Odds and Ends: Leahy staying, not going; tanker and other things

We posted an item Friday that normally would have waited until this edition of Odds and Ends, but the news that John Leahy might leave Airbus next year couldn’t wait. Aviation Week broke the story.

But we spoke with Airbus Toulouse Sunday and the company denied the story.

Reuters last week published this profile on Leahy and this story has an interesting anecdote about him.

Whether Leahy does in fact leave Airbus next year, or not, when he does, the industry will sorely miss him.

  1. The Aviation Week article mentioned Lufthansa’s Nico Buchholz as a successor. We saw Nico Saturday in connection with the roll-out by Boeing of the first 747-8I, for which LH is launch customer. We had emailed the article to Nico Friday and asked if he was going to succeed Leahy; he emailed back to say, Let’s talk Saturday.” As we walked up to him, he smiled a tight, pixie-like smile and pulled his LH company ID from his breast pocket and slowly put it back. ‘Nuf said. (He went on to say this has been a long-running industry rumor but nobody has approached him about the job.)
  2. The final proposals for the KC-X tanker have been submitted to the USAF. Boeing’s official continue to make the case that if they lose, it will be because of illegal subsidies to the Airbus A330-200. It’s pretty evident to us, and to others, that Boeing has already laid the foundation for a protest. EADS says it simply has the better airplane, as evidenced by wins from other countries–some of which were not contested by Boeing. We’ll just be glad when it’s over.
  3. No matter who wins the tanker contract, we hope this time no protest is filed by the loser. The warfighter has been totally forgotten in this round of competition; it’s all been about Boeing vs. Airbus and nothing about the warfighter. The KC-135s are old, getting older and costing more. It’s time to get on with the award.
  4. We still believe that a split buy is the best course, strategically, tactically and it is the only solution politically. The KC-767 has advantages that we believe make it a better European theater airplane; the KC-45 is clearly better for the Pacific theater. To afford both airplanes, all the government needs to do is cut out the farm subsidies for ethanol to Iowans and the US would save $25bn over five years, more than enough to pay for a split buy. It costs more to make ethanol than gasoline, it doesn’t have the energy that gas has and it does little to help the environment. Ethanol is pork barrel funding, plain and simple. Let’s put this money to better use.
  5. Will Boeing announce its plans for the 737’s future at the Paris Air Show? This certainly is the buzz, and it fits the mid-year timeline that has been suggested, but don’t necessarily count on it. Boeing could easily let the decision (or the announcement of the decision) slip to later in the year.
  6. Speaking of timelines, we think the stories last week about Boeing announcing it will do a new airplane (aside from being over-hyped) didn’t play up enough CEO McNerney’s comment that the new airplane could enter service at the end of this decade or early next decade. Boeing has been saying for six months it prefers a new airplane to a re-engined model, but it continues R&D on the RE and it continues to talk about the RE with customers–all the while saying that it really doesn’t want to do a re-engine. While saying all this, Boeing had been talking about an EIS for 2019-2020. With McNerney now adding “early next decade,” this suggests that some of the technology may not be quite ready by 2019.
  7. And as for Airbus and the NEO, EIS is slated for early 2016 for the A320, followed by six months for the A321 and six months after that for the A319. Give some thought to this: delivery slots may be harder to come by than generally assumed–we are already hearing that slots may not be available for new customers until 2018; the early slots would be for customers with options on current orders. Remember, Leahy said no legacy orders will be swapped for NEO, but options are another matter. If what we are hearing is true, and given our sourcing we have reason to believe that it is, we think few carriers will order airplanes they can’t get until 2017 or 2018–especially if Boeing has a new airplane ready in 2019-2022.
  8. At the Boeing event Saturday for the roll-out of the 747-8I the next day, the company was asked why there have been so few orders for the airplane. Officials replied that the global economy meltdown suppressed sales and went on to say that typically a new airplane sells well at launch, but sales typically drop off as the airplane goes into production and testing, picking up again as it readies to enter service. Officials expressed confidence 747-8I sales followed this pattern and sales will pick up.
  9. As always, Boeing put on a great event for a roll-out. The 747-8I, whatever the eventual sales, will be a superb airplane. For passengers, the 787-inspired interior is a major refresh that follows the 737 Boeing Sky Interior.
  10. Look for the 777 to get a 787-inspired interior, too.

