Pricing the KC-X: $163m estimate for Boeing, $169m for EADS

One of our readers, with the screen name OV-099, provided a comment on our Dewey Defeats Truman post calculating the possible prices on the KC-45 and the KC-767.

OV-099 has been a long-time poster and when the occasion arises, does in-depth analyses on financial terms. We’ve cross-checked his work with others and found his numbers-crunching to be pretty spot-on.

With that in mind, we asked OV-099 to take a final look at his original posting with the thought of elevating it to a primary post. He has slightly revised his numbers. What follows is his analysis of how much EADS and Boeing priced their KC-45 and KC-767 in the bids to the USAF. His analysis is below the jump.

Update, 1-:30 am: OV-099 has further refined his analysis; the update is below.

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Odds and Ends: Airbus working with NASA, tanker-take and other things

Our Odds and Ends this week:

  1. Airbus parent EADS has posted a job listing for an intern for one year to study open-rotor technology for a success to the A320. Airbus is working with GE and RR engines and–drum roll, please–NASA. Boeing contracts with NASA were, of course, subject of the European complaint against Boeing for illegal subsidies.
  2. Chet Fuller, the new SVP of sales, marketing and asset management for Bombardier Aerospace, gives a long interview about the CSeries with Francois Shalom of The Montreal Gazette in this story. It’s worth the read.
  3. Pratt & Whitney’s GTF engine is testing better than plan and ahead of schedule. Flight Global has this story and this one.
  4. Aviation Week has a good piece about the choices facing Boeing on the 737 issue.
  5. More than one reader suggests that politics played a role in the USAF awarding the the tanker contract to Boeing. There is no question that Rep. Norm Dicks (D-Boeing/WA) got the air force to change its life-cycle timeline from 25 years to 40 years in computing costs. Political or not, this was a correct action. The current tanker fleet has already flown 50 years and airplane life cycles are routinely 30-40 years in commercial passenger/cargo service. The additional period clearly worked to the disadvantage of the KC-45. We like this email we received: It’s all political. The south has thumbed its nose at this administration. This is the consequence. I don’t think the Air Force or SECDEF could sell giving a $35B award to a foreign country that involves creating jobs in the south. Our politicians (and unions!) played this well.
    We think this is a gross over-simplification of what happened, but it’s a pretty good, if cynical, take on things. The Joplin (MO) Globe looks more closely at the life-cycle cost equation.
  6. The Everett Herald has a pretty good understanding of how Boeing won in this article.
  7. Aviation Week has this superb article on the tanker contest.
  8. Defense News analyzes whether EADS will protest.
  9. Embraer opened a business jet assembly plant in Florida. Hondajet has a similar plant in the Carolinas. Airbus was willing to do a plant in Alabama. While Boeing was outsourcing the 787 overseas, other companies were finding the US a good place to do business. Makes you think.

“Dewey defeats Truman” perfect prediction in KC-X tanker contest

Note: here is the link to the tanker transcript.

Podcast: Richard Aboulafia talks to Addison Schonland.

Richard Aboulafia of the Teal Group said it best: the upset Boeing win over EADS in the KC-X tanker contest is the “Dewey Defeats Truman” moment of this contest.

For those who don’t know this reference, see here.

Aboulafia predicted EADS would win. So did Michel Merluzeau of G2 Solutions in Kirkland (WA). And Loren Thompson, a paid Boeing consultant. We did, too.  So did Daniel Tsang of Aspire Aviation and even the Boeing shills in Europe did.

Boeing officials thought they were going to lose and so did its supporters in Congress.

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Don’t protest, EADS: it’s time to move on

In a previous post, we opined that whoever lost the KC-X contract should accept the decision and let the Air Force move forward with the award without a protest.

We reiterate this view now.

Throughout the competition, EADS praised the USAF for its fair and open process, and its integrity, and when the Air Force inadvertently passed on company information to Boeing and EADS that belonged to each other, EADS praised the USAF for handling the mistake properly.

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X-Day, Part 2: and the Winner is: Boeing

Boeing has been awarded the contract for 179 KC-X tankers.

What are the ramifications?

Is this contest over?

As we noted in a previous post, not necessarily. A protest can follow. EADS has said it won’t unless it finds something “egregious” in the process, which it has commended so far. But don’t consider it a given that EADS won’t find reason to protest. Still, we think it unlikely based on what we know today.

Why wouldn’t EADS protest?

