EADS/Airbus Government Ownership, Protection, Intervention & Subsidies: The Effect on American Free Enterprise and National Security

United Arab Emirates

One Emirate is an Airbus parts supplier and another owns 3% of EADS.  As a result UAE could not be expected to purchase anything but the EADS tanker.

The UAE tanker saga begins over a decade ago, when the country issued its initial Request For Information. Throughout the late 1990s and into the early part of this decade more requests and informal briefings on proposed tankers occurred. However, it was not until 2005 that the UAE released its first formal tanker Request For Proposals.

In early 2007 the United Arab Emirates announced it had selected the Airbus A330 MRTT, and ordered three tankers.91 The award of the tanker contract to EADS came a short time before the announcement that EADS also a large capital investment:

Dubai International Capital, an investment company owned by the emirate’s ruler, Sheik Mohammed bin Rashid Al Maktoum, became one of the biggest shareholders in European Aeronautic Defense & Space on Thursday, taking a 3.12 percent stake in the company.⁹²

The close relationship between the UAE and EADS goes back much earlier than this deal in 2007; indeed, Dubai and the other Emirates have purchased scores of Airbus products in the past. The government-owned Emirates airline currently has 57 Airbus planes, with a further 150 on order. It is the biggest customer for Airbus’ A380 super-jumbo jet, with total of 90 ordered.⁹³ The relationship also extends into aircraft parts, because Mubadala Aerospace, part of the investment vehicle owned by the government of Abu Dhabi, has a $1 billion deal to make Airbus plane parts in the UAE.⁹⁴

Arms deals in many Persian Gulf nations often short-circuit the usual trappings of a free market. In this case, there is every reason to believe that the decision-makers in the UAE were determined to hand EADS the contract. However, it is not apparent that getting the best tanker for the money was the UAE’s highest priority.

Saudi Arabia

Military procurement by the House of Saud is often politically-driven, untraceable and controlled tighter than OPEC’s grip on the price of oil.

The level of transparency in defense procurement in Saudi Arabia makes the activities in the UAE appear straightforward. A closed world of patronage and questionable ‘offsets’ is the cost of doing business in the oilrich Kingdom, and both the government and foreign contractors have an interest in keeping details quiet. As former CIA operative, Robert Baer observed in the Atlantic, “Practically every deal with the Saudis eventually becomes hard to trace, lost in some desert sandstorm back near the wellheads where the money sprang from in the first place.”⁹⁵

The limitless oil wealth of Saudi Arabia often obscures economic prudence. Leaders in the Kingdom are often unaccountable to their citizens, especially when a large spending project is in order. Where does long-range aerial refueling come into the strategic requirements of what is, primarily, a deterrence force? No matter.

As Baer points out: “In off-budget spending, revenue from oil sales goes directly to special accounts, bypassing the Saudi treasury altogether. The money is then used to pay for pet projects, from defense procurement to construction, with no government audits or accountability of any sort.”⁹⁶

The strange thing about the Saudi contract is that officials there had reportedly shown indications of waiting until the U.S. Air Force contract was announced. This makes sense, especially in light of Australia’s concerns about development costs. The winner of the U.S. KC-X bid would be in a position to lower prices on a per-tanker basis. Nevertheless, political concerns appear to have trumped cost savings, as EADS announced the contract with Saudi Arabia in January 2008, just ahead of what was expected to be the U.S. Air Force’s decision.⁹⁷ Stranger still, in July 2009 before receiving any of its initial tankers, EADS announced that the Saudis had ordered three additional tankers.⁹⁸

The similarities to the earlier tanker deal with the UAE are apparent: again, despite incentives that should cause it to wait for a drop in price, Saudi Arabia for other than market reasons chose to allow EADS to benefit from tanker sale publicity that could influence the far-larger U.S. deal.