Boeing delivered 126 aircraft in the second quarter, including 100 737s, six [correction–18–see the comment below] 777s, five 747s and three 767s. This is the equivalent of 33 737s a month (33.3 to be precise), six 777s, 1.6 747s and one 767.
Boeing has quietly been increasing the production rate of the 737 and has the capacity at its Renton plant to go to 40 a month–if the supply chain can perform. Boeing has been studying whether to go this high, which would match Airbus’ planned 2009 rate. There is a reluctance on the part of some to do so because of haunting memories of the 1997 737 production fiasco (though the current rate now exceeds the rate then), and also because of the emerging economic uncertainties.
But the 737 line is dramatically oversold in 2010, and Boeing is losing sales now because the line is essentially sold out to 2014. With a two year lead time required for suppliers to gear up, it would be mid-2010 before the production could be dramatically increased.
The 777 line average rate of six per month for 2Q08 is one less than the seven a month capacity of the Everett line. Boeing is offering the 777 as interim lift to accommodate airlines hurt by the 787 delays.
The 767 line, at one a month, has lots of room to grow if the supply chain is there to support it. But suppliers are pressed, running at full capacity serving Boeing and Airbus on other models. Increasing 767 parts production is problematic. Boeing has been thinking of going to 2-2.5 767s a month to support aggrieved 787 customers, and now with the uncertain prospect of winning some of all of the KC-X USAF tanker business, Boeing has some decisions to make. A full tanker award would be another 1-1.5 767s a month.
Reuters reports that the USAF skipped filing an appeal of the GAO decision in the tanker protest. This means it’s likely to follow the GAO recommendation to rebid the tanker. The question now is, what does “rebid” mean? Will this be a full re-compete, or a narrow recompete just on the points the GAO found fault with?
Update, 345PM PDT: Here’s an update to the Reuters story with much more information. This story, in CQ Politics, takes a look at the GAO, its history of protests, and what makes for a successful protest. Buried in this piece by Seattle Post-Intelligencer columnist Bill Virgin are some thoughts about foreign ownership issues for the tanker obscuring more relevant issues–like which airplane is better.
Update, Wednesday, July 1, 700 AM PDT: We missed this item dated June 27 from Defense Tech; it’s about a meeting between members of Congress, the GAO and the USAF over the tanker.
Flashback, February 29, 2008: Here’s the transcript of the USAF announcement of the contract to Northrop Grumman.
A non-partisan tanker cartoon generates from our favorite tanker cartoonist, JD Crowe from The Mobile Press-Register. He gives us this one that even Boeing people can appreciate.
We had the opportunity last week to tour the 787 production line.
There is optimism that the program is back on track, though there appears to be an emerging hiccup. We toured the line before information began emerging over the weekend that there may be a problem with airplane #4. We know that a major trade writer is also pursuing this event, including detail that is not in the initial report involving Section 44. Although there were elements of airplane 4 on the production floor during our tour, the fuselage barrels weren’t among them. We’re told the information did not begin to emerge from Charleston until after our tour, which was Thursday.
Be that as it may, Boeing tells us that traveled work continues to decline. The company pointed us to information released by Vought recently that Sections 47/48 traveled work was as follows, with the percentages representing the amount of completed work at the time of shipment to Everett:
AP1: 16% structures
AP2: 93% structures
AP3: 98% structures, 37% systems
AP4: 98% structures, 87% systems
Boeing reports that Alenia shipped Section 44 for airplane 5 with 100% of the work completed, “the first partner to ship an assembly with no open jobs.”
Boeing says that Power On airplane 1, which was two weeks earlier than anticipated under the current, revised schedule that had a June 30 target date, had fewer issues than anticipated. With that, Boeing is still planning a fourth quarter first flight with airplane 1. Although Boeing won’t give a more precise target date, word has more-or-less widely circulated that it’s supposed to be in October. This may or may not be correct.
The flight test program is planned for seven months, and with first delivery set for September 2009 (a date that slipped during the Investors Day last month), this suggests that the flight testing won’t begin until February (September, the ninth month, minus seven brings us to February–even we don’t need Excel to do this math). If this schedule seems aggressive, it is, and it’s something Boeing previously acknowledged. As the company also previously acknowledged, flight testing is planned to run 24/7 with six airplanes.
Some analysts have compared the aggressive 787 program with the flight testing of the 777, which ran 11 months. The 777 had nine test airplanes–a bit of a surprise, since it was thought there were fewer planes in that testing than planned for the 787. The 777 also had three engines offered on the airplane, vs. two for the 787, and was pioneering some ETOPS that won’t be necessary for the 787. Accordingly, Boeing believes, the compressed 787 testing is feasible.
There are some within Boeing, and outside of Boeing, who are concerned that the current 787 schedule now conflicts with the flight test program for the 747-8F, stretching resources. This isn’t the first time this concern emerged; originally an earlier 787 delay would have conflicted with the flight test schedule for the 777F. With the 777F due to take off any day now, this conflict is gone but the potential conflict now may overlap the 747-8.
There may be an easy answer, though, if painfully arrived at: with massive layoffs in the US airline industry, Boeing may find a ready pool of pilots available to supplement its own test pilot group of some 40.
Boeing has also created a new flight test center organization, as outlined in this story by Aviation Week magazine.
Update, 500 PM PDT: Here they are–the details of the Section 44 issue.
Update, Tuesday, July 1, 345 PDT: Bloomberg News has this extensive story about this development.
Update, Wednesday, July 2, 700 AM PDT: The Seattle Times writes that production was halted at Charleston after an FAA audit found irregularities. Although it was just for 24 hours, the news is a disturbing indication that all is not well even after Boeing assumed control of the plant.
This story in The Seattle Times outlines plans by Washington State legislators to pony up new tax breaks for Boeing for the 737 replacement.
The information came out of the new Aerospace Futures Alliance, which media revealed previously is about 50% funded by Boeing.
Our regular readers know that Washington State tax breaks are one of the key objections in the EU complaint filed with the World Trade Organization over Boeing’s “illegal” subsidies for the 787 program. Our regular readers also know that we don’t like tax breaks of any kind to any corporation, and we especially don’t like Washington State tax breaks because we live in this State and residents have to assume the tax burdens of tax breaks granted to corporations.
If this were Christmas, we’d say, “Bah humbug.”
In some non-tanker news, the aerospace sector tanked on the New York markets today.
BE Aerospace, down 12.13%, $3.69 to $26.74
Spirit AeroSystems, down 8.63%, $2.04 to $21.60
Boeing: down 6.9%, $5.15 to $69.64.
and so on….
Interestingly, Northrop Grumman was up 1.62%, $1.12, to $70.37 despite the GAO report detailing the rationale and findings of the decision to uphold the Boeing protest.
We haven’t read it, but here is it, all 67 pages in PDF form. b-311344__boeing__redacted_decision.
Update, 1215 PM PDT: We’ve completed a quick read of the GAO decision. In it, the GAO found–as previously reported–for Boeing on a number of key elements. The GAO also rejected Boeing’s protests on far more complaints than were sustained, but only a small number of these are discussed in the report. Some of these were key elements in Boeing’s public relations campaign. But that’s neither here nor there–the elements detailed by the GAO in sustaining the protest are enough.
The GAO report also makes it clear that in defending the decision, on occasion neither the Air Force nor Northrop Grumman provided information for the record that refuted Boeing’s complaints–thus leading the GAO to side with Boeing.
It is clear from our reading of the report that a rebid, correcting deficiencies outlined in the GAO report, is indeed warranted. The news report we posted earlier today suggesting that the Air Force may proceed with the award as issued without a rebid is an unwise course of action.
Among the key points in the GAO report is the conclusion that Boeing’s KC-767 did indeed score better than the KC-30 in the more important criteria identified in the USAF RFP, while the KC-30 outscored the KC-767 in criteria that was less important to the requirements of the aircraft. While the GAO sides with the Air Force that the KC-30 does offer “more” as the Air Force stated when announcing the award, the GAO concludes that the RFP doesn’t allow for the extra credit that was awarded for this extra capability–yet this was the key to the USAF’s decision announced on February 29.
The GAO also sides with Boeing about the “survivability” assertion that the KC-767 scored better. Furthermore, the GAO says the record calls into question the KC-30’s ability to maneuver safely in emergency break-away situations, largely because neither the Air Force nor Northrop provided adequate documentation or analysis for the record to enable the GAO to conclude otherwise.
A fair reading of the GAO decision leaves room for no other conclusion: the USAF process was fatally flawed. A recompete is necessary.
We will be re-reading the report in greater detail and may update our report here in the coming days.
Update, 230 PM PDT: Teal Group analyst Richard Aboulafia opines on the tanker mess in his monthly newsletter. Catch it here: Our long national nightmare.
A reader just brought this report to our attention, which if true, is a real bombshell; it’s from DefenseTech.org.
Top OSD Officials Think Tanker Deal Can Go Ahead
Senior Pentagon and Air Force officials who have read the full 67-page report about the tanker bid by the Government Accountability Office think they can still grant a contract before the end of the Bush Administration. John Young, the Pentagon’s acquisition czar, has reportedly drafted a letter for the four congressional committees that oversee defense spending and policy informing them of the Pentagon’s decision to go ahead and award the contract to Northrop Grumman.
There have been reports that the GAO ruling on the tanker contract could add two years or more to the contract award, something that has greatly concerned Air Force leaders eager to start building new tankers after almost a decade of trying.
“Their finding is that the full document is quite different from the summary,” issued last Wednesday, said a source familiar with the issue. The source said Air Force leaders believe much of what was challenged is “procedural” and can be resolved without rebidding the deal.
