Tuesday’s Farnborough impressions

It’s a quiet show; few orders. One of the biggest, from Dubai Aerospace Enterprise (DAE), signed a contract with Airbus for 100 planes was merely confirming the order announced last November at the Dubai Air Show. Now these orders can finally be booked at Airbus and on its website.

DAE’s order for 100 Boeing airplanes, also announced at the Dubai show, was inked before the end of last year and booked in Boeing’s 2007 numbers.

Reporters are largely bored this year. This item for MarketWatch pretty well sums it up.

Jon Ostrower from Flightglobal gave this 15.40 minute podcast with IAG for Monday’s events. We gave this 11 minute podcast about Tuesday’s events.

This AP story sums up the day’s orders.

The Wall Street Journal today had this interview with Boeing CEO James McNerney that indicate it is a remote possibility that Boeing will bid a tanker based on the 777 instead of rebidding its KC-767. A subscription may be required to read The Journal’s piece. Boeing will hold a full tanker briefing Wednesday.

Update, Wednesday morning: This blog site keeps a running tally of orders. For the record, we don’t consider the Dubai Aerospace Enterprise to be a “Farnborough” order. This was announced last year at the Dubai Air Show; it was merely “inked” at this one. Thus, all news sites keeping tallies should put an asterisk by this one.

Farnborough on Monday

Will GE/CFM engine launch accelerate 737/A320 single aisle replacement?

Will CSeries launch be met with Boeing response?

Is the air show this week about cancellations or orders?

Boeing and Northrop optimistic about winning tanker recompete.

This and more from Monday at the Farnborough Air Show.

For those looking for insight from Airbus and Boeing during the first day of the Air Show, you’ll have to wait for Airbus. Much to the puzzlement of observers (and Boeing), Airbus canceled its press briefing and rescheduled it to Thursday.

Why, people asked?

Does super salesman John Leahy have something up his sleeve to reveal Thursday that will blow Boeing out of the orders order?

Will Airbus surprise everyone and accelerate the successor to the A320, especially with CFM launching the successor to the CFM56, or with the P&W Geared Turbo Fan about to go onto the A340 test bed?

As it happens, we know–having found out Monday–but we were sworn to secrecy before we were told.

So with this hanging out there, here’s a recap of Monday’s news outside of the usual order announcements.

Will GE/CFM engine launch accelerate 737/A320 single aisle replacement?

The question was logical and posed to Boeing Commercial President Scott Carson during Monday’s Boeing briefing. The new CFM LEAP-X engine has a target certification date of 2016; Boeing previously said it plans to have a successor to the 737 ready to enter service in 2020. Might Boeing move this up to coincide with CFM’s date?

Alas, Carson was ambiguous–he said the CFM timeline was consistent with Boeing’s timeline. Not by our math, but nobody followed up on the inconsistency.

We suspect Airbus will be asked the same question Thursday.

Will CSeries launch be met with Boeing response?

It doesn’t appear Boeing will accelerate the 737 replacement to match the launch of the 110-149 seat CSeries by Bombardier. Carson noted that the CSeries EIS is 2014 and Boeing’s 737 line is sold out to the same period. But he added that Boeing is becoming less enamored with the smaller airplane as fuel costs, increasing air traffic congestion and aviation taxes in Europe all argue for larger airplanes. Boeing’s new 20 year forecast increases airplane size by about 10-15 seats, he said.

So how small is too small? Where will Boeing draw the line?

Carson didn’t say, leaving open speculation that Boeing just might cede the below 150 seat market to Bombardier and its emerging competitors in Japan and elsewhere. In fact, Japan is looking at the 100-150 seat market, too, as reported by Flightblogger. Boeing has close ties to the Japanese aviation industry. Is there a behind-the-scenes connection?

Is the air show this week about cancellations or orders?

Carson began his briefing with the quip, “Is this week about cancellations or about orders?”

The signs are it’s about orders, even if far fewer than at shows in the recent past. Boeing (and Airbus through the media day of its parent, EADS, on Saturday) said that there have been very few cancellations or deferrals and for those that happened, others moved in to take up the positions. Both companies said that lessors will be perhaps principal in acquiring airplanes and “financing” (ie, leasing) them to airlines that can’t afford planes as the credit crunch spreads to aviation. Airbus’s Leahy, at a press conference for the Etihad order, specifically named ILFC, GECAS and Aviation Capital Group, as lessors who will fill this bill with new airplanes.

Boeing and Northrop optimistic about winning tanker recompete.

