The Super Tucano Case
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11/09/2011 – A significant irony in the current U.S. defense budgetary cost cutting debate is the absence of consideration for U.S. exports. Although the President expressed his vision of a significant expansion of exports, defense is not part of this vision. The number one defense export product on the horizon — the F-35 — is not even considered in such terms. The focus is simply upon the cutting of numbers of aircraft to “save” money. This is a logic amazing to anyone with knowledge about manufacturing and production.
In the case of the F-35, the U.S. has committed itself through the structure of the F-35 program to be able to produce in numbers and at cost points with allies, so that we can collectively shape a new global fleet. Creating a global fleet provides significant economies of scale and capability which dwarf any considerations of today’s stock market price of the IOC aircraft.
Creating a global fleet provides significant economies of scale and capability which dwarf any considerations of today’s stock market price of the IOC aircraft.
Such a myopic cost cutting approach is not likely to get one to the strategic objective of exports and generating significant allied capability or to creating the global fleet so essential to global defense.
But this is nothing new. The tanker competition was a good case in point of a missing allied dimension from defense procurement decisions. It seemed better to some to buy a smaller and less capable tanker for “less” money than an allied generated tanker because of supposed cost savings and job protection issues. Clearly, the USAF leadership has to be looking at their “cost savings” and wonder where they went. And now in a stroke of historical irony, Congress and the Administration are creating the conditions for Boeing to fail in the Brazilian fighter competition.
The tanker competition was a good case in point of a missing allied dimension from defense procurement decisions. (…) And now in a stroke of historical irony, Congress and the Administration are creating the conditions for Boeing to fail in the Brazilian fighter competition.
The Brazilians seem to have had enough of Congress pushing money to Hawker Beechcraft, a company apparently seeking significant Chinese funding, in order to allow it to be able to compete with the Super Tucano in an Air Force competition [1]. And recently, the Senate in confirmation hearings for a senior State Department official barely mentioned the most important country in South America in its hearings. The inside the beltway world is so insular as to make the Mandarian Chinese of the Middle Kingdom seem cosmopolitan. Even though this is supposed to be a competition of off the shelf products or in other terms no development money invested, the Congress has pushed money to Hawker Beechcraft to support them in an off the shelf competition which to the non-inside the Beltway person looks like tilting the game table to change the odds. Apparently this has confused and angered the Brazilians, who amongst other things, can be a key ally in dealing with China.
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Two recent articles in Brazil are translated from the Portuguese and are synopsized below to give a feel for how Brazilians are looking at the way Embraer and the Super Tucano are being treated in the current defense procurement environment.
(1) A View from Brazil: Embraer is the Target of U.S. Protectionism
Folha de São Paulo newspaperm São Paulo, Patrícia Campos Mello, 11/08/2011
Embraer is competing for a US$ 1 billion contract with the U.S. Air Force; competitors raise the issue of “American jobs”. Members of Congress seek an investigation regarding subsidies for the Brazilian company; campaign talks of “national security”.
Embraer has become the target of a U.S. protectionist campaign, whose objective is to keep it from winning a contract with the U.S. Air Force for nearly US$ 1 billion. The Brazilian company is taking part in an Air Force bidding contest to supply 20 airplanes (which could total as many as 55) to be used in Afghanistan and the U.S. Embraer’s Super Tucano is competing with the American AT-6 by Hawker Beechcraft.
The protectionist offensive is taking place on three levels: members of congress from the State of Kansas, where Hawker is based, have asked that an investigation be held by the International Trade Commission (ITC), in order to determine whether or not Embraer is receiving subsidies from the Brazilian government, which would be illegal.
At the same time, Hawker defenders have launched a public relations campaign pressuring the Defense Department into giving the contract to the America company, because an Embraer victory would “eliminate 1,400 American jobs during a time of recession ” and would “outsource the national security of the United States, placing it in the hands of a foreign company.”
Finally, Hawker is preparing an attack on Embraer from its most vulnerable flank. “It is not possible that a company that is being investigated for corruption should continue taking part in the bidding contest; we will ask Congress to set up a Congressional Committee to investigate the contract,” Todd Tiahrt told the Folha, who was a Congressman from Kansas for 15 years and is now a consultant for Hawker.
Embraer is the target of an investigation by the U.S. Securities and Exchange Commission regarding a possible violation of the Foreign Corrupt Practices Act (FCPA).
Embraer limited itself to sending a statement. “This investigation [by the SEC] is merely an investigation, and any conclusions regarding its potential results are premature,” wrote Jackson Schneider, Embraer Senior Vice President – Institutional Relations. After several contacts, Hawker made no reply.
The result of the bidding was expected to come out in June. It was put off until September, and now is expected to be announced by January.
The ITC, which is an arm of the U.S. government, is investigating the competitiveness of the American jet manufacturing industry and the “government policies and programs that affect aircraft financing and research ” in Brazil, China, Europe, and Canada. ITC employees have already gone to Brazil to gather information regarding Embraer. The Folha has found that, if the report shows that Embraer receives subsidies, Beechcraft could pressure the USTR to open a panel with the WTO.
In an additional article, Brazilian concerns were identified which clearly could effect the ability of Boeing to be effective on selling F-18s to Brazil.
(2) Lobbying Against Brazilian Company Has Been Aggressive
Folha de São Paulo newspaper, São Paulo, 11/08/2011
Bloggers and conservative polling institutes in the U.S. have united to attack Embraer and pressure the government to give the contract to America’s Hawker Beechcraft.
“It’s scary that a company that is subsidized and actually controlled by a foreign government, which is sometimes hostile to American interests, could produce defense equipment for the U.S.,” wrote Jeffrey Mazzella, Executive Director of the Center for Individual Freedom, in a letter to former Secretary of Defense Robert Gates. “Brazil has opposed America’s efforts against the Iranian menace and against Venezuelan terrorist support; the current president, Dilma Vana Rousseff, is herself a former revolutionary activist.”
Another weapon is the populism in the midst of the U.S. crisis. “Hawker is an American company, employing Americans; given the current state of our economy, taxpayer’s money should not be financing the growth of other countries,” wrote Rich Michalski, General Vice President of the International Association of Machinists and Aerospace Workers. Hawker says that if it wins the bid, it will “maintain” 1,400 jobs, 800 of them in Kansas. Embraer, associated with America’s Sierra Nevada, says it will create 50 jobs on the assembly line in Jacksonville, Florida, but that it will maintain 1,200 at American suppliers. The company says that the Super Tucano will follow the rules of the Buy American program, with 80% of its content produced in the U.S.
Embraer gathered members of Congress from Florida, and the mayor of Jacksonville to lobby for the company. The dispute is similar to the fight between Boeing and Europe’s Airbus for a contract for aerial refueling systems, with 18 airplanes for US$ 3.5 billion. The contract was given to Boeing, in February, after a massive lobby campaign and accusations of subsidies against Airbus. (PCM)
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References
[1] See:
For a companion piece, see: