Tanker updates: More financial analysis, 2020 market share

As interested parties and aviation geeks wait for EADS to make (likely not) and announce its decision (as soon as March 4) on whether to protest the USAF contract to Boeing on the KC-X aerial tanker, more updates have come in.

First is a new market share forecast by G2 Solutions of Kirkland (WA). Next is a new updated from one of our readers, who goes by the screen name OV-099. He previously provided a detailed analysis of where he thinks EADS and Boeing came out on pricing. He updates this with more Net Present Value analysis and other economic data.

Both new items are below the jump.

Source: G2 Solutions

Here is OV-099’s new update:

I’ve now had the time to do the full Net Present Value (NPV) calculation  for the fuel consumption differential between the 767-200ER and the A330-200.

NPV Excel Link Analysis Here.

The original document is available here:

https://www.fbo.gov/index?tab=documents&tabmode=form&subtab=core&tabid=0a0764447cb92e22c2f6e44c3725c77f

Go to: Section L, Attachment 3 – Cost Price Evaluation Workbook.

The NPV has been calculated over both a 40 year service life — as stipulated in the RFP — as well as over a 25 year service life, the latter being the service life requirement in the KC-X  competition last time around. There are three sheets in the Excel workbook, the first being the NPV calculations for a 40-year service life, the second being for a 25 year service life, and the third being the NPV calculator with the Mid Year Discount Formula.

I’ve now used the fuel consumption figures  from the report  Conklin & de Decker Aviation Information prepared for Boeing.

http://www.scribd.com/doc/3737274/B767-and-A330-Fuel-Cons-Report-June-26

In my earlier analysis I used a fuel consumption figure of 11400 lbs per hour for the 767-200ER. Now, it is 10625 lbs per hour. For the A330-200, it is now 13198 lbs per hour.

Then Year Dollars (TH$) Net Present Value (NPV)
Fuel cost differential between 762ER and A332 over 25 years $4.601.998.961,96 $1.504.153.320,05
Fuel cost differential between 762ER and A332 over 40 years $ 8.714.600.811,42 $2.049.230.068,05

According to Norm Dicks: “I got them to change the life-cycle costs from 25 years to 40 years,” Dicks said in an interview. “When you take 179 planes, and with the Airbus burning 24 percent more fuel than the Boeing plane, that’s a big number. It could range from a $4 billion to $10 billion difference. That had to help them in a big way.”

Well, it seems to me that Norm has been talking about  “Then Year dollars” (TH$). In fact, Norm’s “contribution” can be calculated quite easily.  It is in the order of $545 million.

There has been some questions abut the  the IFARA methodology as well; it’s all explained in this document (page 9):

https://www.fbo.gov/download/4b9/4b935a8203348105f1764cb9da1893b6/M001_836_AESG_Solicitation_Provisions_in_Full_Text_(Sep_2009)–25_Sep_09.pdf

Now, The NPV of the fuel consumption differential between the two aircraft has been reduced by about $450 million over my earlier estimate. That means Boeing’s Total Proposed Price should be $29,1 billion, and that the Average Unit Price should therefore be $162,6 million.

It’s worth mentioning that I believe these estimates are quite conservative; they are not meant to predict the exact pricing of EADS’ and Boeing’s offers;  they are rather meant to constitute an upper bound to the price estimate.  In fact, I tend to believe that EADS went below  $169 million in Average Unit Price (AUP).  Also, even though that I’ve used Boeing’s figures for fuel consumption, I believe that the actual difference in fuel consumption is somewhat less. The wing of the A330-200 is reportedly 20 percent more efficient than the one on the 767 during take-off and climb, and 10 percent more efficient during cruise. The average fuel consumption figures are valid for the average sector lengths for the 767-200ER and the A330-200 (8-10 hrs). A tanker flying training sorties will not fly for so long and will typically do a few touch and go’s as well. Therefore, the fuel consumption differential between an A332-MRTT and a KC-46A  should be less than 25 percent during these phases of a training sortie

