Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Boeing reports mixed results of latest employee survey, but middle management and officers remain key obstacles April 22, 2025
- Hopes for 1Q financial progress turns into bumpy ride for Boeing April 21, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 18. April 18, 2025
- Natilus: Composite BWB, entry-into-service by 2029, 570 on order April 17, 2025
- China bans Boeing, US parts imports in tariff war April 15, 2025
Tanker update, 9/3
DOD Buzz has this interesting report on the prospect of a split buy for the tanker competition.
AFP, the European news agency, reports DOD/USAF officials are worried another tanker protest will be filed, no matter who wins Round Three.
Reuters has this report on a USAF general urging quick action.
Update, 12:50 PM PDT, Sept. 4: In true military fashion, it’s hurry up and wait–the final RFP for the tanker has been delayed another week, according to this report in The Hill newspaper.
Update, 4:45 PM PDT, Sept. 5: DOD has tough decision on tanker
Back to the tanker
A few interesting stories today on the USAF tanker saga:
Business Week: Boeing’s tanker challenge.
Reuters: US arms buyer faults Boeing. This story quotes a Jacques Gansler of the University of Maryland who now sits on the Defense Science Board. If memory serves correctly, Northrop Grumman partially funded a study at the U of M Gansler oversaw on the tanker. No mention of this is in the story.
Note: Be sure and check out updates to posts below on the 787 and the best-and-final offer.
Update, August 31:
The Tacoma News Tribune has this long analysis on the tanker and whether Boeing should press on.
And now about Airbus
Boeing has dominated the news in recent weeks because of the tanker and the IAM contract negotiations. At long last, here’s some news about Airbus.
The company is actively talking about stretching the A380-800 to a -900, 1,000 passenger version. A new intereview with Louis Gallois, CEO of Airbus parent EADS, looks at 2010 as when this program might be launched. The story is here. Meanwhile, delivery of Emirates Airlines’ second A380 is delayed.
For all those Airbus-Northrop critics who whine about the prospect Northrop (the prime contractor, let’s remember) won’t protect and honor US restrictions on selling the KC-30 or its components to nations hostile to US interests, here’s a Reuter’s story about how Airbus won’t sell airliners to Syria as long as sanctions are in place.
Pratt & Whitney shipped its P1000G Geared Turbo Fan engine to Airbus for installation on an A340 test bed, according to this Flight International story. Airbus is considering offering the GTF on its A320 family.
Update 8:40 AM PDT, Aug. 29: EADS says there are no current discussions underway with Syria for a large Airbus order. The operative word in the statement is “currently.”
Predictable and disappointing
Northrop Grumman’s opposition to granting Boeing’s request for a six month response time instead of 45-60 days for the re-bid on the KC-X competition is predictable and disappointing.
Boeing also threatened to no-bid the contract if it doesn’t get its way on the request.
As readers know, we have always felt the KC-30 was the more capable airplane for the KC-X than the KC-767 offered by Boeing. We’ve sided with Northrop on any number of issues during the competition. But not this one, as we opined on August 22.
Northrop believes that Boeing is stalling on the bet that the Democrats will increase their majorities in the House and the Senate in the November election, and that this will increase Boeing’s sympathy in Congress. We have no doubt this is part of the Boeing calculus. So what? EADS decided to locate the KC-30 production facility in Republican Alabama at a time when the Republicans controlled Congress. That was hardly a coincidence. Politics have permeated this process from the start and while there is plenty of reason to stop now, that’s not going to happen.
Boeing, in its political gambit, is taking a risk that falls into the “be careful what you ask for category,” however. While it seems certain Democrats will increase their majority in Congress, it’s hardly a sure bet today that they will win the White House. Sen. John McCain is giving Barak Obama a run for his money and if McCain wins, this won’t be good news for Boeing.
We see no harm in giving Boeing the six months. We think both sides will produce a better bid, and that’s good for taxpayers.
Meantime, Steve Trimble at Flight International has an interesting take on his blog about how the re-bid can flip-flop some of the suppliers.
Update, 09:15 AM PDT Aug. 26: Innovation Analysis Group does a six minute podcoast with an Israeli reporter discussing Israel’s plan to update its aerial tanker fleet. The air force could use the KC-135/707 for another 20 years if necessary, but it really wants to buy the same aircraft used by the USAF.
Update, 2:30 PM PDT Aug. 26: So far, no final RFP has emerged from DOD; it was thought that it might be issued yesterday. We’re picking up rumblings that it may not come out this week.
Update, 350 PM PDT Aug. 26: Reuters now reports the final RFP may be issued next week.
Update, 12:00 PDT, Aug. 27: The St. Louis Post Dispatch has this piece looking at the strategic implications of the tanker competition.
