This week, the Air Force announced the award of the new in-flight refueling tanker contract to the joint Northrop-Grumman / European Aeronautic and Defense Space Company (EADS) KC-45 proposal.

One of the pillars of American aviation, Boeing was assumed to be the favorite in the competition, having brought forth legendary airplanes like the B-17 (Memphis Belle), B-52, 747, and the current refueling tanker mainstay KC-135. The contract, estimated at $35B-$100B, was won by Airbus, an EADS company.

Immediately, Boeing began to protest and has threatened challenging the official contract award. The core of their argument is that it is unsafe to have foreign companies selling us war equipment and that it is another example of shipping jobs overseas.

The head of the US Air Mobility Command, Gen. Arthur J. Lichte, explained the decision to go with the Airbus proposal: “I can sum it up in one word: more. More passengers, more cargo, more fuel to offload, more patients it can carry, more availability, more flexibility and more dependability.” The NY Times reported that USAF officials also believed Boeing would only deliver 19 airplanes by 2013 while Airbus would deliver 49.

The rhetoric about losing jobs and what Sen. Patty Murray [D-WA] called “a major part of our aerospace industry to the Europeans forever” has become intense this week. Rep. Todd Tiahrt [R-KS] said the deal was “outsourcing our national security,” and Boeing has begun picking at this scab as well.


The KC-45 deal is a brilliant microcosm of America’s inability to come to grips with the way markets work and exposes all the flawed arguments behind the new wave of economic nationalism and protectionism coming from both the Democrats and the Republicans.

The idea of comparative advantage in liberalized trade states that countries with production efficiencies in one commodity but not another will produce what they are good at and let the industries they are inefficient in attrite and the jobs for those industries go overseas. A country can’t be good at everything (it’s too expensive) and it’s better for consumers to get the best deal possible through trade than to subsidize and protect inefficient industries for whatever reason (political goals, ego, history, etc.)

But the inherent provision in the way a free market works is that you have to be more than just efficient- you have to be good. What’s happened in the USAF tanker deal is simple- Airbus offered a better product: it carries more, is more reliable, and will be ready sooner. The airmen of the USAF want the better airplane and the US taxpayer wants the best value. As best as I can tell, that’s what we’re getting.

The politicians in this country really don’t understand trade. Americans are watching jobs go overseas and Washington’s response is to ramp up protectionism (threats about repealing NAFTA), and to criticize and threaten companies with overseas operations. Both protectionist policies and punishing American companies hurt America and its workers. What America needs is to end its sense of self-entitlement (the 1950s are over) and start innovating, educating, and re-training.

Protectionism (tariffs, etc.) is a lousy deal. It means American customers get fewer choices or have to pay higher prices for mediocre products. It means that American dollars don’t go into emerging economies (where Americans can make money) and where investment and economic growth can improve security and quality of life. Nowhere is the incentive to maintain peace higher than where citizens have property, health, and a future. Increasing per-capita GDP in developing nations gives those countries the money needed to feed, educate, and care for their own citizens. Countries growing out of poverty have increased contact with the rest of the world and may trend towards liberalization- in order to make more money. In security terms, this is good for America.


The argument about national security is moot, as the KC-45 will not be the first airplane that the US has bought from Europe- the Eurocopter EH-101 is slated to become a mainstay in the US military fleet, including becoming the next “Marine One”- the president’s personal helicopter. If European aircraft are safe enough for the commander in chief, they’re safe enough for jet fuel. Likewise, the argument about an injustice against our own economy is also bunk- we stand to make the most money in industries where we have comparative advantage in, trading freely and fairly.

The military industrial complex in this country has been raging, and it has always been a favorite of our country’s politicians. Contractors traditionally ensure each project has some handout for every state (even Airbus is promising 49 states on the KC-45 project), and the defense sector is one of the largest contributors to GDP. The award of the contract to Northrop-Grumman/EADS is sending a signal to America and its leaders: you can’t count on being the best just because you think you are supposed to be. You have to actually be the best.


Further Reading: NY Times Reuters