Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
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- New RISE powerplant benefits from decades of GE research and development June 5, 2025
- Engine makers emphasizing durability, reliability June 4, 2025
- Boeing CEO: Lessons learned are key to certification of 737-7/10 and 777X June 2, 2025
- Digital twin is a key to JetZero’s hopes for Blended Wing Body entry June 2, 2025
Wednesday’s Farnborough impressions
Pretty dull today. A couple of orders. Boeing did dedicated tanker brief, rolling out the successor to Mark McGraw, the previous head of the tanker program. Dave Bowman comes from the C-17 program.
Perhaps not surprisingly facing a large contingent of Europe press, the questions were tough, or in the words of one American journalist we connected with late, “brutal.” Maybe we’re jaded (some will say we’re insensitive, but we won’t pursue this train of thought), but we thought it was just a “tough” press conference with the questions one would expect under the circumstances.
The questions focused on alleged protectionism on the part of Boeing in filing the protest (Boeing previously denied such and did again); whether it will protest a redefined request for proposal, as officials have previously suggested (not directly answered in the 45 minutes we were present, but Boeing takes the position that a redefined RFP ought to result in starting the process over from Square One [our term]); and so on, along these lines.
Boeing, at last, clarified how it comes up with its assertions that the KC-30 of Northrop Grumman, based on the Airbus A330-200, will require $44 billion in fuel more than the KC-767 over 40 years, based on $200/bbl oil.
It was detailed and, for those uninitiated in the ways of airplane economics, rather arcane. To put it succinctly, and very simplistically, Boeing’s paid consultant makes the calculation based on what in the aviation industry is termed “trip costs.” This means how much fuel is burned from engine start to engine stop. On this basis, including other calculations, Boeing’s consultant arrives at his opinion.
Boeing points out, correctly, that the A330 uses more fuel than the 767. Countering Northrop’s long-held rebuttal, and in answer to a question at the briefing, Boeing says comparing the passenger operations of the two airplanes isn’t applicable because the Air Force isn’t concerned with what is known as seat-mile costs. This is the cost of operations divided by the number of seats on board to arrive at a cost-per-seat.
For passenger operations, the A330, larger than the 767, burns more fuel but has more seats so the seat-mile cost is lower. For the Air Force, the dynamics are obviously different, so Boeing contends that trip mile costs should be the relevant yardstick.
Northrop responds (obviously not at the Boeing briefing, though) that the Air Force analysis based on intended operations concluded that the KC-30 is 6% more efficient.
There was a great deal more to the briefing, but we think you have the gist of it.
For a report on who Dave Bowman is and why he is now heading the tanker program, The Seattle Post-Intelligencer’s James Wallace has this story. The story raises the prospect of Boeing offering a tanker based on the very long 767-400. We asked a similar question of Bowman, only why not the 767-300? This would still be a “medium” plane as defined by the Rand Corp. Analysis of Alternatives (the 777 is a “large” plane, under the Rand AOA), and it would be closer in size to the KC-30.
Bowman essentially said anything is possible, but in response to a question from Steve Trimble of Flight International, Bowman said to avoid a tail strike with the refueling boom on takeoff, a long take-off roll and a shallower rotation would be required, which would potentially not meet the runway performance requirement (7,000 ft) of the RFP.
Here are some of the stories to come out of the air show on the tanker:
Reuters, including some further reporting on the fuel burn issue;
Finally, The Mobile Press-Register’s JD Crowe once again has a biting anti-Boeing cartoon on the tanker. Boeing needs to get a cartoonist to get equal time.
Update: For those keeping a running tally, through Wednesday Airbus is leading in announced orders, 241 to 201, but 100 of the Airbus airplanes were announced last November at the Dubai Air Show; the paperwork was finally signed at Farnborough.
More on the tanker
Here’s a good article about why the USAF chose the Northrop tanker.
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.
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.
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.
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.