6 more months makes sense
(Updated 0730 AM PDT with references to EADS North America COO John Young and the “KC-35.”)
Giving Boeing six more months to come up with a revised bid is a prudent and reasonable thing to do. Here’s why.
- Why not? It gives the appearance of fairness and the fact of fairness. Besides, at the EADS media day immediately preceding Farnborough, EADS North American COO John Young predicted the process would take to March anyway. What’s three more months after that?
- Boeing and Northrop will have to “sharpen their pencils,” as DOD procurement chief John Young (no relation to the EADS-NA John Young) put it, and come up with a better price, benefiting taxpayers.
- Northrop and Boeing may sharpen the technical characteristics of the airplanes, providing a better product for the Air Force. We think a KC-777 is a non-starter–it’s just too big for the KC-X (it’s better suited for the KC-Y or KC-Z, as our chart on our Corporate Website this week shows). The 767-400 is the only logical alternative Boeing has to offer for the KC-X competition, even if it still falls short compared with the KC-30 (also see the chart). But what if Northrop responds with a KC-30 powered by the fuel-sipping GEnx engine? This cuts the KC-30 fuel consumption by 15%, providing a better life-cycle cost and thus benefiting the taxpayer. Airbus already did the analysis of an A330-powered GEnx airplane when it first proposed Version 1 of the A350. The GEnx is now certified for the 787, so certifying it for the A330 should be of little concern. We’ll call a GEnx-powered KC-30 the “KC-35.”
- Northrop could propose a “KC-33,” a tanker based on the larger A330-300, though we don’t think that’s necessary.
- Boeing’s “KC-764” could be proposed with the GEnx, which would improve the performance of the 767-400 as well as the fuel economy. NA KOA (remember them?) proposed such an airframe-engine combination as part of its response to the Request for Information from the Air Force at the start of Round Two of the competition, and it had been in touch with Boeing to partner with Boeing on such a project, so there is already some research completed on this. (NA KOA really wanted to offer a tanker based on the 747-400, readers will recall, and filed a protest with the GAO when Boeing refused to go along. The GAO dismissed that protest and last month dismissed NA KOA’s request for reconsideration.)
- Adding six months to the process won’t make any difference in the operation of the KC-135 fleet.
Giving Boeing another six months will likely produce better pricing, perhaps a better plane and perhaps better life cycle costs. DOD should grant Boeing’s request.
Update, 2:00PM PDT: IAG has a new podcast with Boeing IDS spokesman Dan Beck on the Boeing request for six more months.
Corporate Website updated wk/8-19
(Due to technical difficulties, our update on the Corporate Website was temporarily requiring a password to access this week’s Commentary. This was resolved at 0900 PDT.)
Our Corporate Website has been updated for the week of August 19. Today we talk about–what else, these days–the USAF KC-X program.
With all the talk about the prospect of Boeing offering a tanker based on the 767-400 or 777-200F, we pull together thoughts about this and a table comparing the KC-135, KC-767AT, KC-30, a “KC-764,” a KC-777 and the KC-10.
We also talk about the prospect of Boeing doing a “no-bid” in response to the Amended Draft RFP, or filing a protest against the Final RFP, which is expected this week. And there is more.
Byran Corliss of the business magazine Washington CEO (as in Washington State, not that “other Washington,” as we say here on the West Coast) has a short commentary that is inflammatory to locals but absolutely true. He writes that Boeing doesn’t need the tanker business. (Boeing has acknowledged that, financially, it would be small potatoes, but officials do want the business.) Corliss also comments on the current labor negotiations. Corliss used to cover Boeing for The Everett Herald before joining CEO.
Italy to penalize Boeing on tanker
Bloomberg just moved this story, reporting the Italy will fine Boeing for its late KC-767 tanker, following penalties assessed by Japan.
Update, 1145 AM PDT: We’ve been on the phone with reporters this morning discussing the tanker competition and what Boeing might do–the latter in the wake of the Aviation Week story that Boeing is considering adopting a no-bid position following the revised RFP that will give extra credit for extra fuel off-loading capability. We thought we’d recap our thoughts.
- First, we don’t know what Boeing will do, but we think it will stick with the competition. We don’t think Boeing will have come this far to simply fold its tent and go away. Boeing has nothing to lose (except the cash costs associated with the re-bid) and everything to gain, even if winning is a long shot.
- It’s to Boeing’s advantage to drag this out as long as possible, even if it loses. The longer Boeing can keep the contract from Northrop Grumman, the longer it stays out of EADS/Airbus hands. The longer the contract is denied Airbus, the longer before any US production facility is built. The longer no US production facility is built, the longer the pressure of the Euro-Dollar exchange rate hurts Airbus.
