Leeham News and Analysis
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Leeham News and Analysis
- Bjorn’s Corner: Air Transport’s route to 2050. Part 27. June 20, 2025
- Pontifications: A Personal Note June 19, 2025
- Airbus books 142 firm orders as Boeing retracts from the Paris Air Show June 19, 2025
- AIN Media Group Agrees to Acquire Leeham News & Analysis June 17, 2025
- Five for Five: Air India crash points to systemic problems at Boeing that CEO Ortberg must fix June 15, 2025
Why aren’t they talking about the airplane?
In the previous post, we talk about the WTO issue being pursued by Boeing and its supporters. In this post we ask, “Why aren’t they talking about their airplane?”
This is about the strangest marketing campaign we’ve ever seen, and one of the things we do is marketing. Boeing has a product–but it’s nowhere to be seen in the public relations campaign.
Isn’t the KC-767 worth talking about?
Playing with fire
The renewed effort by Boeing and its supporters to focus on the WTO ruling against Airbus on illegal subsidies in the KC-X competition (see preceding post) is playing with fire.
The hyperbole by Washington State’s Members of Congress is particularly shrill.
The Reuters article linked in the preceding post reports some key issues that need to be remembered: there remains a pending ruling on the EU complaint that Boeing received illegal subsidies; both sides can appeal; and if the US unilaterally imposes penalties, which a Congressional law mandating consideration of the ruling would amount to, this violated WTO rules.
Boeing goes to Congress on KC-X
Update, May 13:
DOD refuses to give award date
In case anybody wonders, the effort to force DOD to add $5bn (the amount found Airbus illegally benefited on the A330-200) to the KC-X contract price equals $28m per airplane.
11:00 AM PDT: We just received this statement from EADS North America:
“The Boeing Bill is one more attempt to avoid competing on the merits of the tanker. Unlike EADS North America, Boeing doesn’t have a tanker that meets requirements, it faces tremendous technical risk in producing one and is therefore determined to take away the warfighter’s right to choose. We believe our fighting men and women deserve the most capable system—and they deserve the right to select it.”
4:00 PM: More from the “So’s your old man” department, this one also from EADS North America:
1. All reimbursable launch investment loans for A330-200 aircraft development have been repaid – with interest. In fact, since 1992 Airbus and EADS has averaged repaying $1.40 for every dollar received in reimbursable launch investment (this figure covers more than the A330-200). Boeing has received over $16 billion in federal grants, $6 billion in state and local subsidies and over $2 billion in anti-competitive export subsidies already declared to be illegal by the WTO ($1 billion of which came after the WTO ruling) (Editor’s note: this refethis relates to a previous WTO ruling that Boeing illegally benefited from Foreign Sales Corporation [FSC] tax breaks). In fact Boeing is the only company that has been formally sanctioned by the WTO for illegal export subsidies—including illegal support for the 767. (Editor’s Note: FSC and the expectation that the 767 will also be a part of the pending WTO ruling against Boeing, due next month.) No Boeing subsidies have been repaid and all should be considered in the context of Boeing bill introduced today.
2. Boeing also receives significant subsidies from foreign governments. In fact, Boeing has moved the design and manufacturing of major components overseas to secure foreign government subsidies. To date, Boeing has taken at least $1.5 billion from Japan and more than $500 million from Italy to put manufacturing jobs in those countries.
3. A very important issue is that this bill would put the US in the position of violating the WTO agreement. It is illegal under the terms of the WTO treaty to act punitively before the WTO process is completed (it’s called “self help” in the treaty). This is clearly a case of prematurely using WTO findings to justify punitive actions. Article 23 of the Treaty forbids such action and the US could be found to be a treaty violator and subject to sanctions-all for the benefit of Boeing.
Original Post:
Boeing has gone to its supporters in Congress to introduce a bill to force the Pentagon to take into consideration the adverse WTO ruling in the Airbus subsidy case, according to this Reuters report.
Read the report carefully: there are several key points in it, among them:
KC-X’s latest twist: Contract after the election
Update, May 5:
The Pentagon denied the Defense News story. Here’s Defense News’ own report.
Original Post:
In a move that probably surprises no one, the Defense Department says it will issue the contract for the KC-X on November 12, which just happens to be after the November elections.
Here’s the story from Defense News.
Gollleeee. Whoda thunk it?
