Here’s an expanded version of a story we did for Commercial Aviation Online/Air Transport Intelligence:
The embarrassing last minute refusal by Cargolux air cargo to accept delivery of the first Boeing 747-8F that was planned in elaborate ceremonies 19 September is due to more than it appears on the surface, say several sources at the ISTAT European conference that got underway Sunday night (18 September) in Barcelona.
No source would be identified due to the sensitive nature of the situation and the underlying issues triggering the refusal—an overweight airplane and one that doesn’t meet promised fuel burn specifications—are real and potentially affecting future customer deliveries. But sources are universal in concluding that a new element in the Cargolux situation emerged last week to trigger the refusal.
Qatar Airways now owns 35% of Cargolux and following a board meeting, the decision was made to refuse delivery of the Cargolux aircraft pending renegotiation of the compensation Boeing would pay Cargolux for the performance shortfalls.
According to one source familiar with the situation, Cargolux and Boeing had the framework of compensation largely agreed. But after Qatar acquired its stake in Cargolux, a new dynamic entered the picture: compensation for the Boeing delays of the 787 deliveries to Qatar.
According to the scenario painted by multiple sources at the ISTAT conference, Qatar’s CEO Akbar Al-Bakar views the Cargolux compensation as essentially setting a benchmark for his 787s at Qatar. Not wanting to set this benchmark too low as it relates to 787 delays, Al-Baker influenced the last-minute Cargolux position that resulted in the last-minute contract disputes that Boeing acknowledged existed but declined to detail.
Al-Baker history of bedeviling OEMs is well known. He embarrassed Boeing at the 2009 Paris Air Show by forcing Boeing to rescind an order announcement of the 777 that had been issued. He embarrassed Bombardier and Pratt & Whitney at the 2010 Farnborough Air Show by failure to go forward with a widely expected order for the Bombardier CSeries aircraft powered by the Pratt & Whitney P1000G Geared Turbo Fan engine. He embarrassed Airbus by no-showing at a press conference at the 2011 Paris Air Show at which Qatar was to announce a large order for A380s and A320neos, as well as publicly chastising Airbus over its revised A350-1000. His about-faces have earned him the industry nickname U-Turn Al.
Related to the performance shortfalls of the 747-8F, which have been known to customers for at least a year as production proceeded, but unrelated to the Cargolux situation, CAO has learned that another major customer and Boeing remain in negotiations over delivery of a major order of the new freighter. The customer doesn’t want the early 747-8Fs contracted for, instead preferring to skip to a later group that have in-line production improvements rather than rework. These negotiations continue and may come to fruition as early as this week, says a source familiar with the situation.
It’s rather unconfortable to feel that a board change can induce such a different behaviour at such short notice
The absolute change in position may not be that big.
But it certainly crosses a distinct border.
In view of other customers having similar reservations
based on distinct shortfalls this is more a thing for Boeing
to handle with care and a bit of humility.
( Hmm, humility :that may actually be the difficult part 😉
I suspect that the word humility is not in the Boeing lexicon?
Certainly for what on the surface should have been a relatively straight forward product progression has tainted their reputation perhaps more than the 787, which after all involved ground breaking new technology.
Alas the 748 has no such excuse!
Hmmmm, “U-Turn Al” strikes again. This is Boeing’s, and GE’s, turn for his antics, even though, it appears, CV knew about this for about a year. But if Boeing has been keeping its customers informed about the production progress of the B-747-8F, how does CV/QR have a legal leg to stand on?
We have reservations!
We’ll have it fixed tomorrow, the partner didn’t deliver, we’ll have it fixed tomorrow, the exchange rate was bad, we’ll have it fixed tomorrow, we didn’t expect the spanish inquisiton, er.. Al Baker, we’ll have it fixed tomorrow, …
( someone remember that scene in Blues Brothers were Jake makes his amends for missing his wedding to future princess Leya Organa? Leya Blues? Hmpf 😉
In this word of hh stakes negotations, your point is not important. What is important is taking advantage of the moment. BA was slammed a business day before delivery, and the stink of that is far worse than the legal fighting that takes place over years in sealed documents. I wonder when things turn to the point where QR’s demands are sent to the back of the line, it has to be soon. QR has 100 aircraft now.
