What does the Northrop win mean?

Every aerospace analyst surveyed by Bloomberg a week ago figured Boeing would win this competition. We did, too.

So what happened? In the end, it came down to what we have been saying all along: did the Air Force want “just” a tanker or did it want a solid, multi-role tanker transport? The Air Force went for the MRTT, saying the selection came down to one word: “more.”

So what does this mean? It’s obviously a big win for Northrop and Airbus and a big loss for Boeing. But perhaps not to the extent some might think.

At a production rate of 12-18 tankers a year, this is the proverbial gnat on the elephant’s rear when you consider that Airbus (or Boeing) deliver around 450 airliners annually.

Depending on the financial assumptions, the revenue to Airbus (or, had it won, Boeing) would have been perhaps around $3bn. This is certainly nothing to sneeze at but when you consider Airbus parent EADS revenue last year was around $55bn (final figures yet to be announced) and Airbus is 80% of this (Boeing was $66bn last year), the figure takes on some context.

Further reduce the $3bn to the airframer, because the engine suppliers grab 25% of this and the rest of the suppliers (avionics, landing gear, etc. etc.) take a portion, and the net revenue to the airframer is far less than the raw numbers suggest.

We’ll have a full financial analysis Tuesday on our corporate website.

Expect Boeing to protest and Boeing’s partisans to take it to Congress.

1 Comments on “What does the Northrop win mean?

  1. Firstly, I have to say that the USAF people in charge of the purchase must be praised for their professionalism and independance from the politicians. It does not mean that the road ahead is covered with roses, but it took some guts to stick to a strict technical/operational evaluation. Hats off.

    It is logical when buying a truck for the next 30-40 years, that one chose the most modern design available. For a while, this logic was not looking obvious.

    And all in all, the deal is not that bad for the USA, for Boeing yes but not for the American industry at large.

    Mobile gets not only the KC-45A tankers, but all tankers and all A330 freighters. So the production rate gained by Mobile may bo more than the 12-18 referred to.

    Gov. Bob Riley is a bit lyrical about it:

    ” “There are only two places in the world where large airplanes are built: Seattle, Washington and Toulouse, France,” Riley said. “Now, there will be a third: Mobile, Alabama.” (http://blog.al.com/live/2008/02/officials_react_to_northropead.html)

    He kind of forgets about Russia. In terms of output, he is most probably right.

    But what about the WTO?

    Two of the counter-arguments from the EU/Airbus are, as you reported, that Boeing’s technology is superior or equal to Boeing, and that Boeing took advantage of juicy military contracts, contracts only available to them.

    So the big question is: will this unexpected choice by the Pentagon change the WTO ruling?

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