The case of Airbus: Outsourcing Pentagon contracts results in cost overruns, protracted litigation

OPINION:

The legal costs of outsourcing government contracting are an important economic factor when considering the national security implications of contracting with a foreign company. Take the case of Airbus, a French aerospace company to provide U.S. military aircraft, as a good example.

Outsourcing may lead to numerous costs that aren’t obvious when signing the contract, yet should always be a factor when the Pentagon considers outsourcing military hardware contracts to companies based in Europe. When that foreign company is Airbus, however, these costs are inevitable because of the likelihood of skyrocketing litigation costs from lawsuits. American taxpayers will shoulder these costs.

Since its inception in 1970 as a consortium of European aerospace companies based in a number of European nations and headquartered in France, Airbus has been supported and underwritten by various European governments through subsidization of its research and development costs, initial planning, and construction costs by these various European governments — what Airbus calls “repayable launch investment.”

This practice is also known in trade circles as an illegal subsidy whereby governments subsidize development costs through loans that are repaid only if the developed technology/product is a success. As a result, in 2019, then-U.S. Trade Representative Robert Lighthizer hit Airbus with the largest World Trade Organization arbitration award in history: $7.5 billion.

According to a news release by the Office of the U.S. Trade Representative on Oct. 2, 2019, “the United States has won the largest arbitration award in World Trade Organization (WTO) history in its dispute with the European Union over illegal subsidies to Airbus” and concluded that “massive EU corporate welfare has cost American aerospace companies hundreds of billions of dollars in lost revenue over the nearly 15 years of litigation.”

Airbus also recently settled a criminal prosecution with the Department of Justice for combined penalties of more than $3.9 billion, to resolve foreign bribery and illegal arms trafficking charges with DOJ. Again, the penalties are also the largest in history for these crimes.

The question of whether Airbus’ business strategies are designed to be anti-competitive and unfair is a simple one. The way Americans see cheating on trade is in Airbus’ DNA. A compelling argument exists that Airbus would almost certainly not even exist if not for these illegal subsidies. Since the birth of Airbus, all major U.S. commercial airline manufacturers except one have closed. Tens of thousands of American jobs and billions in wages and tax revenue have been lost.

The $7.8 billion WTO penalty led to a trans-Atlantic truce between Airbus and its American competition in 2021. It is now obvious that Airbus intends to violate the law and a trade agreement and revisit its potentially illegal ways by brazenly courting illegal subsidies. This view is neither hypothetical nor hysterical.

Airbus CEO Guillaume Faury said Airbus needs financial support from European governments. Mr. Faury told the Financial Times he remains “very committed” to a funding model in which one-third of aircraft development costs are covered by government loans that do not need to be repaid unless the new aircraft is a market success. This is the same “repayable launch investment” strategy that was declared illegal by the WTO.

Airbus thus intends to continue its unethical trade practices as the “sexy French alternative” to tried-and-true honest American competition. The Air Force, acting like a bewitched teenager, ignores history and is entertaining Airbus’ bid to supply the LMXT strategic in-flight refueling system. An American aerospace contractor initially intended to partner with Airbus to compete for the Pentagon contract to build the next Air Force refueling tanker but quickly withdrew from the partnership.

Defense News reported that Airbus still “planned to build the proposed LMXT strategic tanker” even though no American partner is in sight.

The idea that the Defense Department would even for a moment consider pushing aside an American contractor and offer a multibillion-dollar defense contract to a known scofflaw like Airbus is absurd and infuriating. That award would be arguably illegal and in violation of the law, but it is unpatriotic and morally wrong to contract with a known trade and weapons unreliable enterprise like Airbus.

The Pentagon is also courting an inevitable cost overrun nightmare. Litigation relating to Airbus’ violation of the trade agreement is a certainty. Illegally awarded contracts and illegal bidding tactics are a prime source of cost overruns and extensive project delays significantly increase project costs borne by the taxpayer.

To purposefully award a contract knowing it would be subjected to certain litigation and assuredly delayed for perhaps decades in court is government waste on steroids.

It makes no economic or legal sense to consider permitting Airbus to bid on the Air Force’s aerial refueling replacement contract given their scandalous history.

• W. Bruce DelValle is a constitutional law, technology law and international law litigator. He is a native Texan who grew up on the Gulf Coast of Florida, graduated from Penn State University, and worked as a nuclear power engineer prior to graduating cum laude from Washington and Lee University School of Law.