Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
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- Solid start for stand-alone GE Aerospace despite cuts to LEAP output April 23, 2024
- SPEEA, Boeing at impasse over safety program, union says April 23, 2024
- Better transparency needed on Boeing’s 1Q earnings call April 22, 2024
- Bjorn’s Corner: New engine development. Part 4. Propulsive efficiency April 19, 2024
Boeing responds to the public release of the WTO ruling
Boeing has issued the following statement:
Boeing Calls WTO Ruling a Landmark Decision and Sweeping Legal Victory
– Launch aid for every Airbus program deemed illegal and damaging
– ‘Prohibited’ A380 launch aid must be withdrawn ‘without delay’
– Legal principle set: airplane programs must be funded on commercial terms
– Government funding of Airbus infrastructure and R&D programs also ruled illegal
– More information, including excerpts from the decision, will be available later today at www.boeing.com/wto
Read more
Airbus responds to WTO public release of final subsidies report
The 1,038 page Final Report by a three-member panel of the World Trade Organization on the US complaint about illegal subsidies to Airbus was made public today.
Findings and Conclusions: 5 pages, PDF. These are difficult to grasp when taken in isolation of reading the entire report, which at this posting we’ve not done.
Home Page to the Report in segments and the entirety.
The Interim Report was issued in September and the Final Report in March, but these were supposed to be confidential. Riddled with leaks to Airbus and Boeing partisans and promoted in the press as wins and losses by both sides, the public report is the first opportunity to read it for one’s self and draw conclusions.
At 1,038 pages this is going to take a while.
In a pre-release, embargoed press briefing, Airbus and its parent EADS said the appeals by the US and European Union are expected on points each side believes were in error.
Airbus made the point that this panel report has not been adopted by the WTO as fact and therefore any claims by Boeing that this is the final, and actionable, conclusion is misleading. The panel report may be appealed (and will be), after which the WTO appeals panel must decide on these appeals. After this process is done, the WTO itself must accept or reject the report.
“More has been costing more”
With the Pentagon’s announcement this week that a major push has begun to wring costs out of the defense budget, will this macro approach trickle down to one of the largest defense procurements in decades–the KC-X tanker recapitalization?
Remember when Defense awarded Northrop Grumman the KC-X contract in 2008? A key, if not the key, to winning was, “More, more, more.”
Now Ashton Carter, the top procurer in DOD, says “more has been costing more.”
Given one advantage Boeing has over EADS in the current KC-X competition–life cycle and MilCon costs–will “more, more, more” cost EADS the contract?
Dictionary and the KC-45
We love clever ads.
Here is the PDF. KC-X_Dictionary
Below the jump is EADS’ ad that appeared yesterday.
Weak Euro helps Airbus vs. Boeing
The weak Euro at its present level could help Airbus lower the cost (mostly in Euros) and therefore the price (entirely in dollars) by as much as 10%, according to Charles Armitage, an aerospace consultant based in London.
Check out this story in Aviation Week.
This is bad news for Boeing generally and for the KC-X competition specifically. This could put pressure on Boeing Commercial Airplane prices.
WTO vote watered down, meaningless
We’ve gotten a hold of the US House amendment that was approved in the matter of the WTO subsidy issue in the KC-X competition–which Boeing and its supporters touted as a key victory to ensure the subsidies found by the WTO to be illegal and which would be considered in the evaluation if the Senate goes along–and the final version, which as adopted is meaningless pulp.
The adopted language is far different than what was initially proposed.
Here is what Boeing supporters in the House suggested: Original Amendment.
Here is what what actually adopted: Approved Amendment.
The Original Amendment was a clear violation of the WTO rules, which provide that no complaining government can impose self-help prior to completion of the entire WTO process, including the issuance of the Final Report (which has been done in the US vs Airbus case), appeals (not done) and WTO authorization for sanctions (not done).
Let’s talk about the planes
Update, June 4: Reuters has this recap from Jim McNerney’s appearance at an investors’ conference in which he says EADS could win the tanker competition on price–a key point of our column below.
Original Post:
Note: this is a very long column.
In a previous post, we lamented that the debate over the KC-X procurement seemed to be about everything BUT the attributes of the planes offered by Boeing (the KC-767 NewGen) and EADS (the KC-45, based on the Airbus A330-200).
The public relations campaign and the shrill political posturing has been about the WTO trade dispute between the US (Boeing) and the EU (Airbus) over illegal subsidies to both companies and whether these should be included in the Pentagon’s evaluation; about jobs; about extending the deadline to submit bids so EADS can do so; and about freezing Obama administration appointments in a particularly snitty move by an EADS Senator.
None of these has anything to do with how the USAF evaluates the plane. The USAF evaluates the equipment on the merits of performance, capabilities, life cycle costs, military construction costs (MilCon) and a bunch of technical requirements, 372 in all.
If the airplanes’ costs come within 1% of each other, another 93 discretionary criteria will be scored, including exceeding capabilities.
Will WTO vote really matter?
Update, 0815 AM PDT: Boeing just responded to email questions posed last week, mainly dealing with WTO issues but also with the airplane. Here is the exchange.
Q. How can Boeing and its supporters be pursuing legislation in Congress that amounts to self-help, which is illegal under WTO rules?
A. I think this question is best answered by the sponsors of the legislation.
Q. If the Northrop mark-up of 10%-15% is correct and even if you take into account the WTO findings on Airbus @ $5m per plane (which would be illegal under WTO rules, but supposing this is done anyway), the elimination of NOC seems to more than make up for any such penalty, what is Boeing’s reaction to this math?
A. We won’t have a reaction to any hypothetical pricing scenarios. The U.S. Air Force will evaluate price in this competition.
Q. Do you agree that a WTO finding against Boeing would likewise have to be assessed by USAF and added back into Boeing’s cost?
A. You might want to engage the USTR concerning potential “findings” in the future.
Q. Please update Boeing’s previously stated, generalized concern about the fixed price aspect of the contract. Is this a continuing concern and how much of a concern is it to the company? How much affect does this have on the ability to submit “a financially responsible proposal”?
A. We stated previously that stable, clear requirements and mature technologies are critical to a successful fixed-price development acquisition. The current acquisition approach will be successful if (government and industry in partnership) adhere to these parameters. Boeing is committed to working with this contracting approach in partnership with the customer as the process moves forward.
Q. Please comment on the risk factors to Boeing of having a developmental airplane derived from the troubled Italian tanker platform, and how much uncertainty this adds to creating a financially responsible proposal.
A. I’m not sure why you’ve focused solely on the Italian KC-767…especially since we’ve delivered all four KC-767Js to our Japan customer and they’re flying real missions in operational squadrons. That said, we have mitigated tremendous risk through our international tanker programs and strongly believe we can limit risk in our U.S. Air Force offering.
Original Post:
The US House of Representatives last week voted to direct the USAF to take into consideration the WTO finding that Airbus illegally benefited from improper subsidies during the development of a family of airplanes.
This includes the A330-200 on which the EADS KC-45 is based. EADS plans to bid this airplane in the USAF KC-X competition.
The US Senate must go along. We don’t know at this point if this is something the President must sign or not.
Never mind that this action is completely illegal to the very WTO rules Boeing, the US Trade Representative and the Congressional supports seem to cherish.
But does it really matter? The answer may surprise everyone, but it may very well not matter. EADS still could offer an airplane that will be Boeing on price.
Here’s why.
So’s your old man
More mirthful back-and-forth between Boeing and EADS.
Boeing today fired off a rebuttal ad to the EADS “Get Real” ad published right after it got back into the KC-X tanker competition.
Boeing also posted this message on its website: