Refueling Dr. Strangelove

The Draft Request for Proposal for Round 3 of the KC-X tanker competition isn’t even out yet and the procurement process is already perverted.

The DRFP is thought to be ready for release tomorrow (September 24). The USAF reportedly has scheduled briefings for Congress at 11 AM EDT.

In what is clearly an orchestrated effort spearheaded by Boeing, the political focus is entirely on the interim report by the World Trade Organization that Airbus benefited from illegal subsidies for its A-series commercial airliners, including the A330-200 on which the Northrop Grumman KC-30 is based.

[youtube=http://www.youtube.com/watch?v=Qs7EikHQGlA]

Washington State and Kansas Members of Congress demand that the US Air Force include language in the DRFP that considers the launch aid–a reported but unconfirmed $5bn for the A330/A340 sister program–in evaluating the KC-X proposals.

The Air Force says it does not plan to do so.

We do not understand the rationale behind the focus on the WTO interim report. A final report has to be issued and appeals can be filed, a process which will take several years to consider. More to the point, the European Union’s complaint about “illegal” subsidies provided Boeing is pending before the WTO, with this interim report expected in perhaps six months–or about March–unless delayed.

Here is a link to a story that includes a video clip of Members of Congress standing in front of a Boeing prop focusing on the WTO matter.

It is widely expected that Boeing will be found by the WTO to be “illegal,” too. Then Northrop will demand the USAF consider these findings if the Boeing Congressional supporters prevail in forcing the USAF to consider the Airbus interim report.

Then what?

We shared with Boeing IDS our view that this politically-focused WTO campaign will hurt Boeing more than help it because of the expectation that Boeing will be found to have benefited illegally, too. All this current campaign does is muddy the waters and, in all likelihood, won’t win any friends in the USAF procurement process.

The Members of Congress are on hazardous grounds under WTO rules in any event. Article 23 prohibits a country that prevailed in a complaint from taking any punitive action while the case is still pending, as is true with the Airbus interim report. If a prevailing country does so, then this opens the country to sanctions.

Our long-held view that the Northrop KC-30 is more capable than the KC-767 in a sole-source selection remains unchanged. So does our long-held view that there are good strategic reasons (not to mention the political ones) to double the procurement and split the purchase.

We believe Boeing’s suggestion of a tanker even larger than the KC-30 based on the Boeing 777-200 (sub-series to be selected) is a perfect replacement for the aging McDonnell Douglas KC-10 in the future procurement for this aging aircraft.

We believe the Boeing-orchestrated, WTO-focused campaign is a grave error. It sets up a similar Northrop campaign when (and in our belief, this is not “if”) Boeing is found by WTO to have behaved improperly. This political campaign subverts an acquisition process that has been tainted twice by improprieties and incompetence. We think it will inflame the USAF procurement against Boeing rather than help its cause–unless a sole-source procurement is forced upon the Air Force and the Northrop-Airbus bid is forced out.

If this happens, the WTO rules will permit the EU to impose sanctions on US trade. We would fully expect Airbus partner-countries to retaliate in their own defense procurements.

It is true the KC-767 (or KC-777) will have no chance in any event to sell airplanes to the UK (which has already selected the KC-30), France (no comment needed on this one), Germany (should it want a tanker) or Spain (does it need a tanker?). This is a sound matter of criticism, where competition should likewise be allowed. We think this is a far, far better-grounded criticism than this spurious WTO thing. The Defense Department has the ability, even under WTO rules, to declare in nation security interests to do a sole source procurement. It missed the chance to do so in Round 2 and now that WTO legal actions are pending, Article 23 would seem to preclude doing so in Round 3.

But what of Boeing’s desire to sell other military goods to these nations, including the 737-based P-8A Poseidon? Boeing IDS clearly has these Airbus member nations on its prospective customer list. Might these countries instead become the launch customers for the Airbus A319 MPA (Maritime Patrol Aircraft) competitor to the P-8A? The A319 MPA has gone “stealth.” Once openly talked about at Airbus and EADS, today you can’t find any reference to the airplane at all on the EADS or Airbus websites. The last time we queried, which was last year, EADS MTAD refused to discuss the airplane. We don’t know if this is an active project or not today. Information about the A319 MPA is scattered about the Internet but an Airbus brochure appears and disappears from time-to-time in Google cache (and at least for the moment it’s here, though this has come-and-gone and may disappear at any time. As a document available (even if off and on) in the public domain for many years, we have downloaded the brochure and can make it available to anyone requesting it.

