EADS Puts a Brave Face on Tanker Setback
By Dinah Deckstein and
Cordula Meyer
The planned splash into the US defense market by European planemaker EADS has been thrown into doubt following a scathing report by the US Congressional watchdog -- but the company is putting on a brave face.
An image of the Airbus refueling tanker. The plans to supply the US Air Force with the aircraft have been put in jeopardy.
Once a week, usually on Fridays, EADS employees in Munich receive a high-level visit. That’s when CEO Louis Gallois, 64, takes a regularly scheduled flight to the German headquarters of Europe’s largest aerospace and defense company so he can keep tabs on everything in his office on the southern outskirts of the city. The Frenchman makes these short trips to demonstrate that the employees in Germany are just as important as their colleagues at other Airbus and EADS locations in Paris and Toulouse.
Late last week Gallois made another lightning visit to Bavaria, despite the fact that many EADS employees were expecting the top manager to cancel his trip at the last minute.
Just a few hours beforehand, news had broken in the US that a congressional watchdog, the Government Accountability Office (GAO), had ruled that “significant errors” had been made in awarding a lucrative defense contract for 179 aerial refueling tankers to a consortium consisting of US defense giant Northrop Grumman and EADS subsidiary Airbus. In their 69-page non-binding decision, the auditing arm of the US government even recommended that the US Air Force reopen major areas of the bidding process.
In such a situation, other business leaders would have retreated to the company headquarters with their closest advisors and planned a counteroffensive. But Gallois, whose diplomatic flair is even praised by archrival Boeing, made a decidedly relaxed impression.
In his office on the 5th floor of the main administrative building in Ottobrunn, Germany, the ascetic-looking Frenchman sat with a friendly smile on his face last Friday and patiently answered questions -- as if he had nothing more important to do. He said he regretted that he could not provide a clear assessment for the time being because he and his colleagues had not been provided with the GAO’s final report.
“We are still under contract and are convinced that our aircraft are the best,” Gallois reminded those present. He said that US government auditors had not evaluated the quality of the proposed aircraft, but had only examined whether bidding rules had been respected.
Presumably, the multilingual Frenchman has only revealed the true extent of his disappointment in the boardroom. Top executives there are already debating whether the company should participate if it comes to a new round of bidding -- at the risk of coming up empty-handed in the end.
What at first glance appears to be merely the latest episode in a long series of mishaps, misfortunes and missed opportunities at Europe’s showpiece corporation could actually shake the company more deeply than the wiring problems plaguing its A380 superjumbo. EADS and Airbus managers intended to do more than just break into the US defense market. The
Europeans were planning to use a new plant in Mobile, Alabama to solve one of their most serious problems, namely their dependency on the ailing dollar, which is the key global currency for the sale of aircraft.
In addition to the fuel tankers, there are plans to use the US facility -- which has not yet been built -- to assemble cargo aircraft and, perhaps at a later date, other long-range jets. The US location would make it possible to pursue these projects without the usual annoying protests from the governments of the countries that partly own EADS and Airbus: Germany, France and Spain. So the mood in the company was positively euphoric when the US Air Force made the surprise announcement in late February that it had decided to award the Europeans and their US partner Northrop Grumman with the coveted contract to replace its aging fleet of tanker aircraft.
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"If you can make it there, you can make it everywhere!" Airbus CEO Tom Enders said in late April, borrowing a line from Frank Sinatra as he geared up for the big breakthrough in the US defense market. He and his colleagues were already dreaming of a range of follow-up contracts around the world.
Amid the general spirit of rejoicing, EADS and Airbus managers seemingly forgot embarrassing setbacks such as the wiring fiasco on the A380 and the late delivery of the A400M military transport aircraft. Even the investigation into 17 high-ranking managers -- on suspicions of insider trading before the production delays of the A380 were announced -- faded into the background for the time being.
