February 25, 2011 1:07PM

Boeing’s Tanker Win Is a Small Taxpayer Win

The Defense Department announced yesterday that it is awarding its aerial refueling tanker contract to Boeing. We'll pay them $3.5 billion for the first 18 tankers and $35 billion if all the planned 179 tankers get built. These are essentially gas stations in the sky that extend the range of bomber and fighter aircraft.

The decision is causing great consternation in Alabama, where EADS, the losing bidder, would have located most of the manufacturing for the deal. Governor Robert Bentley compared the loss of federal spending to a "death in family." I'll leave it to others to speculate as to what that says about his priorities and just point that the decision is good for Americans generally.*

From a military perspective, both aircraft likely would have performed well. Tanker technology is not cutting edge these days, so technical risks in development are relatively low. And given that the Pentagon knows that its decision will come under great scrutiny, it is reasonable to accept its judgment that Boeing's offer is better.  

The main reason why taxpayers come out ahead here is, however, one that the Pentagon is not allowed to consider when weighing bids: how the award affects future political pressure for spending.  I explained these politics in 2008, before EADS took over the bid of its Airbus subsidiary:

The political problem with the Airbus deal is that it opens a production facility in Alabama to make conventional aircraft assembled elsewhere into tankers, but will not close Boeing’s similar plant in Wichita, Kansas. This means taxpayers have a new mouth to feed. Because they create concentrated interests, US military production facilities are nearly impossible to close. In the private sector, sellers make money by cutting costs and delivering products more efficiently. In defense contracting, companies succeed by keeping production lines open and relying on local Congressman, workers and lobbyists to get them work. That's why the US has twice the number of shipyards it needs despite consolidation in the shipbuilding industry. It would have been better to keep all the production in Europe, preventing new domestic lobbies from forming, or more realistically, accomplish the same thing by making Airbus lease Boeing’s plant.

*It's worth asking whether 179 is excessive, given that precision munitions are vastly increasing the striking power of each aircraft. Today we can destroy exponentially more targets with the same forces relative to twenty years ago, and we continue to grow that ratio.