Leeham News and Analysis
There's more to real news than a news release.
Budget impasse hits tanker funding
We wondered about this months ago and sure enough, there is yet another twist in the KC-X competition: Congressional dithering on the budget means there isn’t (as yet) funding for the tanker procurement that is needed this year. See this story from Defense News.
Boeing suggests long life for 767
Boeing rolled out the 1,000th 767 Wednesday (Feb. 2) and BCA CEO Jim Albaugh suggested there is a longer life for the airplane even if the USAF doesn’t choose the KC-767 for its next tanker.
Dominic Gates has this story about the event. The Seattle PI quotes Albaugh as predicting 2,000 767s before the line peters out in this story.
We first suggested there might be a longer life in January 2010 with this posting.
We don’t really have much to add to Gates’ story or our previous post except for this refreshed analysis:
WTO penalties on the tanker? Let’s talk about this
For all the spin back-and-forth Monday (Jan. 31) on the final, but still confidential, ruling on illegal subsidies to Boeing, little was said about the long-running (and overly-politicized) effort by Boeing and its supporters to have Congress force the USAF to take into consideration the previous WTO ruling on illegal Airbus subsidies for the KC-X competition.
Before we start our discussion today, let’s remind readers of our long-standing position that the USAF can’t do so for a variety of practical reasons and one major one: countries can only do so after the WTO authorizes sanctions, and unless the USAF postpones a decision on the tanker contract (or, more likely, screws it up yet again), the award date will come years before any WTO authorization is granted. We need not recount all our reasons nor the process; we’ve done this many times and a search of our Archives will yield postings from recent times on this.
Having stated this disclaimer, one of our reasons for opposing the effort by Boeing and its supporters was that the final Boeing decision had not yet been issued.
The decision is done, even if it is yet confidential for a few more months pending translation. However, with a final decision, the US Trade Representative could share a definitive ruling with the USAF for calculation.
Again, setting aside all the objections, here’s the interesting part that nobody has yet focused on, including Boeing (and this is really inexplicable):
Odds and Ends: 777 future may slip to 2020 decade
Update, Feb. 2: Flight Global has this very good analysis about the WTO fight between Airbus and Boeing.
Original Post:
In this issue of Odds and Ends, we talk about the 777, a CNN interview with Jim Albaugh and a variety of other things.
- The future of the 777 may slip to the next decade, according to information. Boeing believes the A350-1000 will become a new airplane rather than a derivative of the baseline A350, delaying entry-into-service until late this decade. Accordingly, a move to enhance or replace the 777 currently is being thought as a project for the early 2020 decade.
- Boeing seems increasingly likely to go with a replacement for the 737 with a 2019 EIS.
- Boeing Commercial Airplanes CEO Jim Albaugh gives a short video interview with CNN in which he returns to his recurring theme that Boeing “over-stretched” on the 787. He talks about some of the reasons, and he is candid about the shortfalls over its pushing technology, the shortage of engineers and other issues. Read more
EADS releases statement at tanker hearing
Update, Jan. 28, 6:30am PST: Predictably, Sen. Cantwell wasn’t satisfied. She said the Senate Hearing didn’t get at the “core issue,” and called for an investigation by the USAF Inspector General. EADS said today that’s fine; here is Chairman Ralph Crosby’s statement:
“We would welcome an investigation by the DoD Inspector General—if such an investigation does not delay the decision on acquisition of new tankers.
“Scandal and protest have kept this badly needed system out of the hands of our service men and women long enough. We are interested in illuminating unambiguous facts, not in a tactic for delaying the decision process.”
Update, 4:30pm: Here is the archived Hearing web cast; thanks to Dominic Gates of The Seattle Times for the link.
Update, 3:45pm: Boeing delivered the first KC-767 to Italy. See the article here.
