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.

September 15, 2009 4:15PM

Tuesday Afternoon Hypocrisy

An article today in Congress Daily [$] made me laugh out loud. In a "Geez, these people have some nerve" kind of way.

A bunch of politicians have written to Obama, saying that Airbus should be disqualified from the current bidding process for the Air Force refueling tanker contract on the grounds that the World Trade Organization has reportedly (the final ruling is not yet out) ruled EU subsidies to Airbus illegal. Here's part of their letter:

Buying Airbus tankers would reward European governments with Department of Defense dollars at the same time that the U.S. Trade Representative is trying to punish European governments for flouting international laws... American taxpayers must not be forced to foot the bill for products which benefited from illegal subsidies.

As I wrote to my colleagues when the news came over email, I wonder if those same politicians (authors, by the way, of the auto bailout and cash-for-clunkers) will be as indignant about subsidized companies  if/when Boeing's subsidies, currently being examined in a counter-challenge at the WTO, are ruled illegal. And how about all those illegal cotton subsidies that the United States doles out? Should taxpayers be footing the bill for storing cotton (scroll down, under "Commodity Certificates")?

In any case, while I feel sorry for the taxpayers who pay for them, foreign subsidies are a gift to the U.S. consumer.  The bill that American taxpayers are being "forced to foot" is smaller than it otherwise would be because of the corporate welfare flowing to Airbus.  (Note to the libertarian purity police: I'm not advocating for corporate welfare here, just noting the other side of the economic ledger).