RichardAboulafia.com 

:: April 2009 Letter ::

link

Dear Fellow Transatlanticizers,

Here’s a good indicator that an aircraft program is in serious trouble: the company’s top executive starts channeling Colonel Kurtz from Apocalypse Now (“The horror…the horror”). That isn’t quite what Airbus CEO Tom Enders’ said to Der Spiegel about the A400M military transport – he actually said “Better an end with horror than horror without an end” – but that’s close enough. Yet in every horror-filled crisis there’s an opportunity. I have a plan.

I’ll get to the plan in a moment. First, some background. The A400M, Europe’s program to create its own theater/strategic military transport, was launched under the world’s only single-phase development/procurement contract. This guaranteed that if there were serious development overruns, there was no way to financially recover in the production phase. This contract also obliged EADS to accept an engine that they didn’t want, rather than a lower risk Pratt Canada turboprop. As Herr Enders correctly noted, “We cannot build the plane under the conditions that we’ve had up to date.”

The A400M is now running years late. The problem isn't just the development cost overruns. If the partner governments demand $8 billion in late penalty payments, as they are entitled to under this onerous contract, EADS’s goose goes in the confit pot. This explains Herr Enders’ strong interest in ending the horror.

Yet as Herr Enders pointed out, “EADS should never have signed this contract.” This was not a case of a steady-state company that needed new challenges and opportunities. EADS signed the A400M contract in May 2003 when they were already going full throttle on the high-risk A380. Given the huge risk of the combined A380/A400M programs, signing the A400M contract was like a healthy person taking a suicide pill so he can cash in on his life insurance policy. Luckily for EADS, these governments are almost certainly smart enough to not strangle the continent’s biggest defense champion. EADS has been proactive about moving forward with alternative approaches. The governments involved probably won’t demand penalties, and there’s a good chance they’ll provide the billions of euros needed to restructure the contract and get the plane back on track.

Before they do, here’s my plan. It’s not original. I expect many people have had this idea. But it deserves to be popularized. Kill A400M. Buy C-17s and C-130Js. In exchange, the USAF buys Airbus KC-45s for KC-X. The USAF gets a great and badly needed tanker with additional cargo room. Europe gets two extremely reliable and robust lifters that offer much greater capability and efficiency than a single airlifter model. The UK RAF, already a C-130J and C-17 customer, gets to avoid being stuck with a costly three model force.

Here’s some really good-news math. KC-X program of record: 179 planes. European A400M order book: 180 planes. Value of 179 KC-45s @$150 million each: $27 billion. Value of 90 C-17s @$220 million each, plus 90 C-130Js @$65 million each: $26 billion. A400M development cash saved: over $3 billion (the original pre-overrun A400M contract was worth $25 billion). Cost savings associated with production efficiencies and common logistics and training: billions more. Value to society of allied nation interoperability, happy diplomatic champagne toasts and transatlantic good feelings: priceless.

So Europe would get a better force at a lower cost, and they’d earn billions in revenue from KC-X. It’s win-win. Does anybody lose? Spain would take a hit, as would Kansas and the Puget Sound area. If we eliminate local assembly requirements and make all of these direct aircraft sales (further saving billions of dollars/euros/pounds for both sides), Alabama would lose out. But France, the UK, Germany, California, Georgia, Connecticut, Indiana, and all countries involved would come out way ahead.

However…hanging over this military airlift debate is the big question of why Europe wants strategic mobility. The A400M contract was signed a mere two months after the US invasion of Iraq and just 18 months after Europe began circulating its own currency. Europe had ambitions to be an economic and a military power, beyond the traditional NATO structure. Perhaps understandably, Western European governments regarded the Bush administration as a bunch of unilateralist jerks. Aside from the UK and Italy, they stayed away from any serious Iraq commitments. The A400M was a great way to promote pan-European defense cooperation and to avoid relying on US airlifters if Europe decided to project force abroad.

But here we are, six years later. While the US-European rift continued, the US now has a president that Europe seems to adore. Better still, everyone involved agrees that Afghanistan is a worthy cause. Every feel-good do-right multilateral high school model UN club virtue is embodied by the Afghanistan stabilization mission. Yet earlier this month, President Obama came away from his European tour almost empty handed, with nothing more than token commitments for additional troops from European countries. The US is now ramping up to 60,000 troops in Afghanistan. The A400M nations have about 20,000 in-country.

Nobody can tell European countries to commit more troops to Afghanistan. They seem to have decided that a pacifist foreign policy makes sense, particularly given the economic situation and their perception of the odds of success. But if Europe won’t commit additional forces to the Afghanistan mission, what is the point of having a large airlift fleet? Under what possible circumstances, if not Afghanistan, would Europe need strategic mobility?

That is why the transports-for-tankers plan is probably doomed. The outcome of the A400M program will have little to do with strategic logic. It’s about jobs and industrial strategy (a bias that could lead to a Boeing tanker victory here). Parochial interests trump national and global leadership almost every time. The A400M will go ahead. In five years, European militaries will still be home alone, but at least they’ll have large cargo planes. You could call them a Coalition of the Unwilling Yet Highly Mobile.

We’ll update the A400M report after Le Bourget, when there will almost certainly be news. This month’s Aircraft Briefing reports include a new Business Aircraft overview, which certainly does not offer any good news either. We’ve also updated the Eurofighter, Gripen, Mirage 2000, F-15, and Challenger/Global Express. Have a great spring.

Yours, Until USAF KC-45s Refuel French C-17s That Carry German AFVs With Canadian…you get the idea,
Richard Aboulafia
 

© Richard Aboulafia 1997-2006, All rights reserved.
RichardAboulafia.com
  ~  Last updated on January 08, 2006