STUDIES

Latest Study -- March, 2010:

The Employment Effects of Awarding Major U.S. Defense Contracts To U.S.-Based Firms, Compared to Foreign-Based Multinational Firms:

An Economic Case Study of the Competition
To Produce the KC-X Refueling Tanker

Robert J. Shapiro and Aparna Mathur

The U.S. Department of Defense is conducting a competition to develop and produce a new in-flight, refueling tanker aircraft, currently called the KC-X tanker. The two competitors for the contract are the Boeing Company and Airbus, a subsidiary of the European Aeronautic Defence and Space Company (EADS), in partnership with the Northrop-Grumman Corporation. This report examines the employment effects of sourcing this major U.S. military procurement program with a U.S.-based company (Boeing), compared to a foreign-based firm (Airbus) teamed with a U.S. company (Northrop-Grumman) that would design and manufacture most of its tanker aircraft in Europe. Using publicly available data, this report concludes:

• Based on the new direct investments in property, plant and equipment entailed in carrying out this contact, Boeing would create 10 times as many new U.S. jobs as Airbus/Northrop-Grumman.
• If Boeing develops and produces the tanker, it should lead to the creation of an estimated 62,605 to 70,706 new U.S. jobs over the life of the contract.
• By contrast, if Airbus/Northrop-Grumman develop and produce the tanker, it should lead to the creation of an estimated 5,113 to 7,080 new U.S. jobs over the life of the contract.
• These job projections are for Boeing and Airbus/Northrop Grumman and do not include suppliers or other indirect jobs attributable to this program over the life of the contract.

Both companies propose to meet the Pentagon’s requirements by developing certain new refueling technologies and applying them to aircraft which each already produces. Based on the proposals submitted for the last competition, as well as economic analysis and historical experience, the vast majority of the production of the new refueling tanker will occur at the existing facilities and operating assets of the winning competitor. In this context, the different U.S. employment effects for the two companies arising from the KC-X tanker contract reflect the fact that the U.S.-based Boeing maintains 96 percent of its operating assets and facilities in the United States, while the foreign-based EADS and Airbus maintain 96 percent of their operating assets and facilities in Europe.

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