Finally, I believe the most interesting result from this analysis is that the IFARA price adjustment  –depending on the actual MILCON costs – is bigger than the Fuel Burn and Milcon adjustment put together. The Air Force said that they

17 Comments on “Tanker updates: More financial analysis, 2020 market share

  1. so the fuel cost difference per year becomes less when you use a longer service life…
    2.049B$/40y = 51.23m$/y, 1.504B$/25y = 60.17m$/y

    Of course the fuel cost difference is directly related to the number of flight hours per year. 489 is IMHO ridiculously low. If I’d base the assumption not on the operational habits of a 40yo archaic design but on a something comparable in size and operational characteristics: C-17. it’s operating 40% above its designed 1000fh/y

  2. The annual average usage of the KC-135R is more than 700 hours per year. The KC-10A is slightly higher. So, I would expect the annual usage of the KC-46A to be somewhere in this neighborhood. The 489 flying hour average is pre-9/11, things have changed since then. Of course, due to training, the first several years will see a higher average number of flying hours fth KC-46A and its crews.

  3. So it all got down to fuel cost. My uncle was an engineer at Boeing when the 767 was developed and he said the most difficult decision they had to deal with was body cross-section or fuselages size: he said that at the time one seat-width in body cross section equals a 10% difference in operating cost, magnified today by $100/bbl oil. The wider body of the A330 doesn’t matter a bit in passenger comfort for the few passengers a tanker might carry, but has huge implications over time for operating cost differential. The Air Farce made the right decision for a change.

    • This is an interesting comment with respect to Boeing’s studies for the Y1 (737 class airplane); 3×3 or 2x3x2.

  4. I work and live in California. Trust me, the economy out here is still collapsing, measureable on a daily basis. A certain aerospace giant bought heavily into California aerospace so they could shut it down and kill any competition in California, thus protecting their industry base in Washington State.

    What no one seems to understand is, our nations’ economic recovery is totally dependent upon Californias’ economic recovery. REPEAT, as California goes, so goes America. California will be last in line to benefit from the redundant, useless, pork barreled, overpriced and tactically antiquated KC-X…..Mr. President, are you listening, Sir?…

    I genuinely hope I am wrong, but the recent wild swings on Wall Street are heralding another “nose dive” and the KC-X is still vulnerable to a “trim job” or the axe. Yes, we need JOBS, but not in defence!

    Daniel Sterling Sample
    SPACE DESIGNS
    Los Angeles

    sample.daniel@gmail.com

    P.S. I wish this site would take attachments. I have so much to show all interested parties….C’est La Vie…..

  5. Here’s an interesting and only moderately irrelvant point: The KC-46A is the first military airplane contract for the production of large numbers of planes that B have won with a plane they designed themselves (as opposed to those they have gotten by merger) since termination of the production of the very KC-135 in the early 60s which the KC-46A will partly replace. This has not been for want of trying. Over the years they have lost the TFX (F-111), C-5, KC-10, C-17, and JSF.

  6. Daniel Sterling Sample :I work and live in California. Trust me, the economy out here is still collapsing, measureable on a daily basis. A certain aerospace giant bought heavily into California aerospace so they could shut it down and kill any competition in California, thus protecting their industry base in Washington State.
    What no one seems to understand is, our nations’ economic recovery is totally dependent upon Californias’ economic recovery. REPEAT, as California goes, so goes America. California will be last in line to benefit from the redundant, useless, pork barreled, overpriced and tactically antiquated KC-X…..Mr. President, are you listening, Sir?…
    I genuinely hope I am wrong, but the recent wild swings on Wall Street are heralding another “nose dive” and the KC-X is still vulnerable to a “trim job” or the axe. Yes, we need JOBS, but not in defence!
    Daniel Sterling SampleSPACE DESIGNSLos Angeles
    sample.daniel@gmail.com
    P.S. I wish this site would take attachments. I have so much to show all interested parties….C’est La Vie…..

