his July, a defense industry precedent was set when Secretary of Defense Robert Gates announced that a U.S. Air Force aerial refueling tanker contract worth around $40 billion was to be put up for rebidding after an investigation by the Government Accountability Office (GAO), the audit, evaluation and investigative arm of the U.S. Congress, uncovered that the bidding process for the tanker contract was deeply flawed. The two aerospace industry heavyweights at the center of this controversy are European-based EADS (along with its partner American defense contractor Northrop Grumman) and U.S.-based Boeing. This is now the third round in the drawn-out duel for one of the largest defense contracts in the history of the Department of Defense (DoD). It is a battle that has brought to light issues of nationalism, globalization and the future of the defense industry. And it has riled up politicians and company supporters on both sides, as well as the states and communities that stand to gain an astronomical amount of revenue and jobs contingent on who scores the contract.
      The Air Force first attempted to replace its current fleet of antiquated tankers, many over 40 years old, five years ago. It was an attempt that was squashed by Senator John McCain, after he led a crusade to uncover shady doings associated with the no-bid sweetheart deal the Air Force made with Boeing. The undone deal ultimately landed Boeing CFO Mike Sears and Air Force procurement official Darleen Druyun in prison. The tanker contract to provide the Air Force with 179 aerial refueling tankers over the course of 15 years was subsequently put up for a competitive bidding process, which turned into a nearly two-year competition between EADS and Boeing. The bid for the contract, the first of three to replace 600 tankers, all together potentially worth around $100 billion, finally ended on February 29 when the Air Force revealed that EADS beat out Boeing, which has an almost 50-year-old relationship with the DoD. Not only were many people surprised by the win, but a lot of politicians and Boeing workers and supporters were outraged. Several politicians from Washington and Kansas, two states that stood to gain several thousand jobs if Boeing landed the contract, publicly expressed their indignation over the Air Force's choice and lobbied for the contract to be rebid, arguing that the Air Force changed some of the criteria without informing Boeing.
      Many in the Boeing camp also complained that the decision would result in thousands of coveted aerospace jobs being shipped overseas. EADS says the tanker program over time would potentially create as many as 25,000 jobs in the United States between employment directly through the company and supplier contracts, while Boeing claims that its plan would support around 44,000 American jobs down the road.
      Another criticism leveled against the Air Force's decision is that it would give EADS – which owns Airbus, Boeing's staunchest rival in the commercial airliner industry – too big a foothold in the U.S. defense and aerospace markets. Although the defense market is protected by legislation that requires a certain percentage of contracts stay within U.S. borders, Richard L. Aboulafia, vice president of analysis at the aerospace and defense consulting firm Teal Group, agreed that it is an industry that is "definitely vulnerable" to overseas competition.
      Not everyone in the United States was unhappy with the Air Force's decision, though. Alabama government leaders were thrilled with the news, especially since final assembly of the tankers would take place at a new plant that EADS planned to build near Mobile, Ala., bringing a projected 1,300 jobs to the area over time. In 2005, EADS selected Mobile over 70 other sites in 32 states to locate its new Airbus Engineering Center, with the intention of eventually using the location as the site for assembling the EADS KC-330 refueling tanker if it won the project from the Air Force.
      In June, shortly after Boeing filed a formal protest of the decision with the GAO, the agency announced that out of the 111 different complaints filed by Boeing, eight were significant enough to warrant a review of the contract award. The latest announcement by Gates in July to put the contract up for rebidding now has many EADS supporters and government officials, especially those in the states that stand to gain jobs and revenue if EADS wins, up in arms. During the announcement, Gates stated that a decision, which is now no longer in the hands of the Air Force, is slated for December. Many experts feel, however, that timeline is overly optimistic. On top of that, there is always the possibility for more appeals, dragging the competition out over the next presidential administration.
      Beyond demonstrating how politically charged the battle to win these contracts can become, the rivalry between EADS and Boeing and their respective supporters illustrates how desired these defense companies, and the well-paying jobs that come with them, are by the locations that have them or are trying to lure them. With a seeming wellspring of government cash up for grabs, it's easy to see why locations want these companies on their turf, and what a vital role the industry plays in the nation's overall economy.       When it comes to military spending, no country in the world can touch the United States. In fact, the U.S. accounts for nearly half of all global military spending. The runner-up, Europe, spends less than half of what the United States does, accounting for around 20 percent of global military spending. China, ranking third, makes up just under 10 percent of the projected figure for total global military spending in 2008, which is $1.47 trillion.
      Since launching the global war on terrorism and the wars in Afghanistan and Iraq after 9/ll, defense spending has skyrocketed in the United States. A good portion of the spending surge of the past few years can largely be attributed to soaring war costs, which have most recently run upwards of $15 billion per month. Since 2000, the DoD's budget has doubled, and in 2006, the agency awarded $311 billion in contracts, compared to $163 billion in 2001. Between 2002 and 2006, the DoD, which comprises 17 agencies, awarded over $1.3 trillion in defense contracts.
      The proposed DoD budget for 2009 is $711 billion – $541 billion for the DoD and the nuclear weapons-related activities of the Department of Energy and $170 billion for ongoing military operations in Iraq and Afghanistan. It is a 7.5% increase from this year's $479.5 billion budget and a nearly 74% increase since 2001. Factor in a proposed Department of Homeland Security (DHS) budget of $50.5 billion for 2009, an increase of around 6.8 percent over the 2008 fiscal year, and it is easy to see why defending the nation is such big business in the U.S.
      So, which states are getting the biggest piece of these sought-after government contracts? Based on the 2005 budget, the four states that garnered the biggest share of defense contracts for that year were California, Virginia, Texas and Florida, in that order. In total, these four states alone received 37 percent of the allotted DoD budget for contracts that year.       The defense industry has no doubt had a remarkable ride over the last seven years. However, it's a ride that many experts seem to believe is destined for a slowdown. Although this by no mean signifies the defense industry's demise, it does mean less government cheese to go around.
      "It's been a heck of a run-up for the past seven years … just a fantastic growth market, and now the [defense industry] is going to have to deal with a budget that is flat or declining in real terms," muses Teal Group's Aboulafia.
      According to the Government Electronics & Information Technology Association's annual 10-year forecast for defense spending, the U.S. defense budget is set to decline by almost 25 percent over the next 10 years. This projected decline includes a substantial decrease in congressional supplemental spending to support the global war on terrorism.
      The organization's forecast noted that it is the sharp projected drop in congressional supplemental spending that should be of primary concern to U.S. defense contractors.
      Not to mention, as the Air Force's willingness to hand over a multi-billion-dollar contract to a new foreign competitor so deftly demonstrates, defense companies seem to be looking toward a market that, while still protected, appears to be leaning toward opening its borders, meaning more competition and potentially less money for the usual defense contractor suspects.
      "The reality is that the U.S. must operate in a global economy," comments Pete Steffes, vice president, government policy, National Defense Industrial Association.
      Many experts believe that the future of the industry is heavily dependent on a continuing presence in Iraq and Afghanistan and the global war on terror, as well as on who takes office in January 2009.
      "Defense spending is at a high level primarily due to the global war on terrorism says Steffes. "When that is over, or significantly reduced, defense spending will go down. The pace of the decrease will be determined on how long the services need to re-set equipment levels, and at what levels they will be required to re-set to. That will be a policy decision to be made by the next administration."

      Michelle Janowitz is a freelance writer and former managing editor of Business Facilities magazine.