Airbus has followed up its whopping U.S. deal of in-flight refueling tankers with a second, slightly smaller sale of similar aircraft to Britain. The British deal, confirmed by EADS chief Louis Gallois in an interview with a French newspaper, will be worth approximately $26 billion (£13 billion) over 27 years. The RAF will take 14 of the tankers from AirTanker, a European consortium led by EADS, the defense subsidiary of Airbus, using the airframe of the A330 civilian airliner. Their date for entering service is 2011. The contract reportedly will create 600 new jobs and safeguard another 3,000 in Britain, where the wings are built for the Airbus airframe.

The UK sale marks the second big defeat for a major military sale in less than a month for EADS’s chief rival in the United States, Boeing. The U.S. contract, initially worth $35 billion, is being formally challenged by Boeing, which is confident of being able to mobilize strong support in Congress to make the Air Force re-examine the decision to award the contract to a European consortium. If there is an all-out showdown with the Pentagon, Congress could refuse to fund the program, making the Air Force modernize its existing fleet of Boeing-made tankers.

Boeing has filed an official complaint about flaws in the procurement process that it lost last month, and “it is a list of specifics that look too serious to just be brushed aside,” according to John Pike, who heads GlobalSecurity.org, an on-line service of strategic analysis based in Washington..

The complaint must be reviewed by the Government Accounting Office (GAO), so, Pike said, “it is too soon for EADS to start counting any chickens” in this deal.

Related Post:

Pentagon Contract a “Massive Breakthrough” for European Companies, 6 March 2008

See Also:
KC-X Boeing Protest, GlobalSecurity.org

EADS wins £13bn RAF tanker deal, BBC News, 27 March 2008

EADS: Unveiling $26 Billion Deal With United Kingdom, Stratfor Strategic Forecasting, 27 March 2008

Airbus parent EADS wins British tanker refueling deal, International Herald Tribune, 27 March 2008

Air tanker deal set to be sealed, Financial Times, 27 March 2008

Yesterday’s announcement that the U.S. has reached an agreement with Abu Dhabi and Singapore on a set of principles for investment by sovereign wealth funds (SWFs) is being hailed as an important first by Treasury officials in Washington. In the wake of highly-publicized concerns about the transparency of such funds earlier this year, officials hope that this agreement will put those concerns to rest and encourage wealthy foreign governments to keep investing. There is also a hope that yesterday’s agreement will serve as a blueprint for similar arrangements with other funds and for similar voluntary arrangements set out by the IMF and OECD.

From today’s Financial Times:

“It’s the first time to my knowledge that there’s been a set of principles on this type of issue that include both sovereign wealth funds and a recipient country,” Clay Lowery, US Treasury Assistant Secretary for International Affairs, told the Financial Times.

“In terms of transparency and disclosure what you saw today was two funds that are basically willing to step up and say: ‘We believe there should be greater information and disclosure,’” he said. He emphasised the two countries’ commitments in areas such as institutional arrangements and decision-making structures and financial information, notably asset allocation and benchmarks.

In the midst of financial difficulties at home and a possible recession, the Bush administration recognizes the crucial importance of continued foreign investment, much of which comes from SWFs. Abu Dhabi and Singapore have the world’s largest two funds, each worth hundreds of billions of dollars.

There has been a growing concern among U.S. politicians and analysts that foreign governments with large SWFs could wield the power of their investments in the U.S. in ways that could prove harmful to American national interest. Yesterday’s agreement seeks to address those concerns, stipulating that SWFs should make investments “solely on commercial grounds, rather than to advance directly or indirectly the geopolitical goals of the controlling government.”

The Bush administration pushed ahead this week in its face-off with Russia over independence for Kosovo - and Russia pushed back in the Caucasus.

Since warning that recognition of Kosovars’ demands could trigger similar separatist ambitions in Abkhasia and elsewhere in Georgia, Moscow has announced plans to move more Russian “peacekeepers” into the breakaway province of Georgia - a step that alarmed Georgian leaders as a possible step toward full recognition threatening to partially dismember Georgia.

President Mikhail Saakashvili of the Republic of Georgia was on an official visit to Washington, where he obtained President George W. Bush’s backing for NATO, at its forthcoming summit, to offer to open a negotiating process that could ultimately bring Georgia into the Western alliance. Bush also announced that he was approving Kosovo as a candidate to receive U.S. military assistance.

This escalation between Washington and Moscow marks the outbreak of a new Cold War, according to Stratfor, an on-line geopolitical think-tank. Of course, the United States outweighs Russia and it is geographically remote from the theater of conflict. That leaves the Europeans in the front line. For the moment, they are trying to keep out of the way, but they will end up having to play major roles as independent actors in this new Cold War, Stratfor’s analyst said.

The current diplomatic inertness in the European Union can be seen in the three main governments: Germany, France and the United Kingdom are not interested in confronting Russia.

“Berlin made this very clear when it expressed a lack of interest in NATO expansion, the independence of Kosovo and the Ukraine gas issue. This is not surprising, given that the Germans are dependent upon Moscow for energy. Beyond energy, Germany’s wider economic relationship with and its proximity to Russia inform its lack of appetite for confrontation with the Kremlin,” Stratfor said.