Also: While the Hearing was pretty much a sham in our view–partisans on both sides were more interested in scoring political points than in fact-finding–one thing did come out of it and that is the allegation by Sen. Maria Cantwell (D-Boeing/WA) that EADS had the data more than a month appears to be wholly unsupported. EADS received the data Nov. 1; it opened the disks that night, discovered the error and secured the disks the same night. At USAF direction, they (as did Boeing) returned the disks Nov. 8 2, during which time the relevant disk was secured.
Update, 9:15 am: Our take on the hearing:
- A lot of political posturing and little substance.
- No minds changed; Boeing partisans support Boeing and EADS partisans support EADS.
- Senators for Boeing tried to turn this into a hearing about WTO and illegal Airbus subsidies, to no avail–but achieved political points they wanted to make; but does anybody care?
- The 15 second/3 minute/15 minute issue raised by Sen. Lindsey Graham (R-Boeing/SC) wasn’t diffused by committee Chairman Carl Levin (D-MI) and could lay the ground for a Boeing protest if it loses; see Trimble’s running log and closing commentary at the end of this post.
- We watched some but not all of the hearing and frankly came away thinking there’s more smoke than fire based on what we saw–which wasn’t all of the hearing and obviously doesn’t include any of the documentation the USAF provided. But nothing has been settled and this will continue to be an issue throughout the remainder of this competition.
- More than ever, we believe the only solution is to split the contract. We firmly believe there are sound strategic and tactical reasons to do so but politically it is the only choice that has any chance of moving forward with this contract.
- Nobody seems to give a damn about the needs of the warfighter anymore; it’s solely, entirely, 100% about Boeing vs Airbus and jobs rather than the Air Mobility Command and the needs of the warfighter.
(Boeing statement follows EADS; a link to download the EADS timeline follows Boeing; and a link to FlightGlobal’s running blog follows the EADS timeline.)
EADS released the following statement to the Senate committee, chaired by Carl Levin (D-MI), hearing information about the USAF inadvertent release of proprietary information on the KC-X procurement.
The hearing was called at the request of Sen. Maria Cantwell (D-Boeing/WA).
Sean O’Keefe
Chief Executive Officer
EADS North America
Statement for the Record
To the Senate Armed Services Committee
January 27, 2011
Chairman Levin, Senator McCain, and Members of the Committee, I am pleased to provide a statement to the Committee concerning the U.S. Air Forces’ inadvertent release of Integrated Fleet Aerial Refueling Assessment (IFARA) data in the KC-X tanker procurement. The facts surrounding this incident, and the responsible actions taken by EADS North America, are straight forward and deserve to be clearly understood with full transparency. We are pleased to contribute in any way to that full understanding.
1,000 A320neos, 737 replacement at Paris Air Show
Update, Jan. 28: Think again, Heidi, Airbus says. The company said no way. See this story.
Original Post:
Heidi Wood at Morgan Stanley predicts Airbus may have 1,000 orders by the Paris Air Show and that Boeing will have to respond earlier than its long-talked about 2019-2020 EIS of a new airplane to replace the 737. Here is what Wood says in her report, issued this morning the bold face is hers:
What’s new: Airbus could announce between 500-1,000 new NEO orders by Paris air show (June), which adds pressure for BA to come up with a new 737 replacement. We believe BA could announce a new narrowbody by Paris Air show; re-engining makes less sense, in our view. Crucially, management discussed a new plane by 2019+ however we believe these sizable Airbus’ new orders changes the game & could cause BA to accelerate plans. Our 2013-2014 model contemplates rising R&D vs. the Street, as we reason the new narrow has to occur by 2017/18 for BA to retain its most important customers.
If Wood is correct, watch Airbus crow (1) that this is the “fastest selling airplane ever” and (2) “I told you so” to every doubter.
Is failure an option in KC-X competition?
With Sen. Carl Levin (D-MI) set to hold the tanker hearing on Thursday (Jan. 27), it is clear the USAF continues to drag on its decision in the KC-X competition, which was expected this month. It now looks like March.
We’re going to ask a question that may be considered by some to be ridiculous on its face (and we’re not entirely sure it isn’t) but which, given all the twists and turns, starts-and-stops, hissy fits and more that’s happened in the painful saga of USAF tankers, we might ask, Why not ask this question?