We think the WTO drive places Boeing on very hazardous ground. Does Boeing and its supporters believe its tankers cannot win on their own merits, so this drive is necessary? We have to wonder.

The whole mess is straight out of the satire movie, Dr. Strangelove, which opens with a KC-135 tanker refueling a B-52 bomber. The music is that of a ballet (we think), which is appropriate since Air Force jockeys liken the refueling process to a ballet.

It’s too bad the KC-X procurement isn’t a satire. Jon Stewart of The Daily Show could have a field day with this one.

9 Comments on “Refueling Dr. Strangelove

  1. Another excellent analysis that I wish will be relayed by other journalist to the US public so finally it is considered at Boeing.

    Indeed Boeing must start to built its reconstruction and think in the long run. A KC-772 could a suitable offering for in a few years.

  2. I agree a good analysis. Some points though:

    “We do not understand the rationale behind the focus”
    How else do you think they can extract the maximum political capital and apply maximum pressure on the DoD if not now and not in this fashion? Dicks, Murray and co will stop at nothing, just reading their quotes in the recent articles show that. Expect more to come.

    I think the KC-777 is a wet dream for the Boeing fans, for now at the very least. I think even Boeing knows that this offering will push the risk factor into the stratosphere, for many reasons. Their best bet is the 767 based on the 767-300ER.

    From the video link above:
    Jay Inslee (D-WA), Rep
    “Airbus and the European Union is now involved in an economic assault of the highest order…”

    Todd Tiahrt of Kansas
    “John McCain ought to be concerned with corruption now, the WTO has found….”

    but the prize goes to Rep. Jim McDermott (D-WA)
    “this is a jobs programme for American workers… basically a jobs programme…”
    Just watch Dicks’ and Tiahrt’s faces when he come up with that. Priceless 🙂
    (Editor’s note: the faces belong to Dicks and Jay Inslee, not Tiahrt.)

    Well, at least Boeing is getting value for money from them…

    On a side note, interesting link about the MRTT marketing department assessment of the future market.

    Morell does not expect stiff competition outside the USA from Boeing with its KC-767A. “We are going to get all the market,” he claims. “We don’t have competition today, to be honest.”

    http://www.flightglobal.com/articles/2009/09/23/332659/airbus-military-bullish-on-a330-mrtt-sales-prospects.html

    Let the PR war begin!

  3. To UKAir’s comment:

    Jim McDermott is, in Seattle, considered Congressman For Life so safe is his seat. This enables him to say anything he wants without fear (which sometimes is pretty embarrassing, but there you go). When we first saw the clip UK references, our reaction was, Here is the real issue, all the other being BS–including Sen. Murray’s persistent refrain that this is about saving the US aerospace industrial complex.

    As we’ve pointed out before, at a production rate of ~15/yr, this represents just 3% of Boeing’s 485 airliners delivered in 2008. If the US industrial base is threatened by this, we’re in bigger trouble that Murray imagines.

    We also ask the Senator, Where were you when Boeing outsourced so many jobs and aerospace design and production on the 787? The unions got it right. Murray was silent.

    Boeing won’t be out of the tanker business if it loses the KC-X contract. Boeing has the maintenance contracts on the KC-135 fleet, including the booms; and the KC-Y and KC-Z contracts will be forthcoming. As we note in our column, we think the KC-777 is the perfect replacement for the KC-10.

    Furthermore, the news link provided by UK Air raises an interesting point: why won’t Boeing offer the KC-767 Japanese or Italian versions to the countries mentioned? You’ve got the sunk costs; you have an airplane Boeing says is the best thing flying (at least this is the argument to the USAF); the salesmen should be on the road right now. While complaining about “unfair” competition, is Boeing truly willing to let some 50 tanker sales go to those dastardly Frenchies by default?

  4. I could care less about the WTO ruling against Airbus. Not only is it too little far to late, it will be watered down almost immediately.

    Sure the WTO will rule against Boeing. Along with the WTO there are a minor legion of those with the idiotic viewpoint that every time Boeing accepts a military devlopment contract it somehow is accepting an illeagal subsidy.

    What is the United States to do?

    Would there be an F-22, a B2 or a JSF had cost plus development contracts not been let?

    Should we be flying EF-200’s or Rafale’s instead of F-22’s and JSF’s?

    Just what U,S, aerospace company would have taken on the expense to do any of those on their own?

    This isn’t the age of Kelly Johnson and the century series fighters.

    Does anyone understand that these development contracts have been the only way to get these advanced aircraft designed and built, and that we are no longer in the days of private industry being able to take the massive risks involved in multi billion dollar R+D tied to an extraordinarily fickle defense aquistion and funding environment?

