Feb. 15, 2016, © Leeham Co. In the news business, it’s called the gift that keeps on giving.
These are news stories on topics that just won’t go away. And we get to write about them over and over and over and over. And then we get to write about them some more.
For most of the decade of 2001-2009 and into 2011, we journalists got to write about the USAF aerial refueling tanker scandal and procurement process. First, Boeing struck a deal to lease 100 KC-767s to the USAF. This deal blew up like an IED in late 2003 when Sen. John McCain (R-AZ), who sat on the US Senate’s powerful Armed Services Committee, challenged the fiscal responsibility of the deal. His investigation uncovered improprieties. A former USAF procurement officer who was hired by Boeing after the contract award went to jail. So did the CFO. And Boeing CEO Phil Condit resigned, giving us as his successor former McDonnell Douglas CEO Harry Stonecipher. (This later became story in its own right.)
After Boeing’s lease deal was voided, Northrop Grumman teamed with EADS (as the parent of Airbus was then known) to compete with Boeing in a new round of tanker procurement. Northrop-EADS won. But then Boeing protests, the Government Accountability Office upheld the protest and round three began. Boeing won–in February 2011–eight years after the original contract was frozen (December 2003).
Even now, the tanker story occasionally rears its head again. Boeing is late with the KC-46A and has written off nearly $1bn in costs. It’s clear there’s more to this story to come.
Airbus is not immune
Through much of the mid-to-late 2000s, Airbus was not immune to endless gifting, either. The A380 program, controversial to begin with, became a series of headlines and with it, disarray in the executive’s office and intrigue of trans-border governance and politics.
My first trip to the Airbus headquarters and factories in Toulouse was in May 2006. Coming back, I was in the process of writing a series of stories and had not yet gotten to my interviews about the A380, when news broke of another delay in what would become a string of them based on the now-infamous wiring snafu between Airbus’ Hamburg and Toulouse engineering centers.
Thus began a long string of press stories about the A380 program that resulted in the resignations of several CEOs at EADS and Airbus. Finally settling on Louis Gallois and Tom Enders, a further string of stories were written on how they solved the problems of the past and how Enders began to remove the state meddlings of German and France emerged.
Airbus’ muddled response to the Boeing 787 provided fodder for a long time. Initially the A350 was a re-winged, re-engined A330, incorporating some more upgrades. But it was still a metal airplane and composites were the soup of the day. Market reaction was tepid. Airbus went through four more versions before settling on the XWB. Even then this proved to be off target with the A350-800 that just didn’t have the needed economics and an A350-1000 that still needed some tweaking.
The more recent A330neo has seen sales stall while officials focused on selling the A330ceo to bridge the production gap and fuel has fallen to under $30bbl. Even though one Boeing official called Airbus’ wide body strategy “a mess,” the fact is that excluding freighters, Airbus has outsold Boeing in wide bodies in most of the recent years.
Bombardier designed a superb plane in the C Series. Then management proceeded to royally f[oul] up the strategy to sell it.
BBD is now a penny stock and the company is planning a reverse stock split to avoid delisting on the Toronto stock exchange. Government bail outs have become necessary and the industry views BBD as a bankrupt company. There hasn’t been a C Series order since September 2014. The headlines continue to be ominous and there are many more to come.
Back to Boeing
And then there’s Boeing again.
On the Jan. 27 earnings call, Boeing surprised analysts in a bad way with lower than expected guidance for 2016. Stock was off nearly 10% at one point even as the earnings call was proceeding.
Last week, Boeing was back in the news with Ray Conner, CEO of Boeing Commercial Airplanes, announcing to employees a new round of deep cost cutting was needed because of pricing pressure from Airbus, the loss of market share between the 737 MAX and the A320neo family and the need for a new airplane to solve this problem. (if Airbus’ wide body strategy is “a mess,” it’s now become clear Boeing’s narrow body strategy is “a mess.”)
Less than 24 hours later, news emerged that the Securities and Exchange Commission was investigating whether Boeing improperly forecast sales projections in setting its accounting blocks for the 747 and 787 programs to pump financial reports.
Stock on Thursday, the day the SEC probe became known, dropped to as low as $102, a two-year low. The last time Boeing stock was at $100 was June of 2013.
Boeing is facing a long period of unhappy headlines.
Bombardier. Boeing. It’s the gift that keeps on giving.