Anything that strengthens the hands of the customers is good for the industry.
I agree with that, No Kidding.
Everyone knows that 747-8 doesn’t meet the performance expectations (obviously, it is Boeing’S/GE’S fault). The main point in this story is that it was ok for VC a month ago (with an agreed framework of compensation), but is not ok now, so the new board of VC deserves some criticism for such behaviour.
I thought the IATA identifier for Cargolux was CV, and the ICAO identifier was CLX. Is that not right? Leap and Uwe have called them VC. I thought VC was the IATA identifier for Voyageur Airways, a small airline/charter airline in Northern Canada, who also does some charter work for the UN.
Back on topic. Leap, you are correct, EVERYONE knows the first B-747-8F/Is off the line are, or will be overweight. They also know the initial GEnx-2B engines will not meet the SFC. CV knew all of this and Boeing did not hide it from anyone, let alone the launch customer. QR only controls some 35% of CV, so why does Al Baker have so much influence over what the CV BoD do? Is this really just another grab for the headlines by U-Turn Al for his ego? Doesn’t he like the QAF C-17 painted in the colors of his airline (QR)? I guess when this one blows over, Al will be looking at a way to embarrass EADS/Airbus, next.
Yeah, a typo. Glasshouse and all that Mr. TB 😉
As you mention the QF ownership in CV is 35% complemented
by voting weight on the board.
So QF’s voice and/or BCA’s behaviour and/or some other unpleasant matter tilted the balance on the board towards
a more explicit show of unhappyness preceded by a
major reorganisation in leadership.
Had Boeing not delayed delivery by years ( or even a single month ) Mr. Al Baker’s interests and BCA would not have met
in the wee hours of the day for an entertaining dueling match.
Performance of 748 will finally meet its target specifications, the remaining question is when this is going to happen.
My main point is that Al Baker’s behaviour (well, there is a long list of his “shows” in the article, and now I am not talking about this particular 748/CV case) is not appropriate for a top level business. It is likely that Al Baker just seeks a higher compensation, but imho he does that in a very unprofessional manner.
I agree. Baker does have a lagitment complaint with both airplane OEMs, but he needs to address them directly to Airbus or Boeing, as the case may be. All he is doing is airing out dirty laundry for the world’s press even though he knows each OEM will address his issues with the airplanes QR or CV orders.
“Baker does have a lagitment complaint with both airplane OEMs, but he needs to address them directly ..”
Mr. Baker activates synergies to the advantage of CV _and_ QR with his activity ( _if_
this is solely his brainchild).
I don’t see a single reason why customers should not leverage cooperation.
( there even is a complementary model in litigation: class action suits )
Only the competitive standing keeps most airlines away from that type of cooperation
majorly reducing the heat Boeing is exposed to.
Imho it is time that this happened.
Interestingly enough QR have not made a engine choice for the A380 yet, which they need to soon for the long lead items. I guess that’s another stick to beat GE with… I agree that Al Baker is a strange character in aviation business.
It is certainly not good for Boeing. It only adds to the enormous difficulties they are going through right now: the 787 debacle, the NSA fiasco, the NEO direct competition, emerging competition in the overall narrow body sector, labour problems, suppliers shortfalls, shrinking military budgets, NASA’s dwindling space budget, etc…
Boeing is in a precarious position right now. Quarterly results are still excellent. But they are just that, quarterly results. Things could change fast and dramatically so. If there was to be a major economic downturn of an unprecedented planetary scale, backlogs would melt quickly after repeated cancellations and Boeing would find itself in a dire situation, to say the least.
They still have plenty of liquidities, but as we all know liquids have a tendency to evaporate under intense heat.
“certainly not good for Boeing”, “enormous difficulties “, “787 debacle”, “NSA fiasco”, “labour problems, suppliers shortfalls, shrinking military budgets, NASA’s dwindling space budget, etc…”
[Edited as a violation of our Reader Comment rules.]
Replace Boeing with Airbus, project names with a random scoop from Airbus portfolio and you have a mild image of
the language of yesteryear.