Boeing, Northrop, EADS and Airbus are all optimistic they will win the USAF tanker recompete. Isn’t this lovely? And not unexpected?

More

Flightblogger and Flight Global provide running coverage, as do other specialist media. (We only get to it at the end of the day.) The links on the right will connect you.

Tuesday’s big event will be the 787 Program Update with program chief Pat Shanahan. There’s also an environmental briefing from Boeing’s enviro officer, Billy Glover.

Plus more order announcements; we won’t cover these as a matter of routine–plenty of others will do that.

McGraw out as Boeing tanker chief

It’s buried in this Bloomberg story and there’s little meaningful reported about why, but Mark McGraw is out as the head of Boeing’s tanker program.

The story headlines the prospect that Boeing may protest proposed changes to the forthcoming RFP in the tanker recompete. The Defense Department said that it plans to give extra credit for size, which will favor the Northrop Grumman tanker proposal, in the eyes of Boeing and its supporters.

GE, CFMI commit to new engine

London, England: GE Aviation, CFM International and Safran, all partners in the CFM group that makes the CFM56 engine that’s on the Boeing 737-300 through 900 and about half of the Airbus A320 family and some A340 models, said Sunday it is formally proceeding with what was the R&D LEAP 56 project, committing to the renamed LEAP-X.

Certification is aimed for 2016, two years before Airbus recently said it plans to have a replacement for the A320 family enter service and four years before Boeing’s latest plans to have a successor to the 737.

GE officials declined to speculate whether the 2016 certification will cause Airbus and Boeing to accelerate the own development plans.

The LEAP-X promises 16% lower fuel burn than the CFM56. The GE group expects airframe improvements to further lower operating costs.

Bombardier launches CSeries

Also on Sunday Bombardier launched the 110-130 seat CSeries (it can also seat up to 149 in maximum configuration) following a provisional order from Lufthansa German Airlines for 30+30. The Reuters story may be found here. The plane will compete with the smallest A318/A319 and Boeing 737-600/700 airplanes. Bombardier says fuel burn for its new plane will be at least 20% less than the Airbus or Boeing products.

Bombardier also will tap launch aid from the governments of Canada, Northern Ireland and the Canadian Province of Quebec.

It will be interesting to see whether Boeing objects, as it has over launch aid for Airbus.

Dominic Gates of The Seattle Times took a pre-announcement look at the CSeries within this larger topic and in this specific story in Sunday’s paper. He also profiles Pat Shanahan, the head of Boeing’s 787 program, who will give his quarterly update Tuesday of the 787 at the Farnborough Air Show.

The London Sunday Telegraph published this full page article about Boeing, the 787 and an interview with Boeing CEO James McNerney.

EADS Media Day

We attended the EADS Media Day that is held in advance of the two major air shows, Paris and Farnborough.

Some highlights:

  • EADS CEO Louis Gallois said EADS, one year after implementation of the Power8 restructuring program began, has made progress in becoming a more integrated company with transparent reporting lines. Airbus CEO Thomas Enders acknowledged, however, that there are still nationalistic tendancies between French and German employees and divisions that need to be overcome.
  • Enders said that 26% of the A350 supplier sourcing has now been assigned to the US, compared with 4% for the A320 family. This represents a major shift toward diversifying from European sourcing and more of the remaining 74% of the A350 supply chain that has yet to be sourced will be outside Europe.
  • Gallois, Enders and EADS North America COO John Young (no relation to the Defense Department’s chief procurement officer of the same name) are confident Northrop Grumman will win the recompete for the tanker. Collectively, they said only a few of the seven items of the protest filed by Boeing are centered on Northrop’s KC-30 bid, which is based on the Airbus A330-200; the other items had to do with the USAF process and analysis. The EADS officials believe that Boeing won’t offer a plane different than the KC-767AT that lost the competition. Young opined that the Air Force recompete decision could come as late as March instead of the end of the year, simply because the timeline outlined by the Defense Department is probably too aggressive.
  • Gallois declined to predict dates when EADS and Airbus will meet certain Power8 milestones. “We have been too straight-forward with dates [later missed],” Gallois said. “I admire Boeing for never giving dates. They never give any information!” adding that the last remark was a joke.
  • Gallois repeated the previously disclosed goal that EADS wants to evenly divide revenues between Airbus and defense-related business. Airbus currently comprises between 60%-65% of the revenues, down from 80% only a few years ago.
  • Although Gallois dismissed the premise that Northrop may lose the tanker recompete, he said that would not lessen the EADS desire to broaden its “footprint” in the US as a means of reducing exposure to the weak US dollar to the Euro.
  • Further justifying the push to diversify from Europe, Galloius said that 75% of the aerospace engineers are located outside Europe; and that access [to sales] in certain markets supports diversification, similar to Boeing’s production and resesearch model.
  • Enders, however, said it will be years before the EADS/Airbus employee head count drops below 50% in Europe–though he hastily added that this figure is not the goal. The European head count currently represents 95% of the company’s employees.
  • Enders acknowledged that Airbus is “fighting” and “struggling” with the transition from Wave 1 to Wave 2 for the A380. Wave 1 is the first two dozen or so A380s that have to be hand-wired following the production snafus that resulted in the bulk of the two year program delay. Wave 2 is the automated industrialization plan to install wiring. Slow progress recently resulted in an additonal delay of three to five months.