- The longer the contract is delayed, the more the likelihood the World Trade Organization rules on the US-Boeing complaint over so-called “illegal” subsidies to Airbus. Although this doesn’t have a thing to do with the technical merits of the contract, an adverse ruling by the WTO (which is expected on at least some points) will become more political fodder for Boeing’s supporters in Congress.
- The longer Boeing can draw this out, the better the chances in Congress. It’s presumed the Democrats will increase their majority in Congress in the November elections; the new members take office in January. The labor unions associated with Boeing’s bid are typically behind the Democrats, and the Ds are making the contract award to Northrop campaign issues for the presidency and in some critical Congressional races.
- From a stockholders’ point of view (and we’re one of them), Boeing is doing what it needs to do.
Update, 345 PM PDT: The Financial Times is reporting that Boeing is sticking in the competition, at least for now, after its meeting with the USAF. The FT reports that Boeing is continuing dialog with the Air Force to refine the Draft RFP for a final RFP. Here is the story, though a subscription may be required.
Reuters reports that Boeing remains “discouraged,” however, in this story, citing defense analyst Loren Thompson.
Update, 800PM PDT: Business Week has this piece about Boeing staying in the competition, probably plans to ask the USAF to extend the timetable and some discussion about a “KC-777.”
No bid for Boeing?
Aviation Week reports that Boeing may elect not to re-bid on the KC-X program. The story is here.
Update: 0840AM PDT: Boeing told us the Aviation Week piece is “news to us.” Boeing (and Northrop) meet with the USAF Tuesday (Aug. 12) to review the Draft RFP. If Boeing has anything to say publicly, it won’t be until Wednesday, we’re told.
Update, 945AM PDT: The Pentagon has issued what amounts to a gag order on any statement by the USAF or DOD on the tanker competition. See the report here.
Airbus takes comfortable lead in YTD orders
Airbus took a comfortable lead in the orders race year-to-date through July 31 following the Farnborough Air Show, in which is announced a combination of new orders and inked a 100 airplane deal with Dubai Aerospace Enterprises that was announced at the Dubai Air show last November. DAE’s 100-plane order with Boeing, also announced at the Dubai Air Show, was completed in December and was posted to the 2007 order book.
- Airbus and Boeing continue to about evenly split the single-aisle orders, with Airbus pulling slightly ahead now through July. Airbus now has a 52% market share after trailing Boeing marginally through June.
- For the medium twin-aisle category, Airbus continues to maintain a wide margin YTD, taking advantage of stalled sales for the 787 as a result of the delays in the Boeing program. Including all models in the medium twin category, Airbus has a 68% market share. But if only the 787 and A350 are considered in this category, Boeing maintains a 61% market share.
- In the large twin category, Airbus has a 57% market share on the strength of its A350-900 orders. Sales of the 777, led by the -300ER, have slowed.
- The Very Large Airplanes group remains unchanged in July vs. the YTD through June.
- Overall, Airbus now has a combined S/A and T/A market share of 57%, up sharply from June on the strength of the Farnborough orders, including the 100 DAE airplanes.
Although 787 sales have stalled, there is a rumor of a pending new order for double-digit airplanes. Airbus in August announced a fourth customer for the A350-1000 that should be inked by year end, if not in August.
| Single Aisle | ||
| 737 | 421 | 48.4% |
| A320 | 448 | 51.6% |
| 869 | ||
| Twin Aisle Medium Twin Engine | ||
| 767 All | 0 | 0.0% |
| A310 | -5 | -2.8% |
| A330P | 125 | 48.1% |
| A330F | 11 | 4.2% |
| 787 | 79 | 30.4% |
| A350-800 | 50 | 19.2% |
| Total | 260 | |
| Total Airbus | 181 | 69.6% |
| Total Boeing | 79 | 30.4% |
| Twin Aisle Large Twin Engine | ||
| 777-200 | 16 | 13.0% |
| A350-900 | 72 | 58.5% |
| 777-300 | 28 | 22.8% |
| A340 | -3 | -2.4% |
| A350-1000 | 10 | 8.1% |
| Total | 123 | |
| Total Airbus | 79 | 64.2% |
| Total Boeing | 44 | 35.8% |
| Very Large Aircraft | ||
| 747 | 2 | 40.0% |
| A380 | 3 | 60.0% |
| 5 | ||
| Single Aisle | ||
| Airbus | 448 | 51.6% |
| Boeing | 421 | 48.4% |
| 869 | ||
| Twin Aisle | ||
| Airbus | 263 | 67.8% |
| Boeing | 125 | 32.2% |
| 388 | ||
| Total Market Share | ||
| Airbus | 711 | 56.6% |
| Boeing | 546 | 43.4% |
| Total | 1,257 | |