    Is this nothing more than a backhanded effort to not only cripple the American aerospace and defense industrial base, but our ability to produce advanced military aircraft as well?

    Sounds conspiratorial, but I’m smelling a rat here.

    Never mind that the dollar numbers bandied about by the peanut gallery of politicians and analysts that put Airbus’s intransigence at a far higher number, a real number vs one conjured out of thin air based on suppositions about how Boing benefitted somehow from military R+D(what did it learn from the B-2 for example; Aparantly nothing given the sad state of the 787 program).

    So what if Boeing is making a political effort. Sure it’s cowardly, but it’s own fecklessness in refusing to protest airbus subsidies for years in the name of free trade got it where it was. It’s far past the time, and perhaps too late, but it’s finally decided to do something to defend it’s market share.

    As to the potential ability to sell other defense related goods unless we cave in to Airbus wrongdoing, our objective cannot and should not be profit. It should be the defense of the United Staes, and the preservation of our ability to produce the weapons systems to do so, If that means spain won’t buy P-8’s, so be it.

    Now we have a stark choice. We can allow Airbus to gain the tanker contract by ignoring subsidies once again, when it has used those subsidies to run LMT out of the commercial business, and also drive McDonnal Douglas out of business altogether.

    Or not.

    I think not.

    And the answer should continue to be “NOT” until the Americans and Europeans (and everyone else for that matter) can agree on what “free trade” really is, because let me tell you, virtually every time we play be the free trade rules, we get boot stomped.

    Even as EADS and european governments prepare to fully ignore the WTO and keep pumping money into the A-350, we are being asked to roll over?

    No way I say.

    As to Boing’s flag waving hypocracy of the Tanker VS the 787, that’s very factual. Boeing waves the stars and stripes of the free trade flag, whichever is most suitable at the time.

    As to the tanker being such a small part of total production, that’s irrelevant. Airbus got to 50+ percent market share a little at a time, and it’s back for another bite of the pie.

  5. One thing the analysis missed though was the real value of the WTO ruling is political and not material in terms of getting the decision in included in the actual contest. In paticular the analysis ignored the actual effect of the Druyun affair. It is not like Drynum effected round 2 materially or the Air Force actually made an effort to stop the kind-of-revolving door between government and industry that caused the problem in the first place. In fact Northrop went out and hired something like 20 retired Air Force Rent-A-Generals to push their tanker for round 2, which could have lead to accusations that allowing EADS/NG to compete only increased the problem.

    The real issue was that everytime an issue came up that would diminish NG/EADS chance of winning the contract KC-30 supporters in congress pushed the Pentagon to amend the RFP to favor the KC-30 using the threat of another flawed contest and Darleen Druyun to get their way. They did this when the Air Force initially said they planed to include an analysis of RLI in the initial RFP, John McCain successfully pushed to not include the issue in the RFP. And when NG complained they needed extra credit to compete, they got their way largerly because John McCain pushed the idea that to avoid another Druyun issue NG needed at least a 50 percent chance of winning so the AF caved and gave NG/EADS the extra credit.

    The analysis ignores the fact that Boeing supporters will use the RLI issue, A350 aid and WTO findings to shape the process in a method similar to what McCain and NG/EADS boosters did in round 2. They will use it to shoot down any hint of extra credit for NG/EADS and if the AF insists they need a cargo aircraft they will force the AF to write the RFP to favor a true freighter in the form of the much more capable KC-777. If the AF refuses Beoing backers will threaten to scuttle the competition much like McCain implied he would do if NG/EADS didn’t get what they wanted.

    As far as the WTO case goes against Boeing, the author ignores the fact that their is very little in the EU complaint to get at a KC-767 or KC-777 (which may be one reason Boeing is not looking a KC-787). Tax cuts? Come on can you see Senator Shelby and other EADS backers denouncing the market distorting effects of tax cuts? I just don’t see Republicans attacking their entire economic policies for the last 40 years to get at Boeing on this one. And as far as Boeing getting Military contracts goes how does this help KC-30 supporters? After all EADS is proposing the KC-30 with NG because they want this kind of subsidy. If the WTO declares RLI and Military contracts are forms of subisidies all this would do is strenghthen Boeing backers claims that it would be wrong to give EADS US Government subsidies since they already get EU subsidies in the form of RLI. The case against the 787 subsidies provided by Italy and Japan are even weaker. The 787 is not competing and if the EU won this point they would have to discipline themselves for allowing the government of Italy to support Alenia with illegal aid.