But virtually overnight Gallois and his crew have been hauled back to earth by a reality that is far more sobering than many of them would like to admit. Anyone who takes the time to carefully read the list of objections by the US congressional watchdog will realize that it is hardly imaginable that the next US administration under Barack Obama or John McCain will again select the Europeans and their US partners Northrop Grumman as the sole suppliers of their flying fueling stations.
The US Air Force now has 60 days to respond to the GAO's complaints. The German government assumes that the US Department of Defense will attempt to sweep aside all reservations. Reopening the competition for the tanker aircraft contract would delay delivery by months, if not years.
Officially, the German government is keeping a low profile. The issue is a delicate one, particularly so since Boeing announced a few days ago that it would compete in Brussels for contracts connected with the European satellite navigation system Galileo -- even though, after years of intensive political wrangling, it looks as if the contracts have essentially already been awarded.
EADS boss Louis Gallois has been trying to make a relaxed impression since the news of the GAO broke.
When it comes to the bidding for the US tanker aircraft, Boeing feels that it has been treated unfairly right from the beginning -- and it says that the findings of the government auditors have confirmed this. For instance, according to the original specifications, the maximum possible discharge capacity of the tanking hose supposedly had no influence on the evaluation of the bid. However, it was precisely this criterion that helped clinch the contract for EADS.
In addition, according to analyses by the GAO, procurement officials at the Pentagon let Boeing believe for a long time that it had fulfilled certain requirements, although in fact they had growing doubts. An even more serious allegation is that Air Force experts used a faulty calculating system. This showed that the EADS fleet would be cheaper to operate over the long term than the competing model from Boeing. It now appears, however, that Boeing would probably produce the aircraft with the more cost-effective life cycle.
Now it’s up to the Air Force to explain whether the Europeans were given preferential treatment, and if so, why this occurred. “We haven’t yet heard the Air Force’s response to the GAO decision,” says Gallois.
One thing is certain: The tanker deal is destined to go down in US history as the major defense project with the most ignominious track record. Back in 2003, the coveted contract, which at first went to Boeing, had to be reopened for competition after it emerged that the Seattle-based aircraft manufacturer had enticed a worker at the Pentagon with the prospect of an attractive job in the company. If it turns out that in the second round of bidding a number of tricks were used to give the winner a helping hand, it would deal a serious blow not only to the US government, but also to EADS and especially Northrop Grumman, which is highly dependent upon contracts with the Pentagon.
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At this point in time, it is totally unclear what will happen with the planned new assembly facility in Alabama. The city government in Mobile had planned a large cornerstone ceremony on the premises destined to be the new plant for next week. This has now been postponed for the time being.
Even local politicians have expressed doubts over whether the new plant will ever be built and generate, as announced, some 2,000 new jobs: “I cannot believe that in the most highly scrutinized procurement in the history of the United States Air Force the GAO found so many errors,” said Alabama Senator Richard Shelby.
In addition to EADS and Airbus employees, the pilots of the US Air Force must be bitterly disappointed. They will probably have to continue flying far into the next decade with aircraft that date back to the middle of the Cold War.
“Without a new tanker,” warned General Arthur Lichte, the commander of the Air Mobility Command, “this capability -- and our nation's ability to project power and humanitarian assistance in the future -- is in significant jeopardy."
By contrast, Airbus workers at the company's plant in Dresden, eastern Germany, took the bad news from the US last week in stride. Their plant specializes in converting passenger aircraft into freight planes. Recently, the first prototype of the Airbus tanker with the production number D-1 was nearly completed here. Over the coming months, there are plans to build another three aircraft as demo jets for production later on in Alabama.
Up until now, the workers in Dresden have remained convinced that everything will go ahead as scheduled. If, however, there is a change in plans, the D-1 certainly won’t end up in a museum. Sooner or later, it will be converted for use as a normal freight aircraft.
The demand for such jets is currently enormous because manufacturers can’t deliver the aircraft as fast as the orders roll in. Perhaps instead of flying from trouble spot to trouble spot to refuel fighters for the US Air Force, the EADS model will one day fly between major trading centers around the globe -- with a load of toys, fruit or exotic animals on board.
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