More reporting from the Farnborough Air Show will continue throughout the week.

Tanker recompete, decision by January

Ahead of the afternoon (EDT) press conference by the Department of Defense, Tanker War Blog is reporting that it appears DOD is going to have “an expedited” recompete.

Live Internet streaming coverage of the DOD press conference at 1pm EDT will be available on this Mobile TV station.

The Mobile Press Register has this blog item.

Breaking News, 845 AM PDT: We’re told that there will be a quick evaluation of the GAO concerns and that an award will be made by January.

Additional, 855 AM PDT: John Young at DOD replaces USAF’s Sue Payton as the Source Selection Authority.

Update, 1000 AM PDT: The press conference is about to begin. As we wait, here are a couple of take-aways from what we know at this time:

  • The quick turn-around keeps the contract under the Bush Administration, rather than a potential Democratic Barack Obama White House or one under John McCain, a Boeing nemesis.
  • By narrowly recompeting the contract based on the GAO findings–instead of a full, start-from-scratch recompete–Boeing is limited to sticking with the KC-767 rather than offering a tanker based on the 777.

The conference begins.

Robert Gates, Secretary of Defense, says that DOD will review all eight of the GAO protest items. John Young, as we reported earlier, becomes the new Source Selection Authority. A new advisory committee will be appointed to oversee the new process, and completion of the process will be by year-end.

The new Air Force chief noted that there is a need to rebuild confidence in the procurement process. He noted that the USAF successfully defended itself in more than 100 protest items, and therefore he does not conclude that the underlying procurement process is fatally flawed. However, with eight protest items being sustained, it is essential for the USAF to maintain confidence in the process.

Sue Payton and her team have been directed to be sure the USAF understands the GAO’s actions to position the Air Force for future competitions.

The rebid will not take into account the “industrial base” (jobs) or the WTO subsidy dispute between Airbus, Boeing, the US and the European Union.

Gates notes that this is the third time “we’ve gone at this.” He expressed confidence in the acquisitions team.

The press conference now takes a side trip to today’s Iranian missile test.

Back to the tanker:

Undersecretary John Young, who now will oversee the recompete, said the objective is to expedite the review. There will be a new draft Request for Proposals limited to the GAO points, and Boeing and Northrop will have the opportunity to submit requests for changes before a final RFP is issued.

Northrop’s contract is withdrawn for now, Young says.

Young says the oversight team that monitored the source selection was added during the process and did find things that were addressed during the competition, inferring that some issues arose before the oversight team was in place.

Young generally favors fly-offs, but in this case is not requiring it.

Young added that the December timeframe is a goal–meaning that, given the history of this procurement–the schedule may slip into next year. “We would seek to change the minimum number of requirements” in the new RFP, with the GAO findings and taxpayer costs paramount. Contractors may bring up other issues that could affect timing.

Young, significantly, clarified that Boeing may elect to offer a tanker based on the 777.

Government procurement mechanisms and laws don’t allow DOD to consider the WTO dispute.

Young hopes to issue to issue the draft RFP in late July or early August and make selection by end of year. Working against having two prototypes in a fly-off in this case isn’t required because these are derivatives of commercial airliners, and the best use of taxpayers’ money is to proceed along the route of an RFP in this case. Also, doing a fly-off would require reducing the budget and acquisition from 12-18 tankers a year to as few as six.

Looking long-term, Young says that he wants competition for the KC-Y follow-on program with “aggressive pricing.” He also said that in this rebid on the KC-X, perhaps Northrop and Boeing will sharpen their pricing even further.

Bottom Line:

We think it unlikely Boeing will offer only the 777, but it would be interesting to offer a mix of the KC-767 and KC-777. At the same time, since the USAF previously was clear that it wants to have only one airplane type for the KC-X competition, we believe that in the end Boeing will stick with the KC-767. That’s where all the money has been invested and all the effort and analysis made. Furthermore, Boeing has spent years saying the KC-767 is “right sized,” fits on the tarmac, is better for runway weights and so on. To change now would undermine everything that it has said up to this point.

