Leeham News and Analysis
There's more to real news than a news release.
Boeing production cut?
FlightGlobal reported yesterday (May 7) that supplier GKN’s CEO predicted Boeing will cut production next year of the 737 to 21 a month. This would be 32%, roughly in line with a forecast made in January by Steven Udvar-Hazy, CEO of mega-lessor ILFC. He also forecast Airbus will have to do likewise.
Most people scoffed at Hazy’s prediction, including many in Boeing and Airbus, who said Hazy was talking out of self-interest. Whether he was or wasn’t, Hazy has an uncanny knack of accurately predicting things. He also predicted that cancellations and deferrals will outpace orders and so far, he’s correct about that at Boeing and pretty close at Airbus.
Tankers: to split or not to split
Update, May 4: Veto threat over split tanker effort: read all about it.
Update, May 3:
US Rep. John Murtha (D-PA), chair of a House appropriations committee, has dropped (for the moment) his effort to insert into the FY2010 budget language requiring a split buy between Boeing and Northrop for the KC-X tanker. See this story.
Original Post:
Well, blow us down. Loren Thompson, the defense analyst, now favors a split buy.
He’s been all over the map on this procurement. A big defender of the Boeing KC-767 lease deal when that was on the table. For the KC-767 vs. the Northrop KC-30. Defending the KC-30 award after it was given. Supporting the Boeing protest. Now this.
Followers (including this column) of Thompson, who is quoted frequently as a defense expert, respect his thinking but can’t help be a little baffled on this program.
Thompson’s rationale is what we’ve been advocating since we began following the competition several years ago: split the buy for operational reasons. The two tankers are differently sized: some missions are better suited for the KC-767 and some are better suited for the KC-30. Double the procurement, retire the old KC-135s more quickly.
On the other hand, US Rep. Norm Dicks (D-Boeing/WA), claims he was quoted out of context by KIRO TV a while back, which reported Dicks could “live with” a split buy. Now Dicks is back on his sole-source band wagon (for Boeing), even though Boeing now is fine with the idea.
And now, a plug for our Eco-Aviation conference. More information may be found here.
Production assessment, Round 3
Some interesting items came out of the Boeings 1Q09 earnings call yesterday (April 22) with regard to production and deferrals.
Oversales of the 737 have been a key element in Boeing being able to maintain current production levels of 31/mo, despite the global recession. As was previously acknowledged by Boeing, 2009 737 oversales were about 100. On the year-end 2008 earnings call in January, CEO Jim McNerney acknowledged that oversales for 2009 had been reduced to about 15% over the production (which mathematically equated to about 55-56 737s).
More on the funding gap
A Calyon bank official said at the annual Airfinance Journal conference that Airbus and Boeing may have to increase funding more than the companies expected this year because the funding gap is larger than thought. This Bloomberg story has the details.
Calyon has been one of the most active lenders worldwide.
Gates on split tanker buy: over my dead body
US Defense Secretary Robert Gates said there will be a split buy on the KC-X tanker program over his dead body.
“I’m laying my body down across the tracks,” Aviation Week quotes as saying in this short article.
It’s not Robert Gates but you get the point.
Airbus details Watchtower Committee
We previously wrote a story for Commercial Aviation Online about Boeing Capital Corp.’s War Room methodology in tracking the “funding gap” for 2009 deliveries. We posted that story on this website at this link.
We followed that CAO story up with a profile of the Airbus BCC equivalent, the Watchtower Committee. Here is that story:
Boeing cuts production
Boeing just announced it is cutting production of the 777 from seven to five a month and delaying plans to increase rates on the 767 and 747, effective next year, it was announced today. No rate adjustment is planned for the 737 at this time. The rate for the 737 is 31 a month.
The decision comes a month before BCA President Scott Carson previously said it would.
GE Boss seeks tanker compromise
The head of GE backs a plan to split the acquisition of the KC-X USAF aerial tanker between Northrop Grumman and Boeing, according to this interview done by the Cincinnati Enquirer.
GE Aviation will supply the engines on Northrop’s KC-30; Pratt & Whitney was selected to power Boeing’s KC-767.
And now, a plug for a conference organized by Air Transport World and Leeham Co.
Airbus predicts 480 deliveries in 2010
Airbus’ COO-Customers, John Leahy, predicts 480 deliveries in 2010, about the same number as this year, according to this Aviation Week article by Robert Wall.
Boeing takes hard hit on DOD budget
Boeing took a hard hit on the Defense budget announced today by Sec. Robert Gates. The C-17 program will be canceled after the current contract is filled. The CSAR-X helicopter procurement is canceled. The Airborne Laser system based on the 747, is reduced to research only. The Next Gen bomber is off the table. There are other programs in which Boeing was involved that are gone, too.
This makes the recompete for the KC-X aerial tanker all that much more important. Gates said this will proceed in the summer.
Update: Defense Industry Daily has this superb recap of the winning and losing programs.
We did a podcast with Addison Schonland of IAG and George Talbot of the Mobile Press-Register about the implications for the tanker procurement.
Here is a link to Gates’ formal statement.