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.

Boeing Capital details methodology

Following the annual ISTAT meeting in March, we published a piece about the Boeing view of the so-called funding gap for 2009: the financing shortfall seen by just about everyone except Boeing and Airbus as between $10bn and $25bn this year needed to pay for more than 1,000 airplanes due for delivery by the Big Two and Bombardier and Embraer.

Boeing believes the gap is $0-$5bn and Airbus, though not presenting at ISTAT, has a similar view.

We mentioned in our story that we have been invited to visit Boeing Capital officials to get detail about their methodology. We did, and we wrote that piece for Commercial Aviation Online, for which we are a regular contributor. That piece was published April 2. We can now reprint it below.


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Major shift on split tanker contract

Update, April 3: The New York Times has this long piece on the prospect of a split procurement.

Original post:

It is a subtle but major shift on the controversial proposal to split the KC-X aerial tanker contract between Northrop Grumman and Boeing.

KIRO TV (CBS) in Seattle interviewed US Rep. Norm Dicks (D-Boeing/WA), who throughout the previous competitions has been dogmatically in favor of a single contract to Boeing. Dicks is #2 on the House Appropriations Committee, where any funding bill will have to originate. The chairman of the committee is US Rep. John Murtha (D-PA), who came out solidly in favor of a split contract as the only way to break the logjam over an award.

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ILFC in perspective

Update, March 26, 2:20PM PDT: Bloomberg News moved this piece in which ILFC’s CEO says he’ll get the lessor out from under AIG’s “cloud.”

Original Post:

Mega-lessor International Lease Finance Corp. filed its 2009 10K annual report March 25 with the Securities and Exchange Commission. In it, the company discussed possibilities that could create what’s called a “going concern” situation.

In accounting-speak, the reference is all about bankruptcy. If a company or its auditors raise questions about the ability to continue as a “going concern,” this means there is a possibility the company could seek protection in the US bankruptcy courts. This almost always is a Chapter 11 reorganization filing rather than a Chapter 7 liquidation action.

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Boeing takes a direct hit

Boeing is gearing up for a new fight over the KC-X tanker competition but out of the blue, it took a direct hit on the Airborne Laser program, which uses the 747 as the platform.

A California Member of Congress, and a Democrat at that (Ds generally tend to favor Boeing over Republicans), called the ABL program “insanity.” Politico, which covers politics but not usually defense items, gave this piece prominate placement on its website.

IAM jobs on the line: 1,113

Since the first of the year, Boeing has issued WARN (job layoff notices) for 1,113 union jobs belonging to the International Association of Machinists.

Job security was a major goal of the IAM in last year’s 57 day strike that began in September and cost Boeing billions of dollars. The IAM touted the final agreement, preserving 4,500 jobs, as a major victory.

It’s Boeing (and Airbus) against the world

We were at the ISTAT conference this week, one of the largest aviation conferences in the world, where 1,000 aviation professionals gather for the Spring Annual General Meeting to assess the current state of the market. And the state of the market is dismal.

ISTAT stands for the International Society of Transport Aircraft Trading.

A major topic, perhaps the major one, was the so-called “funding gap” that exists this year: with $68 billion in aircraft financing required, nearly all observers believe there is a funding shortfall, or gap, of $10 billion to $28 billion, depending on who’s talking.

Except that Boeing, as well as Airbus, doesn’t subscribe to this theory. (Neither does the leasing company AWAS, but this firm is not out front about it.)

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As the World Churns

Only a few days ago, President Obama’s Office of the Management and Budget suggested delaying the tanker competition for five years. Now the Wall Street Journal reports that another House Member wants to split the tanker acquisition. You can see the report here, and in this case it’s free. Meantime, the conspriracy theorists actually have a pretty good one. A commenter on the DODBuzz blog thinks the delay is designed to give Boeing the opportunity to develop the 777 into a tanker. See the March 11, 9:28am posting. As conspiracy theories go, we like this one. No clue if there’s any validity to it, but the timing does work.

Update, March 12: George Talbot has this long item that the White House denies it wants to delay the tanker program.

