So’s your old man

More mirthful back-and-forth between Boeing and EADS.

Boeing today fired off a rebuttal ad to the EADS “Get Real” ad published right after it got back into the KC-X tanker competition.

Boeing also posted this message on its website:

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Re-engine, new or do nothing?

A second aerospace analyst has weighed in with the opinion that Boeing is likely to choose a replacement for the 737 rather than a re-engine solution.

Heidi Wood of Morgan Stanley published this note today, as Boeing’s investors’ day begins.

The bottom line – Another New Plane Ahead – BA’s Going To Do A New Single Aisle: We believe Boeing will be announcing a new narrowbody replacement to the well-worn and highly popular 737 instead of the less costly, but inferior solution of re-engining.

This means a $13B-type R&D effort ahead in lieu of a possible $2-3B R&D for re-engining, which was previously in our model. We are now lowering outyear estimates to reflect a projected new narrowbody 2012 launch and 2017-2018 entry into service (EIS, first delivery). We believe consensus earningsexpectations will be revised down significantly on higher R&D.

Why An All New Plane? We expect Airbus to announce an A320 re-engining sometime before yearend; BA will likely announce its plans around the same time. It is not generally known, but on a re-engine to re-engine equivalent basis, we believe the Airbus A320 ends up w/ a 8-10% better fuel burn than the 737, rendering the $3B R&D cost to re-engine largely ineffective. The 737 has been refreshed three times already since its first inception in 1967. And with 5 low end single aisle competitors ~mid-decade, we think BA is prudent to be pre-emptive with an all-new airplane.

Joe Nadol of JP Morgan and Joe Campbell disagree, thinking a re-engine is more likely.

So does Boeing rival Airbus, where COO-Customers John Leahy suggests all the talk about a replacement 737 is Boeing disinformation aimed at muddying Airbus’ waters.

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Hoisted on own petard?

Update, May 19: With all the references in Comments about the GAO ruling, we are linking the 150+ page report here, courtesy of Sgt. Mac: GAO KC-X 2008 Protest

Update, May 17, 4:30PM PDT: Reuters has this story that Boeing will bid for the tanker “despite concerns.”

Original Post:

We had been planning to write a column about whether Boeing may be in danger of being hoisted on its own petard when two news items appeared Friday (May 14) that accelerated this column.

The first appeared in Army Times/Defense News (sister publications), quoting an unidentified Boeing executive as saying Boeing might night bid on the KC-X because officials feared it could not win the contest because EADS would be able to undercut the price due to subsidies at Airbus. (This also would explain the question we raised in our post, Why aren’t they talking about the airplane?)

The second story appeared in The Seattle Post-Intelligencer refuting the Defense News piece.

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Why aren’t they talking about the airplane?

In the previous post, we talk about the WTO issue being pursued by Boeing and its supporters. In this post we ask, “Why aren’t they talking about their airplane?”

This is about the strangest marketing campaign we’ve ever seen, and one of the things we do is marketing. Boeing has a product–but it’s nowhere to be seen in the public relations campaign.

Isn’t the KC-767 worth talking about?

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Playing with fire

The renewed effort by Boeing and its supporters to focus on the WTO ruling against Airbus on illegal subsidies in the KC-X competition (see preceding post) is playing with fire.

The hyperbole by Washington State’s Members of Congress is particularly shrill.

The Reuters article linked in the preceding post reports some key issues that need to be remembered: there remains a pending ruling on the EU complaint that Boeing received illegal subsidies; both sides can appeal; and if the US unilaterally imposes penalties, which a Congressional law mandating consideration of the ruling would amount to, this violated WTO rules.

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Boeing goes to Congress on KC-X

Update, May 13:

DOD refuses to give award date

Senators blast award process

In case anybody wonders, the effort to force DOD to add $5bn (the amount found Airbus illegally benefited on the A330-200) to the KC-X contract price equals $28m per airplane.

