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Old 05-06-2003, 08:43 PM   #1
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American Company Faces European Bias

Pratt Bid Appears To Hit Bias

By BARBARA NAGY And MICHAEL REMEZ
Courant Staff Writers
Posted May 6 2003

Despite submitting a bid nearly 20 percent lower than that of its European rivals, Pratt & Whitney appears to be on the verge of losing a $3.6 billion contract to power a new Airbus military transport, ratcheting up transatlantic tension over fair trade.

Germany, the United Kingdom and France - the main partners in Airbus' A400M transport program - are considering a veto of the Pratt engine, according to European press reports. French President Jacques Chirac was widely quoted last week as saying he would accept only a European engine.

Airbus has delayed a decision on the contract while a consortium of French, German, British and Spanish engine companies reworks its bid. An announcement is expected this week.

If Airbus gives in to European pressure, it raises new questions about protectionism in the wake of a European Union's "Star 21" study last year, which urges development of the continent's aerospace industry. U.S. manufacturers have long complained that it's hard to compete against state-subsidized European companies.

Paul Nisbet, an analyst with JSA Research in Newport, R.I., said the dispute has been aggravated by disagreements about the war in Iraq - and by the aerospace recession, which hurt the business of aircraft and engine manufacturers globally.

"It has been below the surface for a long, long time," Nisbet said. "It is just bubbling up."

Ironically, Nisbet said, 80 percent of the work on Pratt's PW800 engine would have been done outside North America because of foreign partnerships arranged by Pratt in an effort to win the bid. Those partners would share in profits from the program.

But some analysts say the A400M is unlikely to be the catalyst for a full-fledged trade war. It's a military aircraft, and nations traditionally are protective of their defense businesses. More importantly, they say, the ballooning cost of the transport is likely to hurt sales and teach Europe a lesson about competition. Some doubt the plane will ever be built.

"The bad news is the odds are against them," said Richard Aboulafia, an analyst with the Teal Group in northern Virginia, when asked about Pratt's chances. "The good news is it really doesn't matter."

He said it appears that the Europeans are using Pratt to force down the engine price offered by Britain's Rolls-Royce PLC and its European partners.

Noel Forgeard, the chief executive of Airbus, told reporters last Wednesday that the Rolls-Royce offer was close to 20 percent higher than Pratt's. On Thursday, Airbus said it had agreed, at the request of several European governments, to give the European companies a chance to revise their bid.

To some U.S. observers, Airbus was saying it would do what it could to make sure the Europeans got the work.

"It's just another demonstration that Europe is sticking to its plan," aerospace consultant Mark A. Bobbi said. "It demonstrates the solidarity of those countries."

The blatant protectionism has infuriated executives at East Hartford-based Pratt and at United Technologies Corp., its corporate parent, according to one source. Pratt spokesmen in East Hartford and Quebec declined comment Monday.

Pratt's Canadian unit would manage the project, but the PW800 engine is the first in a family of next-generation motors being developed by the company in Connecticut. Losing the A400M would delay the day when that engine would start drawing a revenue stream, although no one expects Pratt to give up on the engine because of the delay, Bobbi said.

Edward Stockton, a business consultant and former UTC economist, said the Europeans have painted the PW800 as a North American engine in an effort to build opposition to it.

"They have done everything they can to plant that seed. It germinates, I guess, after a while," Stockton said.

European decision-makers are wrestling with competing priorities, said Joel Johnson, vice president for international affairs for the Aerospace Industries Association, a trade group based in Washington.

"They are clearly conflicted. At the moment, the issue is to what degree this is a work program to preserve the European defense industry and to what degree it is to provide a transport alternative and military lift at a reasonable cost," he said.

In the complex world of global partnerships - where Pratt has diverted work away from U.S. companies in order to win contracts overseas - not all Americans are hoping Pratt wins the order.

Doug Rose, president of Aero Gear Inc. in Windsor, said the United States needs to do more to protect its own aerospace industry - just as the Europeans are doing.

"I don't mind the escalating tension," he said. A full-fledged trade war might push American companies like Pratt to give more work to their U.S. suppliers.

Robert Walker, a former Republican congressman who recently was chairman of the Presidential Commission on the Future of the U.S. Aerospace Industry, said Pratt would have a difficult time challenging the award if the European engine makers return to Airbus with a competitive offer.

The Europeans have set up roadblocks to unfettered competition, he said.

"While they nominally agree with the idea that everybody should be able to compete, in their view, it is often a one-way street," said Walker, now a Washington lobbyist. "They should be allowed to compete here, but American companies have high hurdles to get over to compete in Europe."
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Old 05-07-2003, 01:46 PM   #2
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Hello,

This is in a way not acceptable. Because of national bias taxpayers are going to pay more since the contract will not go to the company with the best offer, but to the company which comes from a friendly government. And this is not the only time it happens, it occurs regularly.

