PARIS - Outraged cries from industry and political leaders in Europe are giving ammunition to those who say a "European preference" in buying weapons is the right response to the "American protectionism" of the U.S. Air Force's $35 billion tender for an aerial refueling plane, analysts said.
Senior politicians denounced the KC-X tanker competition after Northrop Grumman announced March 8 it will not bid because the terms favored the smaller 767 aircraft from Boeing.
Critics of the tender said it denied a chance for EADS, teamed with Northrop, to field the twin-engine Airbus A330, handing easy victory to its archrival, Chicago-based Boeing. They noted with ire that the Air Force had picked the A330 in a previous tender, which was voided and rewritten.
French President Nicolas Sarkozy, who slammed the tanker tender at a March 12 press conference in London, "will have the opportunity to raise this issue with President [Barack] Obama at his next visit to the United States" at the end of the month, French government spokesman Luc Chatel said March 10.
French European Affairs Minister Pierre Lellouche called it an "affront" to France and Europe. "But we will respond," he said.
It was unclear just what the response might be. One executive in the United States said that potential measures might include the cancellation of France's $440 million contract to upgrade its fleet of Boeing AWACS (Airborne Warning and Control System) planes to the latest Block 40/45 standard.
But practical options appear to be limited, given the vast range of American military equipment for sale, the much smaller defense budgets elsewhere and the towering deficits of many European countries.
As well, Britain's BAE Systems and Italy's Finmeccanica group have spent large sums to buy U.S. businesses as part of their strategy to gain direct access to the world's largest defense market. EADS, European missile maker MBDA and France's Safran group also are looking for medium-sized acquisitions and program openings in America.
The damage done in trans-Atlantic relations casts doubt on that strategy, said Loic Tribot La Spiere, head of the Centre d'Etude et de Prospective Stratégique, a think tank here.
"It is not worth investing to acquire companies if you find yourself competing against an 'American' company," Tribot La Spiere said.
The concern is the "U.S." company will win.
"This will significantly penalize aerospace and defense companies," he said. "It will certainly penalize European-American relations."
The implications go wider.
"It raises the question whether the operational cooperation you see in Afghanistan can be extended to technological cooperation," he said.
For his part, Pentagon acquisition chief Ashton Carter said in a March 12 interview that he was aware of the protectionism charges.
"People try to read things into a particular acquisition event," he said. "There is no intent to bar European offerors from giving us in the U.S. Department of Defense their weapon systems. We actually value that because the wider the base of technology, the more competition that we can have, [it] is better for the taxpayer and the war fighter."
The tanker tender helps those who favor protectionism here, known under the label of European preference, said Camille Grand, director of think tank Fondation pour la Recherche Stratégique.
"In future, when the 'EADS countries' come to buying decisions, industry will have an argument against acquisition of American equipment," he said. "That ends up hurting U.S. business."
Britain, France, Germany and Spain are stakeholders in EADS, with large industrial or financial holdings in the group or its Airbus airliner subsidiary.
As NATO works toward defining a new strategic security concept, the tanker contest could chill the potential for a large trans-Atlantic defense market, Grand said.
"The air tanker dossier had taken on a highly symbolic significance. It could have helped develop a large trans-Atlantic cooperation," he said.
The perception was the U.S. contest had not been "fair and free," which would hinder European defense markets from opening up to competition, he said.
The tanker decision was all the more disappointing because the aircraft did not raise key sovereignty issues, such as might arise from buying a combat aircraft or new satellite.
Pierre Conesa, chief executive of consulting firm Compagnie Européenne d'Intelligence Stratégique, here, said, "This gives a bad image for America."
Boosting European Firms?
The bruising experience may yet give European companies a political boost. "European industry could use this as an argument to get support for defense programs in the future," Conesa said.
François Lureau, head of consulting firm EuroFLconsult and former head of the French defense procurement office, agreed: "There is an increasing awareness in Europe [that] more needs to be spent on defense, or certainly not less. The tanker deal tends to support that."
Tribot La Spiere said, "If this is confirmed, it is a strong signal that America is practicing a policy of economic protectionism." He added, "It sends the message that the free-market principle is pursued sometimes, not all the time, and not when it is in their own interests."
U.S. export control is cited as a factor for the launch of the European Meteor missile program. The U.S. denied export clearance for the Advanced Medium-Range Air-to-Air Missile (AMRAAM) for the Saab Gripen fighter jet for sale to Finland, and then sold Boeing's F/A-18 fighter with the AMRAAM to the Finnish Air Force, an analyst said.
A further cause for concern for European industry is the Obama administration's plan to streamline arms export clearances, which will likely increase competitive pressure and boost U.S. share in the world market, Grand said.
But any response, to be effective, would need to be made by European countries acting together, not just France. That might be difficult to obtain.
"It will be hard to make a common front," said Nick Cunningham, analyst at brokerage firm Evolution Securities, London. "Britain and Italy have the most to lose."
Britain is buying the U.S.-built Rivet Joint reconnaissance aircraft and gets technology transfer on the Astute nuclear attack submarine and Trident ballistic missile. BAE and Ultra Electronics have commercial interests in the U.S. market, and BAE is a tier-one manufacturer on the F-35 Joint Strike Fighter (JSF).
Italy has negotiated final assembly and checkout of the JSF and is supplying the C-27J twin-engine cargo plane to the U.S. Army.
A study by the Center for Transatlantic Relations on U.S.-EU defense trade showed that Europe imported about 1.5 percent of total U.S. procurement. U.S. military exports to a small group of European countries, including Britain, France and Germany, rose from $1.2 billion in 2002 to more than $6 billion in 2006.
European exports to the United States totaled $511 million in 2002 and rose to $1.5 billion in 2006, mainly due to the U.S. purchase of mine-resistant vehicles.
Apparently, Northrop's assurances that its tanker-building operation would create about 40,000 American jobs and start up an A330 assembly line in Mobile, Ala., were insufficient.
The politics of spending defense money means the taxpayer wants to see domestic jobs created, Lureau said. It takes political courage to go against that.
For Grand, the tanker deal could have sent a powerful signal in trans-Atlantic relations. "This was a missed opportunity at the political level," he said. å