EADS In Tatters As GAO Sides With Boeing

The month of June has been one that EADS will be hoping ends quickly.

Starting with the arrest of Noel Forgeard, former co-CEO,  the stock being branded a “liability” by Joe Campbell and then just this week the arrest of another executive, the news that the US GAO had sided with Boeing in its protest of the KC-X tanker award will have left the European aerospace company reeling.

You can read the GAO press release by clicking right here.

From the very outset of the annoucement back in February 2008, Boeing’s view and position surrounding the protest had such conviction that today’s ruling will only come as a shock to EADS and its partner on the KC-45A tanker (based on the Airbus A330), Northrop Grumman.

Image courtesy of Boeing

The belief that the US Air Force selection would be overruled was evident in the way Boeing methodically laid out its protest in regular updates in its dedicated blog, Tanker Facts, found here.

“Our review of the record led us to conclude that the Air Force had made a number of significant errors that could have affected the outcome of what was a close competition between Boeing and Northrop Grumman. We therefore sustained Boeing’s protest,” said the GAO’s Michael R. Golden.

Senator Patty Murray was equally forceful in her support of both the GAO ruling and that of Boeing: (Courtesy of Seattle-PI)

“The GAO did not, and could not, consider the key policy issues this contract raises – such as illegal subsidies, real-world operating costs, economic impacts, and the importance of maintaining our most critical advantage: innovation through American defense-oriented research and development.

“It is Congress’ job to determine whether major defense purchases meet the needs of our warfighter and deserve taxpayer funding. The Pentagon must both justify its decision and address the flawed process that led to today’s ruling.

“We need answers before handing billions of American defense dollars to a subsidized, foreign company focused on dismantling the American aerospace industry.“

One thing is certain, the decision to overturn the initial award has likely destroyed whatever chances EADS had of using the pretentious cover of the KC-45A to shift production of its popular Airbus A330 jet to the USA and avoid the pitfalls of the currency woes that have wreaked havoc with its pricing and profitability.

In doing so, Airbus will not be able to shift any European work outside of the EU without infuriating staff, voters and a variety of EU governments that had recently been asked to stump up yet more subsidies for the A350XWB. With the WTO also due to rule on the transatlantic row over subsidies, the GAO’s decision is one in a long line of injuries that EADS will have to suffer.

While it derives almost 80% of its business via its Airbus unit, any tanker loss is not as bad as it may seem and EADS will manage to cope without penetrating the US military market for now.

The reality is that EADS has very little, if any credibility left to contest the award again - and even if it does, there is a slim-to-none chance that it would even win second time around. And while all this happens, the US Air Force is the one party that suffers most.

In searching for a tanker and choosing so poorly, it has only itself to blame while it waits for an outcome.

8 comments June 19th, 2008