    The simple truth is this decision is about shaping the battlefield. And in terms of shaping the competion all political advantages are blowing Boeings way. Democrats are in power and fairly united in the fact they don’t like the KC-30. While Republicans are divided between pro-Boeing Kansas Republicans and pro-NG/EADS Alabama Republicans. Boeing decisively won its arguements against fuzzy extra credit in the last round, Druyun is history and John McCain is a spent political force and unlikely to play the same role as he did last time. This isn’t even included the fact that the WTO decision gives Boeing backers the same power that NG/EADS backers had in round 2, write the RFP to favor our side or we bring up round 1 and wreck your competition.

    As always in politics charges of Hypocrisy abound, many of the charges are true, and for the most part they mean nothing. Hypocrisy charges only ring true when the arguements have political traction and relevance. NG/EADS played their political hand masterfully and to the best of their ability in round 2 and still lost. This time around the political winds are all blowing Boeing’s way, and there is very little Northrop or EADS can do to change this. Especially given the fact that the next WTO decision shouldn’t even be issued prior to the tanker contest being finalized.

  6. Jeff raises good issues.

    The problem is that Boeing’s tactics and Boeing’s Congressional meddlers aren’t going to win any friends in the Pentagon. There is an old cliche: you might win the battle but lose the war. Maybe the USAF will in the end be forced to accept the KC-767 for political reasons instead of on the merits and maybe not. But government has a way of rewarding and punishing if it sees fit.

    Perhaps it is coincidence and perhaps not but who was the biggest loser in SecDef Gates’ proposed FY2010 budget? Boeing. Who was the loser in the missile defense system just canceled? Boeing.

    We absolutely, positively and sincerely believe the WTO tactics are the wrong “stratergy” and will only hurt Boeing in the long run, both in Europe and in the USAF and the Pentagon.

  7. The precarious position the 787 program is in, and its potentially very
    serious negative effects on the future B. C. A.

    Boeing CEO Mr. Jim McNerney, clearly lacking any direct involvement with
    the commercial aviation industry before being appointed as the CEO of the
    Boeing Company, other than his management of the GE Big-Engine Division
    in the 1990s, already puzzled many people in the commercial aviation
    industry, with his comments at the rollout of the 787 on 07/08/07, when
    he flatly stated, for all the Aviation and Government officials to hear:
    “This beautiful airplane will fly in September and go into service next
    year,” while many people at that time knew, that the airplane was
    nothing more than an empty shell, barely standing on it’s landing gear
    and was held together with over 5,000 temporary rivets!
    Whether Jim McNerney knew about this situation at that time, or whether
    he did not, his comments showed a serious lack of familiarity and control
    of the Company he was in charge off and or an appalling lack of candor
    with his best customers!
    Fast forward to today and the same Boeing CEO, McNerney is quoted in the
    New York Times of Sunday the 6th of September ’09, to have said that he
    just returned from a trip around the world, during which he talked several
    787 customer airlines into hanging on to their 787 orders, based on his
    personal assurances that the airplane will now finally be ready to go into
    service at the end of 2010.
    Also, Mr. McNerney in the same NY Times article, is quoted to have said,
    “Once we have fixed ‘these hick-ups,” we will leave the competition far
    behind us!” Leaving the competition far behind us?
    He could not have been talking about the Airbus A350, almost 500 units of
    which have already been sold and is ready to pick up disgruntled 787
    customers, by offering A350 delivery positions close to their revised 787
    delivery positions after the end of 2010, which no one at Boeing can, or
    will guarantee yet!
    Immediately after announcing the discovery of a structural flaw in the
    wing-to-body joint, the major structural part of any aircraft, after it had
    already been officially announced that the first 787 would make its maiden
    flight from the Everett field, during the PAS, came the startling announce-
    ment of the appointment of Mr. Jim Albaugh to head up B. C. A.
    Jim, who spent his whole life on the military side of the aviation business,
    is clearly a brilliant engineer with excellent managerial skills, but unfortu-
    nately, he has no experience in the commercial aviation field whatso-
    ever, does not know anybody within or outside B. C. A. and what’s worse,
    no one in the international commercial airline business, knows him.
    Yet, Jim is now expected to resolve both, the very serious technical
    problems with the 787, put the aircraft in service next year, as well as try
    to keep existing 787 customers from canceling their orders, an almost
    impossible task in the very limited time available to him, taking a recent
    Boeing experience into account, when the shoe was on the other foot.