Is failure an option?
Odds and Ends: Big week for EADS, Boeing
It will be a big week for EADS and Boeing on a variety of topics:
- January 26 is Boeing’s year-end earnings call. More guidance on 787 deliveries and speculation of potential writes-offs mounts.
- On #1’s former, we think 787 deliveries will be stretched out, even after first delivery, due to the increasingly-talked about skip-in-sequence delivery stream. Boeing officials, readers may recall, are openly talking about skipping the first completed block of airplanes for retrofit (this would be 7-25 or so) and skipping to the next block (26/27 or whatever) for first delivery and delivery stream. The first block would likely start seeing deliveries in 2012, under this scenario discussed by some Wall Street analysts, notably at Credit Suisse.
- On the latter point in #1, there is increasing speculation that there could be write-offs for the 787 and 747-8 programs. We’re not sure Boeing is “there” quite yet. We certainly don’t expect at this time a forward loss on the 787, but test planes 4-6 might see a write off. It is widely believed the 787 accounting block will be around 1,000, but this won’t be set until first delivery. A forward loss, if any, would likely be computed at that time. As for 747-8, this program is stagnant. Although there were two cancellations, from Guggenheim Partners, in the fourth quarter, these airplanes will almost certainly be assumed by Korean Air Lines, for which they were intended anyhow. But there are no new orders. Boeing’s CEO, Jim McNerney, on previous earnings calls, said the program would be profitable if some 350 747s are sold (this after a previous write off of more than $1bn, it will be recalled). We think this is wishful thinking. Wall Street seems to as well, expecting another write-off. Read more
EADS had Boeing data for a month, Sen. Cantwell charges; EADS denies it
- Side note: While EADS and Boeing fight over the USAF tanker contract, and neither one is capable of delivering their respective tankers on time, IAI Bedek of Israel completed conversion of the Boeing 767-200ER (the same airplane Boeing is using) into a tanker in short time and it is now offering the the airplane for lease to other countries. See this Flight Global article.
In a press conference January 20 in Everett (WA) at the Boeing factory, Sen. Maria Cantwell (D-Boeing/WA) leveled a charge against EADS which, if true, would cast a huge question over the handling of proprietary data mistakenly provided by the USAF to EADS and Boeing.
EADS January 21 denied Cantwell’s allegation that EADS had the data for more than a month. The allegation, if it were true, has all sorts of implications, and all of them bad for EADS. Here is Cantwell’s allegation:
What steps were taken to ensure EADS did not gain an unfair competitive advantage by having Boeing data for more than a month before the investigation was completed by the Air Force?
We talked with Cantwell’s press secretary, Janeen Heath, January 22 to ask the basis on the allegation that EADS had the information for more than a month. Heath said, “We received that information from a reliable source, and that’s a question to be answered at the [January 27] hearing.” We asked if the information came from the Air Force or from Boeing, and Heath said she did not have this information.
Here is EADS’ denial, with respect to the charge EADS had the Boeing data for more than a month:
Responsible members of the defense industry understand that when someone becomes aware that they’re in possession of competition sensitive information they must immediately secure it, protect it, and return it to the customer. This was done by us, and according to the USAF, apparently by Boeing as well.
The assertion that EADS held competition sensitive information for over a month is simply untrue and flatly contradicted by the Air Force’s forensic investigation and analysis.
This latest event reinforces our previously stated view that a hearing by Sen. Carl Levin (referred to in the press release below) is appropriate. The Air Force, EADS and Boeing say they each handled the situation according to federal law and Air Force rules, but in the absence of a clear, detailed and full disclosure of the timeline of events and procedures followed, the cloud that hangs over this procurement is dark and threatens the entire process. We believe that all three parties must testify before Levin’s committee to get all the facts and information out in the open. Once this is done, let the chips fall where they may–if there is any reason for any to fall at all.
Below is Cantwell’s full press release. The bold facing is hers. The Levin hearing is January 27 at 9:30 AM EST.