It’s worth remembering that the USAF wants a “medium” tanker. According to the Rand Corp. Analysis of Alternatives, the KC-767 and KC-30 are medium tankers; the 777 is a “large” tanker.

But the rebid doesn’t mean that Boeing has any particular advantage. This is going to be a tough competition and, unfortunately, we expect more of the public and political campaigns (which we largely considered unseemly) to resurface. It would be nice if both sides would reign it in and just work with the USAF quietly.

Update, 300 PM PDT: Boeing had this to say about the DOD action:

“We welcome the decision by Defense Secretary Robert Gates not to proceed with the contract award to Northrop Grumman/EADS and to reopen the KC-X tanker competition. However, we remain concerned that a renewed Request for Proposals (RFP) may include changes that significantly alter the selection criteria as set forth in the original solicitation. As the Government Accountability Office reported in upholding our protest, we submitted the only proposal that fully met the mandatory criteria of the original RFP.

“We look forward to working with the new acquisition team as it reopens the competition, but we will also take time to understand the updated solicitation to determine the right path forward for the company.

“It’s encouraging that the Defense Department intends to take steps to ensure a fair and open competition that, among other things, fully accounts for life-cycle costs, such as fuel, to provide the most capable tanker at the best value for the American taxpayer.”

Northrop was more subdued:

“Northrop Grumman Corporation applauds Defense Secretary Gates and Under Secretary Young for recognizing that the acquisition of replacement refueling tankers for the Air Force should be put on a path toward quick closure. We are reviewing the decision to ensure the re-competition will provide both companies a fair opportunity to present the strengths of their proposals.

The United States Air Force has already picked the best tanker, and we are confident that it will do so again. Our men and women in uniform deserve nothing less.

The Northrop Grumman KC-45 tanker is needed now and is ready now.”

High fuel costs impact super long-haul flights

The Wall Street Journal Tuesday (July 8th) had an interesting piece about how the current high cost of fuel is adversely impacting the super long-haul flights.

The article raises questions about the viability of 15-18 hour flights in an era of $130bbl or more oil. In turn, this raises questions about the business models for the Boeing 787 and Airbus A350, which tout hub-busting 8,000nm ranges. The article suggests that shorter route segments make more sense.

The article is silent about the economics of the 8,000nm range A380 and its ability to carry more than 500 passengers, supplying the revenue for the super long-haul route.

Boeing’s Randy Tinseth, VP-marketing, comments in the article, arguing that the hub bypass remains an economic advantage. All-in-all, the piece makes for interesting reading.

Airbus, Boeing virtually tied in YTD orders

Airbus and Boeing are virtually tied in year-to-date net orders, a position that is likely to change with next week’s Farnborough Air Show when both manufacturers may announce stronger-than-expected orders.

Through June 30, Airbus reported 487 net orders to Boeing’s 475.

In the ever-close single aisle category, Boeing now has taken the lead, with 354 net 737 sales to Airbus’ 323 net sales for the A320 family, a ratio of 52.3% to 47.7%. The companies have often flip-flopped the lead on this category.

For twin aisles, the leadership depends on the category within the category and also upon how these are divvied up.

For the large twin-aisle, Boeing continues to remain slightly ahead with 40 777s sold in the first half vs. 32 A350-900s. Airbus hasn’t sold a single A350-1000 so far this year. The ratio is 55.5% for Boeing to 45.5% for Airbus.

On medium-twin aisle airplanes, the picture is muddied a bit because there are the current generation twins (A330 and 767) plus the next generation twins (787 and A350-800). Here’s how this lines up:

A330P, 94: 47%

767, none: 0%

787, 79: 39.5%

A350-800, 27: 13.5%

Total-All, 200

This gives Airbus a 60.5% market share vs. 39.5% for Boeing. However, if one looks at only the 787 vs. the A350-800, Boeing has a 74.5% share vs. 25.5% for Airbus.

Boeing is handicapped by the fact that the 787 has serious program delays and as a result won’t deliver the last of the current orders of 900 until 2017 or 2020, depending on who you talk to. Thus, we’re told Boeing is currently not really offering the 787 for sale until the production rate stream becomes clear–a process that may take a couple of years. Airbus is limited in the ability to take advantage of this for the A350, which is also sold out to about 2017. There are more opportunities for the A330. Several lessors that ordered the A330F may switch early positions to the A330P and tack on an equal number of A330Fs to the back end of their orders. Some of these may be announced at Farnborough.