11:00 AM PDT: We just received this statement from EADS North America:

“The Boeing Bill is one more attempt to avoid competing on the merits of the tanker.  Unlike EADS North America, Boeing doesn’t have a tanker that meets requirements, it faces tremendous technical risk in producing one and is therefore determined to take away the warfighter’s right to choose.  We believe our fighting men and women deserve the most capable system—and they deserve the right to select it.”

4:00 PM: More from the “So’s your old man” department, this one also from EADS North America:

1. All reimbursable launch investment loans for A330-200 aircraft development have been repaid – with interest.  In fact, since 1992 Airbus and EADS has averaged repaying $1.40 for every dollar received in reimbursable launch investment (this figure covers more than the A330-200).  Boeing has received over $16 billion in federal grants, $6 billion in state and local subsidies and over $2 billion in anti-competitive export subsidies already declared to be illegal by the WTO ($1 billion of which came after the WTO ruling) (Editor’s note: this refethis relates to a previous WTO ruling that Boeing illegally benefited from Foreign Sales Corporation [FSC] tax breaks).  In fact Boeing is the only company that has been formally sanctioned by the WTO for illegal export subsidies—including illegal support for the 767. (Editor’s Note:  FSC and the expectation that the 767 will also be a part of the pending WTO ruling against Boeing, due next month.)  No Boeing subsidies have been repaid and all should be considered in the context of Boeing bill introduced today.

2. Boeing also receives significant subsidies from foreign governments.  In fact, Boeing has moved the design and manufacturing of major components overseas to secure foreign government subsidies.  To date, Boeing has taken at least $1.5 billion from Japan and more than $500 million from Italy to put manufacturing jobs in those countries.

3. A very important issue is that this bill would put the US in the position of violating the WTO agreement.  It is illegal under the terms of the WTO treaty to act punitively before the WTO process is completed (it’s called “self help” in the treaty).  This is clearly a case of prematurely using WTO findings to justify punitive actions.  Article 23 of the Treaty forbids such action and the US could be found to be a treaty violator and subject to sanctions-all for the benefit of Boeing.

Original Post:

Boeing has gone to its supporters in Congress to introduce a bill to force the Pentagon to take into consideration the adverse WTO ruling in the Airbus subsidy case, according to this Reuters report.

Read the report carefully: there are several key points in it, among them:

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Airbus Innovation Days-Day 1/2

Day 2 summary after the jump.

We’re at the Airbus Innovation Days and here are some highlights:

  • Tom Williams, EVP Programmes, believes that a re-engined A320 family will eliminate the business case for the CSeries. The concern is that the CS100/300, which competes with the A319, will establish a “beachhead” from which competitors to the +150-seat airplane will be launched. (No kidding–we’ve been saying this for a couple of years now.)
  • Williams believes Boeing will make a mistake to proceed with a replacement for the 737 in this decade because engine technology won’t be ready until the next decade to get the gains desired by the airlines.
  • He does not believe Airbus should respond immediately with a replacement for the A320 if Boeing goes with a new plane because anything before 2024 won’t have enough fuel/operating cost reduction to justify the investment.
  • Williams says the PW P1000G GTF is more technologically advanced than the CFM LEAP-X.

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Embraer at crossroads: Aviation Week

Aviation Week has a good piece entitled “Embraer at Crossroads,” that discusses how the company evolved from nothingness to a major player in the industry. Faced with a threat from Bombardier’s CSeries and emerging competition from China and elsewhere, Embraer has to decide what it is going to do.

Although Bombardier’s CSeries continues to faces challenges, AvWeek makes it clear that the CSeries and Pratt & Whitney’s GTF engine are influencing decisions pending by Airbus, Boeing, Embraer and airlines.

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Boeing leans toward new 737, not Re-Engine: analyst

Boeing is leaning toward a new airplane to replace the 737 rather than proceeding with a re-engining program, an aerospace analyst wrote in a report issued today.

Richard Safran of the boutique Buckingham Research came away from Boeing Capital Corp’s annual investor’s update with an analysis that is a potentially paradigm-shifting conclusion that Boeing will forget about the widely-assumed plan to re-engine the 737 to meet an expected decision by Airbus to re-engine the A320 family–itself a decision largely driven by competition from Bombardier’s CSeries.

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