In contrast you will imho have problems producing convicing
arguments that Airbus was at any time deeper in quicksand
than Boeings current “standing”.
So, in short summary, Qatar, of Akbar Al-Bakar, bought 35% of Cargolux, got some board members on there just to embarrass Boeing and extract points for compensation on the also delayed 787…
Looks like a very serious ego problem. Ever since Steve Udvar-Hazy told Airbus to redo (& redo) the A350, there’s been no holding back — people trying to outdo Udvar-Hazy. Looks unprofessional, exploitive..
I don’t see your contention.
This is pure (carnivore) capitalism. Winning ( thus profits ) at all costs.
Only difference : the business end of the pitch fork points the other way
round this time.
Boeing’s Quarterlies still look good because they have pushed all that
sunk money into the “inventory” drawer for both projects. /($18..20b?)
I thought I’d refer to the easyjet and, I think, the Vought aftermath, two cases where Boeing expressed public dissatisfaction with customer and supplier processes. These should not have been made public. But the Cargolux decision was going to be public intentional or not in this case, obviously. Intentional it appears because they led everyone on until they reached the alter. If you wanted to make a statement to a business partner, not much will beat this. Wonder how much of an effect this will have on Boeing when they decide to redo the 777, if they will do it concurrently with the 737MAX, and indeed what the shape of ambitions will be on their next cleansheet. In the 1990’s Boeing was Derivatives ‘R Us, this last decade it’s been just late, apart from a few notable exceptions. Disappointing. You, of course, are in your element, with this customer rebellion. Long time coming unfortunately
don’t know about easyjet, but all Boeing partners got their share of smearing in the past.
in a very condescending tone at that : Never did Boeing wrong or erred.
For the last decade Boeing has been rather busy kicking select entities kneecaps.
( Sitting on a longlegged but dead horse imho, swaggering on and on about their billiant past, their brilliant future, their unsurmountable technological provenience and advance,
what their customers really want and that the competition just doesn’t cut it, loosers ).
A lot of Boeing actions have leveraged others restraining politeness.
This has built quite a head of steam at all parties involved: partners, competitors, customers.
I am not surprised this overpressure isn’t blown for nothing.
Al Baker is a refreshingly complementary adversary for Boeing here.
He just doesn’t care about “polite”.
Another pint of bitter and some more crisps please 😉
Apropos the first impolite “attack” was imho Air India ( riding on the
US political aboutface towards India for “Dumping on Pakistan” )
After Al Baker’s outburst at the Farnborough Air Show over the CSeries engine maintenance costs, Benjamin Boehm, then Bombardier vice-president for commercial aircraft programs, said that those issues should not be negotiated in the public realm.
For Cargolux to decline delivery, it would have required a majority decision of the board of directors, so although AAB may have made the proposal, it had sufficient reasoning to convince the majority of the board.
In other words AAB made his point to Cargolux, that taking delivery was not in their best interests.
Sorry, but I cannot believe Cargolux would have taken this route without a very convincing case, and certainly I do not believe the 787 would have entered the discussion unless AAB suggested the QR 787’s set a precedent that was worth pursuing.
Not sure how confidentiality and NCA agreement work under these circumstances.
I read that 25% +1 votes gives the board member a veto…Qatar has 35%, so while it may take a majority of the board to make a decision, it only takes one veto to kill it.
Hmm. a point.
Does it match up with the changes in officers and the assertive and directed behaviour we see?
( Usually vetoes tend to be a passive result thing )
Somehow, I believe there is a lot more to this story than just Al Baker and the CV BoD, and nothing really to do with the current performance, and weight of the CV B-747-8F.
It will all come out in the wash but will we be told the truth???.
My guess is you belive wrongly 😉
(Major) Contract noncompliance is a requirement for being able to refuse delivery.
Thus it seems a certainty that CV has hard cause for their behaviour.
You may have something when you assume the motivation may have roots that
are reaching a bit further.
On the third hand I am quite astonished about the airlines public meekness in
accepting Boeing’s delays and fibbings.