EADS sorely wants the contract. It would be a huge boost toward its goal of reaching $10bn a year in Pentagon contracts, from $1.5bn today. But by competing for the KC-X contract at the Pentagon’s request to do so, it built up a lot of good will for future contracts. There would be little to gain from a protest.

Will Congress go along? There is a strong EADS contingent.

That’s all it is, a contingent. There aren’t enough EADS supporters to force a reversal. They still could block an award, but if EADS doesn’t put up a fight, it’s unlikely they will, either.

What’s next?

The timeline of what’s next is listed in this post. As the cliche goes, “it ain’t over until the fat lady sings.”

X-Day: The winner of the tanker contest announcement at 5:10pm EST

Update, 0930 PST: DOD has confirmed, the award will be announced at 5:10 PM EST and broadcast on The Pentagon Channel.

Original Post:

The Pentagon Channel will provide coverage, if the past is followed today. The time is 5pm EST. Update: A Tweet from AvTips says 4:45pm, without citing sources, so we suggest having everything ready by that time.

You can bet the media in Mobile (AL), Wichita (KS) and Seattle (WA) will also provide breaking news coverage. We know for sure that KIRO-TV plans to do so. We expect Twitter members will be ready to go, include Reuters Aerospace coverage.

Tanker decision expected Thursday, Feb. 24, 5pm EST

It now appears the USAF will announce the tanker contract Thursday, Feb. 24, at 5pm EST. Expectations are that EADS will be awarded the contract, but there have been so many twists and turns that we’re not predicting the outcome.

The greater question will be, Will there be a protest? As we reported Monday, EADS says it won’t protest if it loses provided there is nothing egregious in the selection process. Boeing has clearly been laying the groundwork for a protest, but neither is it certain Boeing will do so if it loses.

Here is the timeline of what happens next:

  • The announcement is made.
  • The Department of the Air Force has 10 calendar days to brief the losing side.
  • The losing side can request an accelerated debrief.
  • The losing competitor then has 10 calendar days from the time of the debrief to file the actual protest with the GAO.
  • The GAO then has up to 100 calendar days to rule on the protest (they may take less time).
  • The results can be: 1.) GAO finds no merit and throws out the entire protest; 2.) GAO sustains part of the protest; 3.) GAO sustains all of the protest.
  • The GAO does not rule on whether or not the Department chose the right aircraft, which aircraft was better, etc. It only rules on whether the proper process was followed during the source selection.
  • The Department can then accept the ruling and provide a timeline for how they will address the issues the GAO ruled on and determine whether and how it impacts the outcome. Or, they can note the GAO ruling but proceed as originally planned.

Recapping the KC-X contest

With the expectation that the USAF is going to announce its tanker award this week, we’re going to forego our Odds and Ends kick-off and deal with the tanker.

We’re going to try and synopsize many of the issues that are “out there” in cyber-land, to try and make some sense out of what sometimes seems to be a senseless process.

In no particular order, here we go:

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Countdown to KC-X award

As Washington (DC) buzzes with the prospect that the Department of Defense will, at long last, announce its award for the KC-X contract before the end of this month, EADS held a press briefing February 16 to lay out its views one last time that its airplane is the best choice for the job.

Boeing made calls to editorial boards last week to make its case.

The process has dragged on so long that we couldn’t help but think of the photo below, purported to be the first air-to-air refueling.

Source: LaGuardia Airport historical photo.

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Top DOD buyer signals globalization is reality; tanker contract might come Feb. 25

Two top Defense Department officials today (Feb. 16) told a conference sponsored  by Aviation Week magazine that the contract award for the KC-X could be made by the end of the month.

The buzz in Washington is that it will be after the stock market closed on Friday, Feb. 25.

The statements by the DOD officials are summed up nicely in this Defense News article.

At the same Aviation Week conference, the Pentagon’s top buyer, Ashton Carter, repeated remarks he made a week earlier at the Cowen & Co. aerospace and defense investors’ conference February 9. At the Cowen event, the headlines to come out of it were remarks made by Boeing CEO Jim McNerney about the prospect of proceeding with an all-new replacement for the 737.

The headline that did not come out of it was from a speech presented by the Pentagon’s top buyer, Ashton Carter. Elements of his speech did, indeed, make news. However, buried in his speech as the last topic were his comments about globalization and procuring key defense systems from non-US companies.

Is this laying the groundwork for selecting the EADS North America KC-45 tanker in the KC-X competition? DOD Buzz picked up on this, too, but well down its story.

Perhaps this is too much “Kremlinology” but carefully read his remarks:

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