As for the 767, Boeing has yet to decide whether to up the production rate from the current one per month to 2 or 2 1/2 for airliners; and whether the oft-delayed USAF decision on the aerial tanker might be reversed, providing the need for even higher 767 rates.

Boeing did not sell any 767 freighters, while Airbus sold 11 A330Fs.

There was no change in the Very Large Aircraft category from May: Boeing has sold two 747-8s to three A380s YTD.

Murray shut down on Northrop jobs probe

US Sen Patty Murray (D-WA), the most vocal critic of the USAF contract award to Northrop Grumman for the KC-45A, struck out in her request to have the US Commerce Department shoot down the Northrop claims of 48,000 jobs for the program. This compares with the 44,000 jobs claimed by Boeing for the KC-767.

Murray, along with Sen. Maria Cantwell (D-WA) and two other Senators, wrote Commerce on May 9 asking the Department to confirm–or debunk–Northrop’s claim of 48,000 jobs. The Senators correctly noted that Northrop claimed 25,000 jobs prior to the February 29 contract announcement and upped this a few weeks later, after the award, to 48,000 jobs.

The question was indeed a fair one, and one that we raised as well in this column on our Corporate website. We questioned the nearly doubling of jobs creation as well as how Northrop’s KC-30, with a stated US content of 58%, could generate more direct and indirect jobs than Boeing’s KC-767, with a stated US content of 85%.

Northrop, in our report, explained itself–something that Boeing never did–until a liberal think tank did a 15 page study we linked to in a previous report on this website. The think tank interviewed Boeing but not Northrop and came to the conclusion that both Boeing and Northrop overstated the jobs creation but that Northrop did a greater job of overstating than did Boeing.

Of all the jobs data we’ve seen, we tend to believe the think tank’s analysis more than any other, even if the report is open to criticism for failing to talk to Northrop.

That being said, Murray’s gambit to have Commerce debunk Northrop’s claim failed. Why is this significant? Because Murray has long challenged a 2003 Airbus claim that its US-sourced work supported 100,000 direct and indirect jobs. In 2003, Murray asked Commerce to verify the claim and, according to Murray, Commerce could not–inferring, if not outright suggesting, that Commerce studied the matter and could not confirm the Airbus claim.

The facts appear to be somewhat different.

In Murray’s May 9 letter, she refers to her 2003 inquiry of Commerce. Commerce, in its reply, acknowledges the 2003 inquiry and writes:

“As the Department stated in its 2003 letter…, estimates of the total job impact require a variety of assumptions about the direct and indirect impacts of production performed in the United States. Predicting the full impact…is extremely complicated…. Therefore, the Department of Commerce is not in a position to investigate the assumptions…especially when those claims are made in connection with the award of a US government contract by another Department.”

The correspondence between Murray and Commerce may be found here (Murray-Commerce), a three page PDF file.

Tanker media campaign continues

The media campaign on both sides of the tanker debate continues as the US House of Representatives gears up to hold some hearings on the issue.

This item published in American Spectator is another in a series of op-ed pieces originating with the Center for Security Policy, which bills itself as a non-partisan think tank. The Center has consistently opposed the Northrop Grumman KC-30 in the competition and the subsequent award. None of the op-ed pieces has disclosed previous ties to Boeing. According to the 2005-2006 Annual Report (published every two years, so the 2007-2008 report isn’t out yet), a couple of Boeing officials served on the advisory boards to the Center. This taints the op-eds and the perceived independence of the Center. (Tanker War Blog is written by an employee of the Center, and while this blog doesn’t disclose the Boeing connection in its “About Us,” the blog has never made any pretense of objectivity.) The writings often have interesting and valid points–but the Center is not as independent as the image would have readers believe.

Human Events published this piece by former Gen. John Handy. Handy also supports the Boeing KC-767. It turns out that Handy’s name appears in a series of e-mails in connection with the 2002-2004 tanker scandal. He was one of many internal Air Force recipients copied on correspondence. The emails emerged when Sen. John McCain, now the presumptive Republican nominee for president, was investigating the first procurement.

Alabama Sen. Richard Shelby (R-Northrop) moved to block a bill introduced by several Members of Congress who are closely tied to Boeing that would all but guarantee a contract to Boeing. This item in The Mobile Press-Register explains the issue.

This analysis in the same newspaper takes a broader look at the Air Force procurement process. The tanker wasn’t the only example (in 2004 or 2008 ) of the Air Force muffing a procurement.