We’re at the Farnborough Air Show and on Saturday attended the day-long EADS media briefings. We filed reports exclusively for KIRO TV (CBS) in Seattle. These stories are:

  • Airbus predicts 130+ orders at the air show;
  • Leahy says Airbus has to get current programs right before proceding with decision whether to re-engine the A320 family; decision due in 4th quarter;
  • Boeing Defense facing growing competition from EADS;
  • EADS sees “fair and open” competition for KC-X;
  • EADS chief raps “unfair” WTO.

These stories are below the jump.

Separately, word leaked from Farnborough that Boeing will get an order fo 20 777s, but this is a swap from the failing DAE Capital of Dubai. Here is this story.

Boeing Defense faces growing competition from EADS

The Boeing Co.’s Defense, Space & Security unit—which comprises about half of Boeing’s revenues— faces increased competition from EADS, the European aerospace giant that is parent of Airbus.

From the US perspective, the high-profile rivalry is between Boeing Commercial Airplanes and Airbus—even in the highly controversial KC-X aerial refueling tanker competition for a $35 billion order from the US Air Force. But EADS has the same ambitions in defense as Boeing’s Defense unit (BDS).

BDS identifies Unmanned Aerial Vehicles (UAVs), cyber security, homeland security in the US and for other countries as key growth areas. Boeing, EADS and other defense companies are competing for shrinking defense dollars in Europe and America and expanding budgets in emerging markets.

Boeing’s Insitu UAV subsidiary is headquartered in Bingen (WA), on the Columbia River.

Stefan Zoller, CEO of the EADS Defence & Security subsidiary, oversees Military Air Systems, Defence Electronics, Defence and Communications Systems and Missiles business units. UAVs are a major push for Boeing, with a goal of becoming the world’s #1 UAV supplier in five years. Zoller says that EADS plans to be a major player in a market now dominated by Northrop Grumman and California’s Global Atomics, in competition with Boeing.

Cyber security, another Boeing Defense priority, is also one for EADS. Cyber security is “an exploding market,” says EADS CEO Louis Gallois.

“We are seeing budget cuts and reduction in forces all across Europe,” says Zoller. “We are in the face of uncertainty because they haven’t made up their minds. It’s quite clear that European markets will decline or be stable at best. Therefore we have to do something about it.

“Strategically, we have to go where the money is, and the money is around the globe. India, Brazil and Middle East are increasing budgets. These are huge markets, developing markets. We have to become more global.”

In each of these, EADS competes against Boeing for new business, and EADS is competing in the US for not only the air force tanker but also for US Homeland Security business. EADS is already in the Top 10 contractors for Homeland Security. Boeing has cyber security contracts with Homeland Security, the Defense Department and other US government agencies.

EADS and Boeing are expected to square off next year for a DOD contract for the Armed Reconnaissance Helicopters (ARH), another multi-billion dollar contract.

EADS sees ‘fair and open’ process for KC-X tanker competition

EADS, parent of Boeing rival Airbus, praised the US Defense Department for a “fair and open process” in the bitterly competitive $35 billion KC-X air force tanker contest.

“I think the judgment of the Pentagon will be fair,” said Louis Gallois, CEO of EADS. “They wish competition to get the best price and the best product for the air force. We have a fight in the Congress, we know that. The Air Force is sticking to the fair process.”

Gallois made the remarks at its annual media day, immediately preceding the Farnborough Air Show. Boeing supporters in Congress, including Washington’s delegation led by Sen. Patty Murray and Congressmen Norm Dicks and Jay Inslee, vow to block an award to EADS and its KC-45 tanker, which is based on the Airbus A330-200.

“There’s always a lot of noise coming out of Washington,” said Sean O’Keefe, CEO of EADS North America. “I wouldn’t call this any more or less anytime there is a strain on the economy. In terms of our prospects, I am very, very encouraged by the behavior on the part of the defense department. They did exactly what was expected…to have a fair and open competition.  We have put in the very best proposal we can. We do have a flying airplane.”

“The way this is set up, the subjective is discouraged. We are going to meet all 372 requirements,” O’Keefe said.

O’Keefe shrugged off the vociferous opposition of Murray and Dicks as part of the Congressional process.

EADS North America has $1.2 billion in revenues from the Defense Department and local governments, providing helicopters, homeland security systems, 911 emergency systems, fixed wing aircraft and ship radar and other national security equipment. The goal is $10 billion in revenues by 2020, excluding the tanker.

 “Winning the KC-45 will exponentially increase our market position,” O’Keefe said. The contract is worth $35 billion.