However, I am split over this issue, especially in this case. This is about a contract in the defense industry and from that point I can understand to order from a national contractor, or one from a friendly government. I use this last phrase of 'friendly government' loosely as I cannot come up with a better word at the moment. What I mean in this case is a contractor from an EU country.
Many are saying that the EU should get a better defense (army), but that implies, IMO, that a government should be able to control the industry. Or at least not lose control to another government.
It's quite applicable at this moment since the relationship between France and the US isn't very good. So I can understand that France does not want to depend on critical parts coming from a company whose government wants to punish France in some way or another.

Oh, and as I said, this occurs regularly, but not only in Europe. In my eyes, the same is happening in Iraq at the moment, where only US companies can get contracts for rebuilding the country. Other, foreign, companies might offer a better price, but they are left out. This means that the taxpayer (US? Iraqi?) probably has to pay a higher price.
It is equally applicable to some industries in the USA (defense of course, but also communication), mainly for the reason I stated above why I'm split over this issue (keeping control). This does not make it less ugly, but hopefully makes people realise this is not an isolated case. In that sense the quote at the end can be equally applicable for the other side (paraphrasing it):
Quote:
"While they nominally agree with the idea that everybody should be able to compete, in their view, it is often a one-way street. They should be allowed to compete here, but European companies have high hurdles to get over to compete in the USA."
C ya!

Marty
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Old 05-08-2003, 12:50 PM   #3
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Dreadsox:

I'm pro free trade and i'm against the veto if it is just because the producer has the wrong nationality.

Also in military projects you have to think long term and a veto might be ok if the other company might block spare parts in the future to punish the EU forces for "wrong" politics of EU countries.

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Old 05-08-2003, 12:56 PM   #4
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WTO also allowed the "EU-List" fr tolls against US goods.

This will be affective on 1st January next year if the US dosn't stop the illegal subventions for US export-companies.

WTO allowed the EU to put 100% taxes on some goods. The list includes goods from Meat to Jewelry.

If you have this in mind the deal above could get more expensive anyway.

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Old 05-08-2003, 01:00 PM   #5
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Quote:
Originally posted by Klaus
Also in military projects you have to think long term and a veto might be ok if the other company might block spare parts in the future to punish the EU forces for "wrong" politics of EU countries.
While business transactions are always subject to changes in government regulations on both sides, I doubt an individual company would not sell spare parts (forgoing $$$) as a political statement.
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Old 05-08-2003, 02:02 PM   #6
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nbcrusader:

you are absolutely right, but what if that country forbids the companies of his country selling the spareparts?

Anyway, there's great danger that this could only be simple protectionism

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Old 05-08-2003, 03:27 PM   #7
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I do a lot of this type of work for the city but at a much smaller scale, and a bid 20% lower than it's competitors usually puts up a red flag and gets thrown out. Plus when was the last time that the US was known for their top of the line engine production?
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Old 05-08-2003, 03:43 PM   #8
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BonoVoxSupastar:

why does it get thrown out? Is your experience that these companies aren't trustworthy?
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Old 05-08-2003, 03:51 PM   #9
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This might be another reason why some owners of Airbus industry don't want
Quote:
from http://news.airwise.com/stories/2001/12/1008680743.html

European plane maker Airbus Industrie may have to delay initial deliveries of its A318 aircraft, originally set for late 2002, because an engine being developed by Pratt & Whitney falls short of Airbus expectations.

"Airbus won't put into service a product that's not [performing] at the top of its technical parameters, and the engine in its current configuration doesn't do that," Noel Forgeard, the European plane maker's chief executive, said...
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Old 05-08-2003, 04:06 PM   #10
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Quote:
Pratt & Whitney falls short of Airbus expectations
Yeah, expecations for a European supplier.....
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Old 05-08-2003, 05:29 PM   #11
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Quote:
Originally posted by Klaus
BonoVoxSupastar:

why does it get thrown out? Is your experience that these companies aren't trustworthy?
This is usually how it works... a lot of the times they will automatically throw out the highest and the lowest and then evaluate all the rest. The reason the lowest is usually not considered, especially when it's a significant percentage off from the rest of the pack, is that often times there's a feeling that the scope of work is misunderstood. Then you also have companies that purposely low ball the number knowing it will look attractive and then they hit up the city with numerous additional services after they are awarded the contract saying they did not account for that in the original bid. 20% is a huge difference and most would find it risky.
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Old 05-09-2003, 06:18 AM   #12
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nbcrusader:

afik the turbine didn't pass the test (turbine-cycle) which was fixed in the contract.

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