    Boeing, at the time it launched the 777 program in late 1991, had the
    advantage of being able to improve on the MD-11 and the A340 aircraft
    designs, launched in the late 1980s.
    However, Boeing was initially at a disadvantage with the 777, because it
    could not deliver the aircraft in the same time period the above two
    competing aircraft were available, during a period of extremely high
    demand for aircraft in early 1990s.
    However, the totally unexpected Gulf War, eliminated this high demand
    for aircraft almost overnight and consequently, the 777 became the big
    winner in this category of aircraft in the “90’s and to date, which caused
    both of the above competing aircraft to be eliminated in the process and
    contributed to the eventual demise of MDD, while Airbus continued to
    steal the show with the very efficient A330, an identical aircraft to the
    A340, except for the wing, designed for either four or two engines!

    The situation today, with regard to the 787, is in reverse of what it was 15
    years ago for the 777, because Airbus simply duplicated the Boeing 777
    success story of the 90’s, by launching the larger and more efficient
    A350, also about three years after Boeing launched the 787, in direct
    competition with that airplane AND the 777.
    This poses an immediate threat to all but one version of the 787 program,
    the-8, and force Boeing to develop a new 777, before it would, otherwise!

    The situation for Boeing with the 787 relative to the A350, is unfortunate-
    ly far worse than it was for either the MD-11 or the A340, relative to the
    777, which was bad enough, from the technological point of view.
    However, not only did the Gulf War do away with the lead time advantage
    for the MD-11/A340, as the delays did so far on the lead-time advantage
    for the 787 v.v. the A350, the serious delays already incurred on the 787
    program and no guaranteed end in sight, could a) encourage 787 custom-
    ers to cancel their 787 orders without penalty, due to the delays, b) order
    the superior A350s and c) secure A350 delivery positions at about the
    same time they may, repeat may get their 787s delivered!

    My conclusions and comments:
    The 787 program, while having accumulated a record number of sales
    prior to first flight, is in an extremely precarious position at the same
    time, because:
    A. The worldwide economic crisis, has forced many airlines to park
    hundreds of modern aircraft, and cancel or defer many orders for new
    aircraft in order to survive, without any relief in sight for at least an-
    other year.
    B, This situation appears to cushion the effects of the two and a halve
    year delay on the 787 program so far, but in fact it could have the
    opposite effect.
    C. The very substantial double incentive for 787 customers to switch from
    787s to superior A350s at no cost, as explained above, in addition to the
    ability to bridge the present economic crisis AND secure the “Better”
    airplane at about the same time they would have taken delivery of
    their excellent, but “less efficient” 787s compared to the A350, is I am
    afraid a situation, very much against the interest of the 787 program
    and B. C. A. than is generally recognized, or acknowledged from within
    the Co., based on the above public comments from CEO McNerney.

    I am not even suggesting that the 787 is in the same precarious position
    the MD-11 was in, it’s situation I regret to conclude is even worse,
    because:
    Neither MDD with the MD-11, nor Airbus with A340, had the disadvantage
    V.V. the 777, by having cancellation clauses in place, which forced many
    customer airlines to take delivery of these two inferior aircraft, against
    their own better judgment, a situation no 787 customer will have to
    make if they do not want to, at no cost to them.

    During my 33 year career in Engineering and Sales at Boeing, as well as
    the 20 years since my retirement in September of 1989, I have been ex-
    posed to a variety of airline managements around the world.
    Especially during times of economic downturns, I have learned that no
    airline management could afford to purchase any aircraft, in order to
    prevent an aircraft manufacturer from going out of business.
    Typical examples were the 1970’s and 80’s, when many people in the US
    Airline Industry would swear, that US airlines would never allow either
    Douglas or Lockheed to go under and have to deal with one manufacturer,
    Boeing, only.
    I am concerned, however, that there will be many 787 order cancellations
    within the next year or two and that consequently, the umber of 787 sold,
    could eventually fall below the number of A350s on order, at almost 500
    already and, like the MD-11, never to recover!
    Aviation Week already reported several months ago, that Boeing has
    confirmed that will come up with an all new 777 to compete with the A350,
    …….before the end of the next decade, which I believe may be far too late!

    A very concerned, Rudy Hillinga
    Retired Boeing Director of International Commercial Aircraft Sales.

  8. Assuming everything goes as planned the actual empty weight will be the deal maker/killer.

    Will it be money maker . . . Doubtful if the program costs have risen from a forecast $6.0 billion to $20+ billion.

    Time will tell . . . and too much time will kill!

    JIM HELMS
    Former PAN AM STRATO CRUISER FLIGHT ENGINEER

  9. Pingback: Northrop wins tanker contract « Leeham News and Comment

Leave a Reply

Your email address will not be published.