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Boeing's Air Force Tanker Bid Dilemma

If it's un-American to send military contracting jobs to France, is it OK to send them to Japan? That's the question Boeing might have to answer if wrestles back a $35 billion Air Force refueling tanker contract.

The awarding of the contract last week to a European plane maker -- and not Boeing -- has sparked outrage from union halls to the halls of Congress over the impact on U.S. jobs, prestige and national security.

But even if Chicago-based Boeing had won the deal, critical parts of its tankers would have come from other countries, including Japan and Italy. And the tankers that will be built by European Aeronautic Defence and Space and its partner, Northrop Grumman, are certain to produce jobs in the U.S.

Boeing Headquarters
Boeing Headquarters

What's more, even as Boeing supporters criticize the Air Force for outsourcing such a high-stakes award to an overseas company, Boeing itself -- along with other U.S. defense contractors -- relies on contracts from foreign governments.

"People tend to think American or foreign, black or white, but it's more gray than that," said Richard Aboulafia, an analyst with the aerospace consulting firm Teal Group. "This is an oversimplification of what is effectively a global business."

The uproar over the Air Force tanker award has taken on a protectionist tone on Capitol Hill, with many members of Congress accusing the Pentagon of choosing a French plane (EADS' Airbus subsidiary is based in France) over an American one. Leading the charge are lawmakers from Washington, Kansas and other states that stood to gain jobs from a Boeing win.

Boeing said the tanker contract would have supported 44,000 new and existing jobs at Boeing and more than 300 suppliers in more than 40 states. It would have performed much of the tanker work in Everett, Washington, and Wichita, Kansas, and used Pratt & Whitney engines built in Connecticut.

"By awarding this contract to Airbus, the U.S. government is leading those jobs to the guillotine," Washington Democrat Patty Murray said on the Senate floor Thursday.

Boeing estimates that about 85 percent of its tanker would have been made in the U.S. Still, had Boeing won the competition, its tanker would have used a fuselage made in Japan and a tail made in Italy, noted Scott Hamilton, an aviation industry consultant based outside of Seattle.

The tanker to be built by EADS and Northrop Grumman will use a fuselage from France and wings from Britain, but also General Electric Co. engines built in North Carolina and Ohio. And the plane will be assembled in Mobile, Ala. EADS and Northrop say about 60 percent of their tanker will be built in the U.S. and they project the tanker award will produce 2,000 new jobs in Mobile and support 25,000 jobs at suppliers nationwide.

"Both tankers are based on commercial airliners sold throughout the world and built from parts made throughout the world," said Loren Thompson, a defense analyst with the Lexington Institute, a think tank.

Hamilton speculated that Airbus could eventually move production of the A330 passenger plane to Mobile too, in part to take advantage of the weak dollar.

At the same time, Boeing and other big U.S. defense contractors are big suppliers to foreign governments. Boeing sells aerial refueling tankers to Japan and Italy. It sells C-17 military transport planes to the United Kingdom, Canada and Australia. And it sells F-15 fighter jets to Korea and Singapore and has sold F-15s to Japan in the past.

Roughly $27.1 billion of Boeing's total 2007 revenue of $66.4 billion came from foreign commercial and military sales. Europe alone accounted for $6.3 billion in revenue last year, with 16 percent of that coming from defense sales.

Indeed, Hamilton said, the loss of the tanker deal is not a huge one for Boeing from a corporate perspective. The contract is expected to work out to between 12 and 18 tankers a year, compared with the roughly 450 commercial aircraft that Boeing delivers annually.

The real reason for the intense anger over the Air Force decision, Hamilton believes, is that it cuts to the heart of a long-running rivalry between Boeing and Airbus.

And anti-French sentiment is compounding the furor to least some degree, with some analysts speculating that the backlash might not have been nearly so fierce had the deal gone to, say, a British company. After all, Hamilton noted, the U.K's BAE Systems is a major supplier to the Pentagon and "no one complains about that."

Setting aside the debate over jobs and tanker components, though, Aboulafia said that at least one thing is indisputable: had Boeing won the tanker contract, more of the profits from the deal would have remained inside the United States.

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