France has its international ambitions targeted elsewhere, mainly in re-asserting its stature in Europe and emerging as a more credible player in the Middle East. “It wants no part of this new West-versus-Russia competition,” Stratfor says. Britain is preoccupied domestically.

But this will change, Stratfor predicts. Germany is re-emerging on its own again as an international power player; Britain ultimately cannot detach itself from any major U.S. geopolitical commitment; and France will ultimately find it untenable to ignore this clash. “Europe’s geography - and the fact that, unlike during the original Cold War, there isn’t an iron curtain in place - will force the Europeans to jump in or at least choose sides.”

Related Article: “The Start of Cold War II?” Stratfor’s Political Diary, 21 March 2008

The presumptive Republican Presidential candidate, Senator John McCain, has started telling Europeans that his White House will want effective teamwork with its European allies - a marked change from the way in which the Bush administration often seems to brush them off.

In his concept, the key word of a stronger transatlantic partnership is “together” - with a new emphasis on U.S. readiness to be “willing to be persuaded by” European allies in order to get united action by democracies in Europe and the rest of the world.

A key U.S.-European cleavage - over Iraq - is unlikely to be healed by a McCain presidency. He has consistently supported the war in Iraq and argued for deeper, longer American involvement, not less. Even now in calling for more powerful U.S.-EU cooperation, McCain may dismay some Europeans with his emphasis on hard military power over the soft power options that many allies feel were scandalously neglected by the current Republican incumbent in the White House. (more…)

As we noted here last week, the surprise selection of an EADS-Northrop Grumman joint bid for a $35 billion Defense contract last week has been the source of much consternation on Capitol Hill. Some lawmakers, outraged that the European conglomerate which owns Airbus was picked over U.S. aerospace giant Boeing, seem determined to keep the deal from going forward. Officials from the U.S. Air Force and Northrop Grumman scrambled to defend the contract this week amid allegations in Congress of “a European economic stimulus plan” and threats to withhold funding for the project.

From yesterday’s Politico:

Other critics argue that hiring the European-based EADS to provide military equipment raises national security questions.

Northrop Grumman, though, dismissed the national security concerns as a red herring, stressing the fact that the Los Angeles-based company is the prime contractor on the program.

“What we are doing is exactly what Boeing would do,” said Northrop Grumman spokesman Randy Belote. “There are no issues relative to any U.S. secrets, any transfer of technology out of the United States to Europe. It just doesn’t happen under our process.”

See the full story at Politico.com.

Today’s Politico has an extensive report on the Northrop/EADS team’s lobbying strategy as it fights Boeing’s formal protest of the award, filed Tuesday with the GAO.

Related Posts:
Pentagon Contract a “Massive Breakthrough” for European Companies, 6 March 2008

See Also:
Air Force slammed in Congress for Boeing contract, Politico, 12 March 2008
Defence contract was won fair and square, Op-ed, Sen. Richard Shelby (R-Ala.), Financial Times, 10 March 2008
Northrop rallies lobbying troops to save contract, Politico, 12 March 2008

The surprise selection of a European corporation for a major U.S. military contract - to build $35 billion worth of in-flight refueling tankers - has sent shock waves through the world of defense contractors. There were strong reactions both in the U.S. and Europe as officials and executives grappled with the political implications of the choice of the EADS/Northrop Grumman consortium over Boeing, which had been heavily favored to replace the existing fleet of Boeing-built tankers with a new model. But Pentagon officials said the tanker model proposed by EADS with its junior U.S. partner clearly came out ahead in four of the five categories that were the basis for the contract. The common-sense assumption in Washington is that the Northrop/EADS offer must have been far superior for the Bush administration to risk alienating domestic interests in an election year by choosing an airplane perceived by many in Congress as being largely built by a “French” company. (more…)

The clashing views of Moscow and Washington about the future of Kosovo were laid out powerfully and clearly in a recent semi-public exchange between two well-placed individuals on opposite sides of the argument. Dimitri K. Simes, a scholar specialized in the affairs of his native Russia, who now heads the Nixon Center in Washington. Ambassador Frank G. Wisner, the U.S. special representative to the talks on Kosovo’s future headed by United Nations envoy, Martti Ahtissari.

Their dialogue of articles and letters was circulated by the Committee for the Republic, an informal circle of policy intellectuals in Washington. One of the circle’s members is former U.S. Ambassador Chas Freeman to whom some of the correspondence was addressed. European Affairs found it a clarifying account of the fundamental arguments on both sides. (more…)

Despite continuing basic differences about how to combat climate change, Europe and the United States are now taking the same road on one important initiative: imposing cuts on CO2 emissions from passenger cars.

Congress has legislated an increase in fuel efficiency of 40 percent for cars by 2020, a move designed to eventually cut U.S. gasoline consumption by 20 percent. Similarly, the European Commission has moved to impose very strict ceilings on CO2 emissions on car makers in Europe even faster, by 2012. (more…)