“I think we have a fair chance to win,” said Gallois. “A large part of our cost and risk is behind us, and our plane is flying.”

EADS chief raps “unfair” WTO

Louis Gallois, CEO of Boeing rival EADS, complained that a third delay by the World Trade Organization (WTO) in issuing its Interim Report on European complaints about “illegal” subsidies obtained by Boeing is “unfair” and “abnormal.”

“We are in an abnormal and unfair situation,” Gallois told a crowd of international journalists Saturday in an EADS briefing in advance of the Farnborough Air Show. “This is the third time the WTO decision on Boeing has been delayed. Are we to expect a fourth delay? I don’t know. “ The Report is now due to be issued in mid-September, postponed from Friday (July 16), just before the air show was to begin and before the arrival Sunday of the Boeing 787, the debut of the airplane outside the US borders.

“The gap between the launch of the Boeing claim (against Airbus) and the Airbus claims (against Boeing) is increasing.”

Gallois also took issue with Boeing’s interpretation of the WTO’s ruling against Airbus that it received billions of dollars in illegal aid.

“It seems we are not reading the same report.” Gallois said. “Remember, 70% of the claims by the US were rejected. We know Boeing has received huge subsidies. We know of $5 billion (from US sources) for the 787, and more from outside the US. There are military subsidies (for other Boeing airliners). I think we will have a balanced view when the Boeing report is issued. The way the two claims are treated is not preparing the best conditions for negotiations.”

The European Union has repeatedly called for talks between the governments to recast the entire process of permissible government support, historically a European-US issue. But Gallois said other countries must now be included.

“This will not be just Europe and the United States. Things have changed.” Russia, Japan and China have new airplane industries receiving major government aid, while Canada’s Bombardier is now selling its CSeries that is directly competitive with the Airbus A319 and Boeing 737-700. Gallois has previously said these countries must now be included in a new, global agreement regulating subsidies.

Airbus predicts 130 orders at Farnborough

The ever-ebullient John Leahy, COO-Customers, Airbus, predicted he will end the Farnborough Air Show with double the orders from the first-half of the year.

Speaking to an international group of journalists Saturday in advance of the show, Leahy said he bet EADS CEO Louis Gallous that Airbus will end the show with double the 131 orders booked through June 30. Airbus received the orders from 15 customers, but Leahy did not predict how many customers will announce orders at the show.

Boeing has already tamped down expectations about order announcements. Randy Tinseth, Boeing’s VP of Martketing, told reporters Thursday in a teleconference not to expect many orders. He said Boeing announces orders throughout the year rather than holding them for air shows.

“We believe we will have significant orders to announce from leasing companies over the next week,” Leahy said.

Steve Udvar-Hazy, former CEO of mega-lessor International Lease Finance Corp., just announced he has funded his new company, Air Lease Corp., and one of the orders Leahy alluded to is expected to come from Hazy. A month ago, market sources said Hazy had a letter of intent with Airbus for 20 firm and 20 options for the A320, but this was then—what is true now may be different now that Hazy has $3.3 billion to play with.

Let’s get existing programs right before new A320 model: Airbus

Airbus needs to get its current, troubled airplane programs right to free up resources before it proceeds with a re-engine program for the A320 family, says John Leahy, Chief Operating Officer for Customers.

By the end of September, Airbus should have all its engineering reports ready for the Board of Directors to launch the A320 NEO, or New Engine Option, in the fourth quarter, Leahy told a press briefing Saturday in advance of the Farnborough Air Show.

The industry, including Boeing, is waiting to see what Airbus will do and Leahy said the business case is still being built before proceeding with a recommendation to the Board. If Airbus goes forward with the A320 NEO, entry-into-service would be about 2015.

Boeing has been weighing whether to re-engine the 737 or proceed directly to a new one, with an EIS about 2020. Leahy believes technology for an entirely new airplane won’t be ready until about 2025. Boeing would make a mistake to come out with a new airplane around 2020, only to be superseded by Airbus some five years later, he says.

Boeing has a greater challenge to re-engine the 737 than Airbus does with the A320 because the 737 is much closer to the ground to accommodate larger diameter new engines.

Coming up:

  • Monday: the Boeing and Airbus commercial briefings;
  • Monday: the Boeing KC-767 briefing;
  • Monday: Bombardier CSeries update, with expections of new orders;
  • Tuesday: EADS tanker briefing, with its American flight test crew. Alas, the airplane won’t be here;
  • Throughout: various OEM meetings and briefings.

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