Cold War if it continues down it present path. All of the evidence from the Air Force shows that it got a much better plane and a much better deal from the Northrop Grumman group which included EADS. Reversing the decision would be arbitrary, a sign that the best bid means little.

On the other side of the Atlantic the French and German governments, which own large pieces of EADS have some leverage. They can encourage their flag carriers to cancel orders for Boeing commercial aircraft which would undermine the US company’s finances.

The tanker issue is uglier than it seems and could lead to a out-and-out trade war.

Douglas A. McIntyre