:: July 2006 Letter ::
What’s the least important part of your job? For 17 years I’ve had an easy answer: Teal’s annual Eurocopter BK.117/EC 145 report. This ordinary looking helicopter represents .001% of the aggregate economic value of the Teal coverage universe. Once a year, an assistant checks the numbers and program events (such as they are). Then I spend ten minutes on the analysis, which never changes (“clamshell doors good for aeromedical blah blah blah…”) and throw in a forecast line, typically just above one per month.
That’s all in the past. The 145 is now a poster child for globalization and my new best friend. Early this month, the US Army selected it for their Light Utility Helicopter requirement. That triples program volume and doubles its total size. Eurocopter/EADS, like my grandparents, was right about America being the land of opportunity.
But first, a disclaimer. The losers, AgustaWestland, Bell, and MD make great helicopters. I’m also unqualified to say which helicopter best meets Army needs. The wide range of choices suggests a rather undefined requirement. It would have been better if the EC 145 had won without needing to create a southern US constituency. And yes, it would be great if all European governments opened their helicopter markets too. But think. Some brave souls in the Pentagon just said “Your helicopter looks good to us. Sure, your company is half French, and France is presently ruled by space aliens, but we don’t care. We like competition, and our highest priority is the warfighter. We’ll take 322 please.” Just on its own that statement makes the 145’s victory great.
Look what’s happening in the world today. France’s space aliens have decided that yogurt is a strategic industry, and the answer to EADS/Airbus’s woes is more government control. Spain is vaguely headed in the same direction. And come to think of it, the US don’t look so great either:
1. ITAR. Despite a century-long alliance and ongoing joint operations in Iraq and Afghanistan, the UK is somehow deemed untrustworthy, nearly de-railing JSF, the most important arms agreement in decades. Perhaps the State Department and other US agencies associate the RAF with Group Captain Lionel Mandrake, the liaison officer in Doctor Strangelove who didn’t help General Jack D. Ripper nuke Russia.
2. The Berry Amendment. Why shouldn’t the Pentagon be required to buy all commodity metals from a US source? Check the aluminum foil in Pentagon cafeterias. One typically well-informed Berry Amendment supporter put it best when he said, “Our nation’s titanium farmers deserve a level playing field.”
3. The Dubai Ports incident. Anti-Arab scaremongering is the most vote-productive form of xenophobic pandering for politicians. Good thing the UAE isn’t a big customer of Lockheed Martin fighters or Boeing jetliners or anything like that….
4. Anti-Airbus jihads. The last two years saw two John Mica anti-Airbus proposals. If I recall correctly they mandated the spray painting of US-based Airbus jets with “Don’t fly—fureign plane.” The latest Mica proposal halting federal funds for A380-related airport upgrades actually makes some sense. But it’s probably too tainted by Mica’s earlier protectionist efforts to go ahead.
Yet here we are. We’ve had years of this nonsense, yet globalization survived. Buy American is a code phrase for “stupid and unlegislatable.” You can fly in an Airbus or Embraer without having your phone tapped. The UAE forgave the US for its sins, and Emirates still buys from the US (and Europe). Bush and Blair stepped in to save JSF. The globalized 787 is on course (unlike the 777, the 787 offshoring debate has been confined to the lunatic fringe). And defense industry titanium is still crossing borders.
That brings us back to the 145 victory. Sure, DoD has selected other foreign platforms, but I can’t think of any other time a foreign platform was selected over a direct US competitor (the US 101 and S-92 are different beasts). And again, this is the first DoD contract for a part French platform. I can’t say whether foreign platforms will win CSAR-X, KC-X, or JCA, but the US market is very definitely open to competition.
I’m off to Farnborough, where I’ll drink a toast to the 145 and its funny clamshell doors. We might not see an A370 launch there after all. This will be a tough project to fund, but perhaps the very difficulty of creating a new Airbus widebody family is a golden opportunity too.
Previous Airbus airframes have been heavily in-sourced. Airbus might find that outsourcing and offshoring (not always the same thing) now make a lot of sense. It cuts production costs, helping the business case for the new EADS investors. It moves companies to the top of the food chain, improving return on invested capital. It would help access risk sharing cash (that’s why Italy should be Airbus’s real target, and why China is a dry well) and new manufacturing techniques. Most importantly, it gets program risk off your books, helping to calm jittery new EADS investors, getting them behind the A370.
While outsourcing, Airbus will attract a halfwit Greek chorus of semi-coherent techno-nationalists, self-serving union types, self-appointed “economic patriots,” and xenophobe politicos accusing them of mortgaging Europe’s industrial future or some other nonsense. Ignore them. And while ignoring them, think of the noble folks who made the US Army 145 buy possible.
July’s updates, of course, include the 145, along with the 747, 767, UH-1, Dash 8, Nimrod, MD500/600, SH-2, ERJ 170/190, C-27, F-5, and Raytheon’s Hawker series. The CSAR-X competition delays our annual rotorcraft overview until August. Enjoy your month.
Yours, ‘Til French Gendarmes Fly Bell 429s,
© Richard Aboulafia 1997-2006, All rights reserved.