Here’s a good article about why the USAF chose the Northrop tanker.
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.
We had the opportunity to sit down today (Tuesday) at the Farnborough Air Show with Pat Shanahan, the VP and GM of the 787 program.
Here is the transcript of this interview.
Leeham: During the Investors Day conference and the April program update you indicated that there would be 25 deliveries in ’09. Are you still on track for that?
Shanahan: [After a short pause.] My hesitation is I need to look at the schedule situation and what the ramification of that is. At this point I’m assessing it. We’re still on track for first flight, first deliveries. Obviously, anything you do with moving those dates around has an impact on deliveries, so we’ll see.
Q. If I understand you correctly, there’s a possibility that you might not deliver 25 in ’09.
A. Well, there’s always the risk. That’s why putting a buffer into the schedule ends up, you know, I’ve to see where I am on my buffer.
Q. In the program update and investors day, you really didn’t detail what the deliveries are for ’10 and ’11. What are your anticipated deliveries, certainly in ’10?
A. We haven’t talked about any of those.
Q. Now is a good time to do that.
[Laughter all around.]
A. Yeah, yeah. You’d have to break both arms. Obviously we have schedules and deliveries planned. We’ve communicated those to the customers but we’re not ready to be so bold as to announce that to the world. One thing, I think we’re actually in a quiet period [ahead of the earnings announcement next week]. I can’t answer that. I think that will be considered material.
Q. At the Investors’ Day, I believe it was you—it might have been [BCA President Scott] Carson, mentioned a production rate of about two a month, but it really wasn’t put into context. Could you put that into context?
A. I think I didn’t put it into context because that would, I did, I did talk to some people off-line who were trying to figure out how to count the airplanes but at some point, we do get to two a month or higher rates. The only reason I’ve waited doing that is that we have to start counting all the airplanes, which is the goal, right? I’m trying to steer away from all these dates and deliveries because what ends up happening is you move anything around and somebody says you’re program’s not working.
It’s kind of the opposite. All these things are now converging. All the uncertainty that I was planning with before is now becoming certain. The things that I tried to parametrically identify didn’t have a basis of performance…. I feel now I’ve got my arms around the work statement, I have my hands on the controls. Now is the question whether I can move those controls as fast as I like.
After the interview, 787 spokesperson Yvonne Leach called to follow up on Shanahan’s discussion of 2009 deliveries.
“I wanted to clarify one thing,” Leach said. “Pat kind of went on and on about the buffer. We are going to have 25 deliveries in ’09. The plan is the plan. Pat kind of answered in a roundabout way. I just wanted to confirm the 25.”
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.
We attended the EADS Media Day that is held in advance of the two major air shows, Paris and Farnborough.
Some highlights:
More reporting from the Farnborough Air Show will continue throughout the week.
On a lighter note–we all thought the next Boeing product would be an airplane. Instead, it’s a blimp: Meet the new Boeing “797.”
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:
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.”
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.