26 Comments on “Odds and Ends: Leahy staying, not going; tanker and other things

  1. Airbus may be anxious to fill slots before 2016 for the non-NEO, if they increase production. Perhaps the deal is that if you want early NEO slots, you need to order some non-NEO first. Equally, offering to commute some already ordered planes to NEO might be a way of placating lessors, who are by all accounts fed up with Airbus right now.

  2. The final proposals for the KC-X tanker have been submitted to the USAF. Boeing’s official continue to make the case that if they lose, it will be because of illegal subsidies to the Airbus A330-200.

    I have to wonder that since both Boeing and Airbus have built roughly 1,000 aircraft of the type submitted for the KC-X (Airbus if you combine A330 and A340 production,) how at this point in both programs any allegedly illegal launch subsidies would affect the price of KC-X airframes.

    • I’m guessing the subsidy argument is for Congress, not the General Accounting Office, that presumably would process any legal challenge. If the Airforce says we want the Airbus and Congress says you won’t get a new plane unless it’s Boeing, that looks like impasse to me. I previously thought the Airforce would specify this round to ensure the right plane got chosen, ie the 767, but that may not have happened. What a mess!

      • Some in Congress only want the extra subsidy amount only applied to the USAF tanker buy.

        But once the contract is awarded, the Congress will hold all the strings as they own the checkbook.

  3. What stops Airbus from bringing the assemply line in Tianjin up to speed with lets say 40 planes per month in 2016?

    I do not think that any partner will turn down such an invitation to increase their sales for a technology investment that is already paid for.

    • Nothing is stopping Airbus from bring that FAL up to 40 per month, 480 per year, except maybe the unions in the EU, and of course the French and German governments that own a substantial portion of EADS.

      There is also notihing stopping Airbus from opening their FAL in MOB, either. The US is Airbus’s biggest customer (in terms of airplanes sold), without the KC-X, right now.

      • “The US is Airbus’s biggest customer (in terms of airplanes sold)”

        Where do you get that idea?

        US (North American) companies have ordered the most Airbus aircraft but companies out of the Asia Pcific and Europe each have more unfilled orders (NA -679, AP -1120, Europe -782).

        Before you ask, the source is the airbus sales figures from their corporate website: http://www.airbus.com/company/market/orders-deliveries/ (link to an excel table is under the summary table).

        What is your source, please?
        Thanks.

    • Tianjin is afaik assembly only. ( They get regular shiploads
      of Airfix sets “A320 Scale 1:1” 3 sets of decals included 😉

  4. I think Boeing is going to announce the new NB at the PAS. Airbus likes to use the PAS and FAS to make big announcements for orders, and Boeing may want to take a little wind out of their ‘sales’ (sails) this year.

  5. Leehamnet,

    On your point 2 and 3 – you say you hope any outcome of this competition will not be contested again, but go on to indicate a dual buy would be the best way forward.
    I don’t think the current competition provides the option of more than one winner.
    How do you see this requirement migrate from the current price shootout to an competitive dual buy?

    • I think the problem is that the Airbus is a better tanker, for the reasons Leeham has set out. And it really is a problem. Only the Boeing is politically acceptable and it’s also a good tanker. But it’s not the best tanker and the whole point of a competition is to find the best. It looks like we’re back to the fixed positions and like you, ikkeman, I don’t think see a dual award as a solution. But I’m stumped if I know what is!

      • It is hard to define which is the “better tanker”. For small orders from small Air Forces with small orders (say less than about 20), perhap the A-330MRTT is “better”. But the USAF is looking to get up to 179 tankers in this round. No one buys tankers in the numbers the USAF does (KC-97 was some 800+ ad the KC-135 was about 732). The USAF needs both quantity and quality, but at a “fair price”.

        The current RFP demands each OEM meet all 372 mandatory requirements. It is obvious the USAF has determined that both Boeing’s and EADS’s offers meet this requirement, or one (or both) would have been eliminated months ago. The RFP then demands the “best (USAF adjusted) price” per unit. If both competitors are within 1% of each other in the best adjusted price, then another 93 optional requirements are looked at to determine who will win the contract.

        This contract is not determined by the “more, more, more” demand by the then AMC Commander Gen. Licht (who ended up with a job with EADS).

      • I genuinely think that if the competition had opted for the Boeing plane, the tanker would have been awarded by now. It’s possible of course that the current round will indeed choose the KC-767 and in this case the problem will go away.

