Leeham News and Analysis

And the fury continues

The political fury over the USAF award of the KC-45A tanker to Northrop Grumman/EADS/Airbus continues.

Sen. Patty Murray (D-WA, our senator, BTW) has made overturning the award her mission in life. We generally support Murray on other issues, but she’s over the top on this one. Her assertions about Airbus are often off target and irrational. But she should not be underestimated, as EADS North America and Northrop often do. She is the No. 4 ranking Democrat in the Senate and knows how to game the system. She’s a real danger to this contract and Northrop/EADS/Airbus better get their allies in gear to protect their award.

US Rep. Norm Dicks (D-WA, but not our Congressman–ours is the lightweight Dave Reichert, a Republican, whose familiarity with Boeing stems more from flying between the two Washingtons on Boeing 737s than anything else) is more rationale and far more dangerous to the Northrop crowd. The Seattle Times has a good story today about Dicks vs. the USAF on this issue. Dicks also released correspondence between Boeing and the USAF over criteria issues that is worth reading. This letter may be found here.

Some members of Congress, including Murray, are complaining that the USAF did not consider the “illegal” subsidies case the US has against Airbus before the World Trade Organization, noting that such consideration was removed from the RFP at the request of US Sen. John McCain, urged on by Northrop. We wrote about this issue at the time and, in response to a reader just yesterday, we wrote the following to him:

 The original language asked the submitters (Boeing and NGC) to assess what the penalties would be if found “guilty” by the WTO. At that time, the cases hadn’t even been argued, let alone decided and penalties were anyone’s guess. Furthermore, there was no guarantee that if any penalties were assessed, they’d be enforced or even applied to aerospace. Under WTO rules, penalties may be applied to any industry. I could just see Europe applying the penalties to Washington apples and the US to French wines. In the case of the WTO adjudication of Embraer and Bombardier, the WTO found both parties guilty (which is what I think will happen in the Airbus-Boeing WTO case) and neither country imposed any penalty. The original question was impossible for Boeing or NGC to answer and absurd to include. The clause finally included was that the costs of any penalties assessed could not be passed on to the AF. This was the proper action.

Our link below to a Commentary on 767/777 tanker possibilities also includes the original WTO language referred to above.

It’s important to note that no decision has yet been issued by the WTO even today, although the US case against Airbus and the EU case against Boeing were argued last year.

Note we also said the EU case against Boeing. Although some members of Congress want to insert legislation that no contract should be awarded to a company being sued by the US over trade issues, this conveniently ignores the fact that Boeing is also being sued by the EU over trade issues. (Technically these “suits” are government-to-government complaints, not government-vs-company, but the practical effect is that Airbus and Boeing are the defendants even if this isn’t the case in the strict legal sense.)

Dicks, echoing Boeing’s view (and carrying Boeing’s water in the process), complains that Boeing didn’t know the Air Force wanted a bigger airplane. This is a pretty amazing position on the part of Boeing and its supporters. We expected Boeing not only to offer the 767 but also the 777, which would have checkmated Northrop, and we said so back in September 2006. This Commentary may be found here.

Boeing, and its supporters, continue to point to Boeing’s assertions that the 767 uses less fuel than the A330, on which the KC-30 is based. This is true, but not to the extent Boeing claims. Boeing says the 767 uses 24% less fuel; Airbus says the number it closer to 6%-8%, but that the better productivity of the A330 more than offsets the extra fuel burn.

Boeing retained some obscure aviation firm to arrive at their number. We’ve been involved in commercial aviation since 1979 and we had never heard of the firm Boeing used–we had to look it up on the Internet, and discovered that it’s main focus is corporate jets. Boeing could have chosen well known, and highly respected firms, such as Avitas, Back Aviation, IBA or several others that would have given its figures credibility. But we don’t think any of these would have provided the answer Boeing wanted because quite simply the 24% figure is highly suspect.

If it were true, no airline in the world would have bought the A330, the direct competitor to the 767, for the fuel efficiency deficit of this magnitude would have been intolerable. The reality is that the efficiency of the A330 effectively killed the 767, which has a backlog of about 50 (mostly from cargo airlines). Airbus sold 66 A330 freighters alone last year and has a backlog of several hundred A330 passenger planes. Boeing took nearly 30 years  to sell 1,000 767s; Airbus has sold nearly 900 A330s in about 15 years, and sales are still going strong while 767s aren’t selling much at all.

Boeing’s fuel argument, now being repeated, is specious.

Boeing gets its debrief tomorrow. It will decide by early next week whether to file a protest.