    Fortunately, sir, you are wrong. California made its economic bed, and now mus sleep in it. The US economy has very little dependence on California. But to get back on the subject, every C-17 built (for any nation) has been built in California. Had President Clinton not allowed the Boeing/MDD merger in the late 1990s, MDD would have closed its doors completely within a few years. Many parts for the KC-46A will be built in California, as well as in 39 other states. Had EADS been awarded the KC-X contract, it would have done even less for the California economy than Boeing will do with its KC-46.

    But one contract alone will not save California, only Californians can do that, and they blew a good chance last November. Unlike Patty Murray, the Senator from Washington, your Senator Barbara Boxer has done nothing to bring KC-46 dollars and jobs to California.

    • Maybe we’ll see a tanker decision like in ancient KC-135 times when Lockheed won and Boeing built the tanker. This is an option for USAF today.

      EADS is producing tankers right now and will be able to produce some in the next ten years as long as A330 is in production.

  7. leehamnet :
    This is an interesting comment with respect to Boeing’s studies for the Y1 (737 class airplane); 3×3 or 2x3x2.

    But has to taken with some caution.
    The B757 cross section is small for a single aisle, the B767 cross section is large for a 2x3x2 arrangement. “10%” depends on a variety of other factors, including the total number of seats.

  8. Jay :They haven’t won this one yet!

    Ahhh….yes, they have. EADS just said they will not protest the award to the GAO.

    Let me be the first on the new tanker score card;

    EADS – KC-30/A-330MRTT, two versions = 28 total orders.

    Boeing – KC-767A/J/KC-46, three versions = 187 total orders.

    • basic arithmetic:
      EADS – KC-30/A-330MRTT, two versions = 28 total orders.
      Boeing – KC-767A/J/KC-46, three versions = 26 total orders.

      “Under the initial contract, Boeing will have to design and build 18 tankers for a fixed price of $3.5 billion by 2017. If the program was on track, it would then negotiate additional fixed-price contracts, worth $30 billion to $35 billion, for up to 161 additional planes.”

      So Boeing currently has a contract for 4 proof of concept plus a batch of 14.

      Will the Airforce still smile and be friendly when the first prototype one is delivered in 2020 😉

  9. Is it just me, or have I not been reading the many comments on the great win for Boeing, correctly?
    Yes, it’s a great win for everybody in the US. I do NOT wish dispute the decision and I am glad that EADS is NOT disputing the decided.

    But, if that decision was based on the the KC-30 burning (much) more fuel than the KC-76, the principle reason given for the decision, was it also taken into account that the former has a much bigger (fuel) pay-load, which would have allowed for the purchase of a corresponding fewer number of KC-30s, for about the same total amount of money?

    • Buying fewer tankers means fewer Booms in the air. The USAF needs to maximumize the number of Booms in any air operation. It is not the total fule carried, but how fast that fuel can get to the receivers. So the USAF is planning on 179 KC-46s, or KC-30s, had that tanker been selected.

    • Dear Rudy,

      that was taken into account by the so called IFARA factor. Last time KC-45 got 1.9 and KC-767AT 1.79. Or in other words 168 KC-45 could do the job of 179 KC-767AT and price for 11 aircraft were subtracted from NGs bid price. But that factor was neglected for calculating fuel burn. If you need less aircraft to perform the same task you obviously need less fuel. But that wasn’t so obvious to US Air Force or to unkown author of last competition.

      According to the data released by EADS the IFARA factor was much closer this time and EADS just gets a bonus for 4 aircraft ($800 Million). With 11 aircraft and a realistic fuel burn calculation the outcome would have been much closer.

