Outsourcing U.S. security

A big Air Force contract that involves a foreign entity passes muster on the merits.

The US Air Force has hit severe turbulence over its awarding of the largest Pentagon contract by far involving a foreign entity. Some in Congress call it an outsourcing scandal. Boeing, the loser, may contest. Time to pull up to where the skies are calmer and survey this from there.

The contract is big: up to $40 billion to a partnership between America's Northrop Grumman and the parent company of Europe's Airbus, called EADS. It will buy 179 tanker aircraft to do midair refueling of other military planes. Today's fleet of 600 tankers, supplied by Boeing, dates to the Eisenhower era and needs replacing.

That lawmakers are trying to reverse the deal is understandable. America has lost more than 3.5 million manufacturing jobs in the past decade and at some point that decline may affect the nation's ability to ensure its own defense.

Indeed, America's military manufacturing capability has shrunk as the Pentagon has opened up more bids to US military allies in order to keep procurement competitive. But at the same time, American companies are working with foreign ones in Britain, Italy, and other allied countries to build helicopters, air-defense, and transport planes.

Is this latest deal one contract too many? Or is it that Boeing has powerful friends in Congress?

Strictly on the merits of this contract award, the Air Force made a wise choice. Reportedly, Boeing did not beat the Northrop/Airbus partnership – which will supply the body of the tankers – on a single measure: not on capability, not on cost, not on past performance.

Going with the Northrop Grumman partnership, the Air Force can expect 49 superior tankers by 2013. Going with Boeing they could expect 19 less capable tankers by that year, according to defense analyst Loren Thompson. That's the value that comes from more competitive procurement, and it benefits both taxpayers and the military.

But beyond the merits is the question of what a project like this means for America's ability to quickly ramp up in a crisis – what the defense world calls the country's "defense industrial base."

The defense-related aviation industry in the US has been in decline. Boeing claims the award would have sustained 44,000 new and existing US jobs. The Northrop Grumman partnership also creates and saves jobs in the US, but not as many – 25,000. General Electric will supply engines. The tankers will be assembled in Alabama. But Europe will build the nose, wings, and fuselage.

Boeing is still the world's dominant planemaker. It can serve as a backup in crisis, and many of the jobs slated for the tanker are expected to be transferred to its new 787 Dreamliner jet, analysts say.

The Northrop Grumman partnership, meanwhile, can potentially further open the export market for the US defense industry. As for reliability, European allies have yet to renege on delivery, even if they don't always agree with US policy.

This award can serve as an opportunity to once again assess the trend toward a dependency among allies in military manufacturing. Each overseas contract shrinks the US industrial base a little – in satellites, in helicopters, in aircraft – but also brings rewards for the US in greater competitiveness and closer ties with friendly nations.

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