The 69-page report is expected to become public today.
The GAO said in its summary that it found “a number of significant errors that could have affected the outcome of what was a close competition between Boeing and Northrop Grumman” and recommended that the bid be reopened. By law, the Air Force has 60 days to inform the GAO of how it will respond to the recommendations.
Any Air Force decision to press ahead with the contract award to Northrop Grumman is likely to spark outrage on Capitol Hill among supporters of Boeing, who include Rep. Norm Dicks (D-Wash.), the Nr. 2 member of the House Appropriations defense subcommittee, as well as Washington’s two senators and lawmakers from Kansas.
New, at 1035 AM PDT: The Hill has this article about the USAF and the tanker.
The full, 69-page GAO report is expected to be issued this week, redacted of proprietary information. The report could be issued as early as today, we’re told. As soon as we get it, we’ll post it.
Meantime, fired Air Force Secretary Michael Wynne said the USAF “leaned over backwards” to be sure Northrop Grumman remained in the competition for the tanker. Here is the full story from Military.com.
The Wall Street Journal, a conservative newspaper now owned by right-winger Rupert Murdock, has this editorial on the tanker. It’s tone is far more moderate than one would think would come from The Journal on the issue.
Government Executive opines that the Air Force might follow a quaint rule: Do as you say. You may read this piece here.
The media in Alabama reports that it’s possible EADS, the parent of Airbus, might decide to proceed with a plan to move A330 freighter production to Mobile even if the USAF contract for the KC-30 is overturned in a rebid. Readers will recall that Airbus and EADS announced plans to assemble three or four A330-200Fs in Mobile, contingent upon the tanker award. Although the companies, and Northrop, profess confidence that the award will be sustained in a rebid, EADS and Airbus officials are considering what to do if it’s not.
We’re told there is a contingent in Airbus that thinks the company should go ahead and assemble the tankers in Mobile. This would help mitigate the dollar-Euro problem facing Airbus. But a new financial analysis is necessary for the capital costs and economics without the tanker before any decision can be made to proceed.
Newsweek has a piece about US Sen. John McCain and the KC-X tanker competition, quoting an unidentified Pentagon official about McCain’s involvement. This is the first article we’ve seen quoting a Pentagon official.
As readers know, we were in Washington, DC, when the GAO announced its decision upholding the Boeing protest of the award to Northrop Grumman. We’ve been told by a Boeing partisan of something that, if true, will create a procurement scandal if not quite equal to the illegal activities surrounding the first tanker award to Boeing in 2004 will at least rock the Air Force to its procurement core. This may or may not come out in the 69-page GAO report that is being sanitized for proprietary information before its release, perhaps as early as this week. If what we’re told is true and it’s not in the report, it should be, or certainly should become the subject of Congressional investigations of the thoroughness and aggressiveness undertaken by McCain following the Boeing tanker award in 2004.
If what we were told is true, not only was the process examined by the GAO flawed but it was outright subverted.
Meanwhile, fired Air Force Secretary Michael Wynne, on his last day in office, said a rebid is likely and suggested that a fly-off between Boeing and Northrop might be worthwhile. This Reuters story may be found here.
New, Monday, June 23, 1030 PDT: An interesting twist to the GAO decision. Readers will recall that we’ve previously mentioned that there was a “shadow group” looking over the shoulder of the Air Force the whole way during the evaluation process. It turns out that the GAO was a member of this shadow group. Now if one presumes that the role of the shadow group was to keep the USAF on track and not to simply look over the shoulder and not say anything or raise questions about whether there were irregularities, then one has to ask: just where was the GAO itself during this process? Perhaps the 69-page report will say.
New, Monday, June 23, 315 PM PDT: Loren Thompson has a fresh commentary on the tanker fiasco here.
New, Tuesday, June 24: Politico reports the Air Force is considering a KC-767/KC-30 flyoff. The Hill reports the Defense Department acquisition group may take over the rebid process from the Air Force in this report.
New, Tuesday, June 24, 945 AM PDT: Here’s an amusing piece from the United Arab Emirates about the tanker program. It’s amusing because it takes a shot at CNN’s Lou Dobbs, a once-fine financial reporter who has gone off the deep end on anything not US. The piece also has some interesting facts in it.
In the meantime, JD Crowe, the cartoonist with the biting wit for The Mobile Press-Register, inked this one today:
The Press-Register’s Washington reporter has this look at the current situation in the wake of the GAO protest.
We’ve been asked by media across the country, What’s next for the tanker competition?
We stated our position long ago: if Boeing lost the protest, it should accept the GAO decision. On the other hand, if the Air Force lost, then the service and Northrop should accept it.
This means the deal, in our view, should be rebid as recommended by the GAO.
As for what should happen, we’ve been clear about that for a long time: double the production and appropriation and split the order between Boeing and Northrop. Then everyone can get on with their lives and be put out of collective misery over this interminable saga.