The Hill has this piece that House Member John Murtha is preparing legislation for a split buy, with the winner getting a larger piece of the pie, and a production rate of 24 a year rather than the 12-18 originally proposed.

Update, March 13: George Talbot of The Mobile Press-Register has this piece about Boeing, Northrop and their respective supporters banding together to kill any Obama Administration proposal to delay the tanker procurement for five years, as suggested by OMB. The White House denies it has any plans to do so, but the stakeholders aren’t convinced.

Reuters reports more about John Murtha’s plan to kick-start the procurement in this item.

Uncertainty exists over fighting composite airplane fires

c. Leeham.net

Uncertainty exists over how airport fire departments will fight fires in the new composite commercial airliners, indicating that the manufacturers still have educating to do.

A top fire official at Denver International Airport, the location of the most recent airport crash and fire in the USA, believes the coming composite-based commercial airliners will require airport fire departments to change they way they fight post-impact fires. DIA is not yet served by the Airbus A380, the only commercial plane flying with more than component parts made out of composites, and the airport is not slated to be among the first served by the Boeing 787—due to enter service in early 2010.

But a platoon captain with the Los Angeles Fire Department stationed at LAX Airport, one of two US airports currently receiving service from an airliner with substantial composite construction (the A380; New York’s JFK is the other), says his airport follows substantially the same guidelines established for fighting post-impact fires of current generation airplanes.

And Boeing told the airport authorities at Everett, WA’s, Paine Field, where the 787 will perform its flight testing, that there isn’t any effective difference between a composite airplane and a traditional one.

Bill Davis, assistant fire chief of the Denver Fire Department assigned to the Denver International Airport, believes tactics have to be changed after reviewing the post-impact fire analysis of the US Air Force Northrop Grumman B-2A bomber in Guam February 23, 2008. The USAF issued its crash report in June 2008.

“This will fundamentally change everything from strategy and tactics and equipment,” Davis said. “It strikes me that we’re definitely going to have to train to and equip ourselves differently. I’ve studied fires in military composites. This (B-2A crash) is the first of an all-composite airplane; usually there are just parts that are composites.”

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Boeing’s Carson speaks at JP Morgan conference

Boeing Commercial Airplanes President Scott Carson spoke today at the JP Morgan Aviation & Transportation Conference. Summarizing:

  • Carson predicts the new entrants in Russia, China, Japan and elsewhere will learn the hard lessons learned by Airbus and Boeing.
  • There are more MROs than the world needs; consolidation will result.
  • Proposed carbon regulations in Europe have rapidly spread around the world, but it is not easing in hard economic times. Airbus and Boeing have flown aircraft with bio fuels; the challenge will be to find the bio fuel with sufficient quantities.
  • A more efficient airspace management system needed in US and Europe, reducing the carbon footprints.
  • Credit markets remain uncertain and unstable. The Germans have now decided to bail out the banks, raising further uncertainty in the credit markets.
  • Boeing’s backlog remains strong. The regional balance gives us some protection against declines in any one market.
  • The 767 has significant life and value left in it, with product improvements and the addition of winglets.
  • 787 program: all fundamental designs and technologies working well. Production issues and global supply chain coming together to perform as intended, beginning with airplane 7. Reaffirms 2Q09 first flight and 1Q10 first delivery.
  • 747-8: disappointing last year to announce a forward loss on the program ($685m). Reaffirms 3Q10 first delivery for freighter and 2Q11 first delivery for passenger model. Fulfills gap between 777-300ER and A380.
  • In the process of implementing new wing production line in 737 for more efficiencies, reduction in employee risk. Continue to pursue lean manufacturing at 737 and 777 lines.
  • Industry faces challenges for next several quarters. At Boeing, we began right-sizing in advance of market turndowns (ie, layoffs). We remain confident we have the right products and services for future. Competition will remain intense, driving value forward, better products and technologies.
  • Our focus now is on product execution; our stumbles have been embarrassing for us and for our customers on 787 and 747-8 programs. Can’t take our eyes off complex production programs. This will require us to be humble, and not taken by our word but by our actions. Through it all, we’re tougher and harder than we were two years ago. We are humbled by our mistakes.

Q&A begins.