        So this speculation assumes that the competition selects the A330. There are three ways to respond:

        1. Accept the result The best plane won.
        2. Reject the result We know better than the experts who did the selection.
        3. Ignore the result We will choose whatever we were going to do anyway.

        With (2) and (3) you are basically saying that there’s no point to a competition unless it gives you the result you want. ie it’s rigged.

    • FF: Boeing may be the only politically acceptable solution, but do you see EADS NA rolling over and accepting the loss without protest.
      it may hte elegant solution, but we are talking billions in profits…

      KC: I agree, and I think the AF does to. It is hard to determine what the “better tanker” is, and the current competition makes no attempt to find that out.
      but what happens when EADS manages to shoot below Boeing’s price?
      at 1000 a/c each, neither has much in the way of development costs to amortize, EADS has the outlook of more other customers to achieve a higher overall output to share fixed costs, but the Boeing offer is smaller.
      Then there is the alabama plant. EADS could be willing to go really low on it’s profit margin for that plant – is Boeing willing/able to go so low?
      and IF it is cheaper AND has a higher IFARA score… how can the AF not order the airbus?

      FF: talk about a level playing field 😉

    • DOD surprised everyone with a dual buy for the Littoral Combat Ship when it had sworn it would down-select to one design. Could happen again.

      We’ve said many times we think politically a dual buy is the only answer. While we hope no protest is filed, we’re not naive enough to think it won’t be. We’ve also outlined strategic and tactical reasons why a dual buy makes sense.

  6. KC-135TopBoom,

    Why do you always ask for others to cite their sources but never offer up yours, when asked? In case you missed it, #7 above.

    Certainly nobody is obliged but I would find it fair and equal to do that which one expects from others.

    Regards,
    john

  7. “It is hard to define which is the “better tanker”. ”

    I believe the USAF has a few programs which are doing just that during this competition. The only problem is, they are not using the resulting values (e.g. IFARA) to grade the contestants’ offerings.

    Even though this appears to work to Boeing’s advantage (in the IFARA), Boeing is claiming (through their propaganda department, Dr. Thompsen) that they are at a disadvantage and could lose the competition.

    A most interesting tactic, that. Makes one wonder why Boeing is even really trying. All they have to do is lose the competition and let the politicians do all the work and award them the contract anyway.

  8. ikkeman :
    Do you see EADS NA rolling over and accepting the loss without protest?

    Unless they have very strong case, I don’t see it making any difference. As KC Boom points out, Congress holds the purse strings and they want a Boeing tanker

    ikkeman :
    It is hard to determine what the “better tanker” is, and the current competition makes no attempt to find that out.

    I thought the DoD had set the criteria to be a straight price shoot-out. This had a number of benefits, it seemed to me. It was simple and objective. Co-incidentally (or perhaps not so co-incidentally?) it would favor the smaller Boeing plane – the politically preferred option.
    It’s possible that something went wrong with this simple plan. The DoD may have confused things by introducing a capability measure. Or perhaps Airbus still won even though it was supposed be handicapped on price

    ikkeman :
    Talk about a level playing field .

    I don’t see it’s the Air Force’s job to compensate for a level playing field just because one competitor is more hungry for the work than the other.

    • on the potential EADS protest – I think the GAO did an admirable job staying objective last time around. Also, there might be some congressmen (m/f) that have a vested interest in either competitor, most won’t care to much either way and will insist any GAO recommendation be adhered to.

  9. Assuming there will by a KC-Y open bid contest, it indicates that there would be 2 models potentially in service (X and Y) otherwise Y would just be a sole source buy. There is a need for both sizes of tankers, even though there is a lot of supply & infrastructure duplicated with a dual buy. However, a dual buy now for X & Y does not add to the duplication.

    There have been legit as well as “slick” problems and cost growth in so many Military Programs, the dual buy allows the program that is “straight” to get the majority of the program.

  10. ATLANTA | Wed Feb 16, 2011 10:43am EST

    ATLANTA (Reuters) – EADS (EAD.PA) North America said it submitted a final proposal in the politically charged U.S. tanker competition against Boeing Co (BA.N) and that it lowered its price.

    “We submitted what we think is a very competitive price proposal,” EADS North America Chairman Ralph Crosby, who was speaking from Washington, D.C., told a briefing for reporters.

    Asked how much the price was lowered, he said: “Just enough to win.

    http://www.reuters.com/article/2011/02/16/us-eads-idUSTRE71F49320110216

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