Is there some mailed political fist hidden in the shadows that would come
down when (foreign) airlines start to get more assertive ? ( Like loosing landing
rights in the US or getting added to some terror related list )
I doubt about those fists 🙂
On the other hand (off-topic slightly), mild protectionism sometimes exists, like in this AF/KLM recent order of 25 A350s/787s:
“The order has attracted huge attention in France, where some politicians have put pressure on Air France-KLM to buy from Airbus — which has its major plant in Toulouse, in the south of the country — rather than from Boeing.”
“President Nicolas Sarkozy in June wrote a letter to an MP from his UMP party saying he “was closely following the discussions between Airbus and Air France-KLM on upgrading its long-haul fleet”.
Sarkozy wrote: “I am sure that Air France-KLM will of its own accord recognise the qualities of the A350, a plane whose production we have supported with loans.””
No airplane in recent history (the last 20 years or so) failed to meet its performance goals more than the MD-11, well before Boeing took over MD. Yet airlines took it. The first A-380s did not meet their performance goals either, although by a margin smaller (by percentage) than the MD-11. Yet airlines took it. Airbus did begin improvements to the A-380, and it finally did meet its goals. The first B-787s will also not fully meet their stated goals, yet it seems NH is about to take delivery of the first one. Will the A-350, A-32X-NEO and B-737MAX first several airplanes delivered meet their stated performance? Maybe AA’s delivery schedule beginning about a year, or so, after EIS is an indication (as well as financial reasons for AA)?
The B-747-8 is at that stage now, about to EIS, and slightly under performing its goals. But we know that by 2013, these issues will be addressed.
Going by an article on FG the MD-11 was 6+% over spec.
Going by what has been written on this site the 748 is effectively
to a similar amount ( if not a bit more ) over spec.
The A380 was slightly overweight compensated by better aero
and better engine sfc resulting in a plane well inside spec as sold.
IMHO you will have to find another comparison here.
Did Cargolux see a softening in demand for freight, ie would a delay in delivery, possibly with some better compensation ease an overcapacity problem.
By my calculations, the B-747-8F is some 3.5% to 4% over specs. The difference between the MD-11 and the B-747-8 is the Boeing jet (not the inhairited one) is going to meet specs, where the MD-11 never did.
IIRC the first delivered A-380s, to SQ, were some 7 tonnes (15,400 lbs) over weight, or about 3% or so. The RR Trent-900 engines initially did not meet the SFC, but eventually did. IIRC the A-380s began meeting all specs in late 2009. At that time there were some 23 or 24 A-380s delivered to four airlines, SQ, EK, QF, and AF. I believe QR has only a few A-380s currently on order (3-5 airplanes?), but still has not chosen between the RR Trent-900 or the EA (GE & PW) GP-7000 engines.
Concidering that your facts and calculations tend to be slightly off …
.. we can assume the 748 to meet the MD-11 squarely if not “best” it
in being overspec.
( afair not even the A380 prototype was overweight by 7++t.)
Der Spiegel reported yesterday that the Qatari government is planning to buy a 7.5% stake in EADS/Airbus. It was also reported that Qatar Airways proposes to convert up to 20 Airbus A330 aircraft from passenger jets to freighters. This, coupled with Al-Baker’s last-minute decision to throw a monkey wrench into the Cargolux-Boeing 747-8F deal, makes one wonder whether there is more to this situation than simply an attempt by Al-Baker to strong-arm Boeing over the delays to the 787 deliveries to Qatar Airways.
That would be a huge increase in cargo capacity over what QR has now. They currently have 5 freighter aircraft, 3 A-300-600RFs and 2 B-777-200LRFs. They also operate a QAF C-17 in QR livery. QR also has 2 B-747-8BBJs on order for the QAF fleet they operate.
Is the Qatari Government eligable to buy a 7.5% stake in EADS/Airbus? I thought only EU governments and citizens could have significant number of shares (more than 1%)?
From where do you get your data? You seem to have all US data better than anyone else can find and all European data worse than anyone else can find.
Specifically, from where do you have that non Europeans can’t own more than 1%? From memory Singapore owns 49% of Virgin Atlantic and only a few years ago a Russian bank bought some 5% of EADS.