Tit for tat on KC-X
Stephen Trimble of Flight Global has EADS’ opening shot on talking point in Congress. It is brutally frank and takes off the gloves often kept on by Northrop Grumman in the KC-X competition.
We’ve seen–but do not yet have–Boeing’s resp0nse. We’ll post it when obtained.
Update: Boeing’s response is after the jump:
KC-X: price dumping and assessing risk
Now that EADS said it will bid after all for the KC-X contract, questions have been raised about the possibility EADS will offer pricing that is below its costs (or “price-dumping”) to win the contract. Boeing supporters, and Boeing itself, have raised this concern.
On the other side, EADS is focusing on the fact its KC-45 is in production and in flight tests while Boeing’s proposed KC-767 NewGen is a conceptual airplane that is a riskier prospect.
How are these two particular concerns dealt with?
EADS confirms KC-X bid
Update, 500 PM PDT: Innovation Analysis Group has a 24 minute podcast on this development featuring Flight Global defense writer Steve Trimble, TEAL Group aerospace analyst Richard Aboulafia, IAG’s Addison Schonland and us.
Original Post:
EADS North America and Airbus have scheduled a press conference for 2pm EDT today. EADS NA CEO Sean O’Keefe, former EADS-NA CEO Ralph Crosby (who remains in charge of obtaining the KC-X contract) and Airbus Americas Chairman Allan McArtor are scheduled to appear.
Clearly this is the kick-off for the return of EADS to the competition.
Update, 0945AM PDT: Boeing already is on the offense, issuing a statement that the WTO ruling that Airbus, and the A330-200 on which the KC-45 is based, benefited from illegal subsidies should be considered. The Department of Defense has stated repeatedly that the WTO ruling will not be considered.
The WTO Interim Report on the EU case against Boeing is expected to be issued in June, ahead of the extended deadline of July 9 for proposals to be submitted. It is widely anticipated that Boeing will likewise be found to have benefited from illegal subsidies.
We have all along cautioned about focusing on the subsidies issues because we believed both parties will be found to have violated WTO trade rules. The Airbus report is out and the Boeing report is coming. Boeing and its supporters already have said any Boeing violations will “pale” in comparison with launch aid provided Airbus.
Whether it does or doesn’t remains to be seen, but since the underlying thesis of Boeing and its supporters is that any WTO violation should disqualify a company seeking this contract, then any violation by Boeing would disqualify Boeing. This, of course, won’t happen and therefore neither should it happen with respect to EADS (or Northrop before it withdrew).
Furthermore, DOD has reaffirmed over and over that it will not consider the WTO rulings, so all this is for Congress. This makes a sham of the DOD procurement process. The debate should be on the technical and operational merits of the offerings.
The press conference begins:
EADS to bid on tanker
Reuters just moved this story that EADS is preparing to bid the contract alone. L-3 Communications appears to be definitely out of partnering with EADS and “for now” EADS is prepared to go it alone, Reuters says.
Sen. Jeff Sessions (R-EADS/AL) blasted US Rep. Norm Dicks (D-Boeing/WA) for what Sessions termed attempts to intimidate potential EADS partners. Here is this report.
From strictly a taxpayers’ point of view, the EADS competition should result in better pricing for the Pentagon whoever wins. The past competition has already seen the price driven down compared with the original Boeing lease deal from 2002-2004 and an improved airplane offering from Boeing.
L-3 appears out as EADS partner
Update, April 16, 0900 PDT: Reuters moved this story this morning about EADS options dwindling away.
DOD Buzz has this analysis on why EADS needs a partner.
Original Post:
Reuters just moved this report that L-3 is probably out as a potential partner for EADS in a possible KC-X tanker bid.
This sends EADS scrambling for alternatives.
Reuters also reports that political pressure may have had a hand in Northrop Grumman’s decision to withdraw and that political issues may be involved in L-3’s apparent decision to withdraw from consideration.
If true, if political interference is at work, “incendiary” won’t even begin to cover the fall-out that could come from this.
777 production spotlighted
The latest issue of Boeing Frontiers, the company magazine, spotlights the Lean Production line for the 777. This follows the years-long conversion for the 737 line.
We have always felt these Lean Production methods are one of the secrets to Boeing’s success since implementation following the production debacle in 1997. Boeing is going to adopt a Lean Production Line for the 767, which will enable the company to offer the Pentagon better pricing for the KC-X tanker bid. We wrote about this in a previous post.