  10. Interesting about winglets and tanker games. As background, I’ve dug up a 9 year old comments subbmitted to congress about a few generalities regarding FAA traffic control and winglets and how they came to be.. from a now deceased good friend of mine Dan Hartley. There are other issues also

    http://bulk.resource.org/gpo.gov/hearings/106s/85456.txt
    HEARING

    before the

    COMMITTEE ON COMMERCE,
    SCIENCE, AND TRANSPORTATION
    UNITED STATES SENATE

    ONE HUNDRED SIXTH CONGRESS

    SECOND SESSION

    __________

    SEPTEMBER 14, 2000

    __________

    Printed for the use of the Committee on Commerce, Science, and
    Transportation

    85-456 U.S. GOVERNMENT PRINTING OFFICE
    WASHINGTON : 2003

    . . . Prepared Statement of Daniel B. Hartley, President of SPEEA
    Background:
    I, Dan Hartley, was the president of SPEEA, the engineers union at
    the Boeing Company for a number of years. A major portion of my duties
    then and continuing after I have left office, is about American
    aeronautical competitiveness and its declining state. I am in my 45th
    year of engineering and have been an aviator for a like time having
    flown as a navigator, flight engineer and pilot. I have aviated for the
    Air Force, airlines and Boeing. Currently my wife, also a pilot, and I
    have a private airplane we fly for recreation. . .

    Crowded Skies Aren’t
    Some long-retired Boeing engineers in Seattle, from the old school,
    were asked by a billionaire who wanted more range for his business jet
    if they could help him. They said they could. He believed them and
    provided an airplane and seed money to let them try. They came up with
    a “radical” idea that engineering management at Boeing said wouldn’t
    work. These very simple looking devices they invented were put on the
    wings of the airplane and, lo and behold, fuel consumption was reduced
    7% with a resulting several hundred mile increase in range. Patents
    were secured and the bolt-on devices were refined, developed and
    certified by the FAA. Their modification worked so well that word of
    mouth attested to the effectiveness . . . so much so that more than
    half the fleet of the billionaire’s type airplane has now been modified
    attesting to the effectiveness.
    After years of these old-man engineers being panned by the elite of
    current American aeronautical engineering managers, Boeing was finally
    forced to try the modification for inclusion on the business jet
    version of their newest 737. Ironically they were tried because of the
    distinctive, snazzy look it gave the airplane and not because of any
    expectation of performance improvement. After all, the cream of
    aeronautical engineering management was so confident they wouldn’t work
    that one Boeing individual even boasted that he would quit if they gave
    any improvement at all. The old men said to expect about 7%. The most
    rigorous and least refutable type of testing was flown . . . and the
    improvement was 7%. Seven percent may not sound like much to non-
    technical people but I know of several cases of more than a billion
    dollars being sunk into the development of a wing to shoot for 4%
    improvement. Not only that, the airplane climbed faster (this uses less
    airspace), flew higher (using unusable airspace) flew faster and had
    the ability to carry between 5,000 and 10,000 pounds more off the same
    runway. Fortuitously, they didn’t cost an arm and a leg either. All of
    these improvements would apply directly to capacity improvements for
    our skies and the savings in performance improvement alone would more
    than pay for the mod in a year. These improvements were extended to
    several other models of airliners and results are now beyond question.
    In the course of the earlier developments the patent holder also
    said that wake turbulence behind the airplane would be reduced. A
    couple of flights were flown where a following airplane was
    deliberately flown at varying distance behind a couple of differently
    modified planes to evaluate turbulence change. The qualitative
    evaluation of the pilot was that there was a great reduction.
    Knowing that wake turbulence has a great negative impact on air
    traffic capacity, representatives of Congress even came to Seattle
    starting in 1992 or 1993, to discuss the technology. As a result,
    discussions were held with the FAA about the sensibility to
    methodically and carefully evaluate turbulence technology to get actual
    numbers to confirm what the theoretical and qualitative reductions
    were. If they could then we would have a means to increase system
    capacity quickly and without a complete redesign of the “National
    Airspace System”. To me (and the average voter no doubt) it is
    incredible that we have spent $32 billion on these grandiose redesign
    efforts over the last decade or two without getting anything useful
    from it . . . except, maybe, the dubious “we’ve found a lot of stuff
    that won’t work”.

    _++++ and so it goes . . .

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