Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Boeing 2024 Proxy Statement: Executive Compensation includes retirement gifts for Calhoun, Deal; housing support for Ortberg, Pope, and other stuff March 17, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 13. March 14, 2025
- Rolls-Royce’s remarkable turnaround March 13, 2025
- NASA hit by DOGE layoffs, office closures; Boeing’s X-66A R&D continues for now March 11, 2025
- Boeing faces three labor contracts expiring this year March 10, 2025
Podcast on tanker
James Wallace from The Seattle Post-Intelligencer does a 15 minute podcast on the tanker issue with Innovation Analysis Group.
KC-777 or KC-767-400?
James Wallace of The Seattle Post Intelligencer has this excellent piece about the prospects of Boeing offering a KC-777 or a “KC-764”.
Update, 130 PM PDT: Innovation Analysis Group has this 7 minute podcast with Dan Beck, spokesman for Boeing’s tanker program. (Longtime spokesman Bill Barksdale has moved on to other duties within Boeing.)
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 | |
The Day After the Draft RFP
There has been some time to digest the Pentagon’s announcement for the re-compete for the aerial tanker program. Predictably, Boeing’s supporters are unhappy. Anything short of a tailor-made RFP guaranteeing a Boeing award won’t make them happy, as their efforts to craft legislation in Congress demonstrates.
Here are a couple of stories that capture the flavor:
The Seattle Post-Intelligencer
Having incorrectly called the competition once–we thought Boeing would win and were stunned when Northrop did–we’re going out on a limb and predict Northrop is the favorite this round. (In this we are not alone, but we weren’t last time, either.) But we have a somewhat different view than the hand-wringers over the revised RFP.
The original RFP contained a delivery timeline sought by the Air Force that was not challenged by Boeing in its protest and which the GAO didn’t address. And this timeline isn’t changed in the new Draft RFP, either. And that is the Air Force wants the “prototypes” (our word) of the KC-45 delivered in 2009.
Northrop already has two KC-30 platforms flying and two more on the way. Granted, these must be converted into tanker configuration. But Boeing doesn’t have a flyable airplane nor is it likely to be able to have the KC-767AT prototype ready next year.
This is because the “AT” is a combination of elements from the 767-200ER, the 767-300ER, the 767-400 and the 777. Deemed a “minor modification” by Boeing–and the “Frankentanker” by Northrop–the process of integrating the parts and producing the airplane most likely will take longer than 2009 once Boeing received a contract, if it did.
Boeing’s track record with the KC-767s for Japan and Italy doesn’t inspire confidence, and these are straight-forward conversions of the 767-200ER.
The delivery timeline outlined in the original RFP also argues now, as it did then, against Boeing offering a tanker based on the 777. This production line is already at capacity of seven a month and with a backlog of 358 at June 30 (the latest data available), that’s slightly more than four years before Boeing could deliver a prototype KC-777, even if 100% of the research and development were done and ready to go into production–which it probably is not.
Let’s remember that the re-compete is about eight points identified by the GAO, but there are other criteria involved. The desired delivery schedule is the main reason we think Northrop has the edge; Northrop has a plane ready to go now; Boeing’s airplane is in the computer.
Pentagon reissues tanker RFP
The Pentagon today re-issued the Request for Proposal for the aerial tanker competition today.
As the press conference begins, here is a running synopsis:
- USAF plan and process as we go forward to have a week or so to discuss the details with Boeing and Northrop. Each side will have face-time to discuss details.
- A final RFP will be issued in a month. Proposals due by about October 1.
- From October 1 will evaluate proposals and have discussions with offerors, plus face time with each.
- Plan to have award by year end and debrief offerors in January.
- We’ve provided the offerors very clear and unambiguous insight into the relative order of importance of keep performance parameters (KPP) and provided a matrix to fully understand priorities.
- There are different ways to give consideration to extra credit for exceeding KPPs.
- The warfighter has said life cycle is 40 years (vs 25) so cost evaluation will be on 40 years.
- The key change to the RFP is to highlight and to make very clear the relative importance to each capability. We made sure we are going to evaluate in terms of fuel offload that we will recognize value of offload in excess of KPP.
- We will look at fuel cost, and cost of government ownership over 40 years.
- The Pentagon gives positive consideration for fuel offload above threshold, but it appears that not for cargo and troop capabilities above threshold.
- We are very measured and very specific to respond to GAO, but otherwise views the changes to be minor.
- The USAF is playing a significant role in new RFP, as are other services, comprised of all new members, along with an independent review team to review what the Source Selection team does.
- We won’t be using any models to determine 40-year life-cycle costs; we’ll use real cost analysis.
- Jobs and industrial base are not part of the RFP process but these are part of the overall plan to determine whether the industrial base exists to build the plane. But these are not part of the technical evaluation.
- In general, the way we’re evaluating life cycle cost in terms of importance is unchanged from one RFP to the other RFP. The acquisition cost is a separate issue.
End of conference.
Our immediate take:
Both sides got something in the rebid:
- Size gets extra credit for fuel offload, but because Northrop’s KC-30 has greater capability, this feature seems to favor Northrop.
- The life cycle cost is extended from 25 to 40 years, and this would seem to favor Boeing’s KC-767. We discussed both elements Tuesday in our Commentary on our Corporate Website.
It didn’t take long for Boeing’s advocates to look for bias, according to this CBS News report. They’ve been advocating including the 40 year life cycle but excluding the extra credit, a position we find just plain stupid. If you alter the RFP to allow one, then you need to allow the other.
The question is whether Boeing will protest the changes; officials said at Farnborough that they might because they felt any changes to the RFP should reset the process from scratch.
Here is the Draft RFP, Part 1. 27 pages.
Here is the Draft RFP Part 2. 96 pages.
Here is Northrop’s statement. (No response yet from Boeing.)
Here is a Seattle Times report, quoting a spokesman for US Rep. Norm Dicks (D-Boeing) already whining about the new RFP. No mention of the 40 year life cycle element by Dicks’ office, which he advocated.
Update, 4:10PM PDT: Washington State’s other Boeing advocates are quoted in this article and this one, all complaining about the extra credit for extra fueling capabilities. The hypocrisy is palpable. Some of them are behind legislation in the US House that would all but require an award to Boeing rather than the “fair” competition they advocate, and all seemed to favor changing the RFP to a 40-year life cycle on the assumption that this will guarantee a win for Boeing. Yet they object to the extra credit change. These politicians, and those from Kansas who rival Washington, aren’t remotely interested in competition and all their rhetoric to the contrary is political pablum.
This just in from Boeing:
Boeing has received the amended Request for Proposals (RFP) for the KC-X tanker competition. Given the very narrow window for commenting on this draft, our team is focused on identifying and understanding any changes that may have been made to the original requirements and evaluation criteria. We also need to see how the document addresses the strong concerns the Government Accountability Office identified in sustaining our protest.
Despite the fact that the first competition appropriately addressed the aircraft’s intended mission, until we receive the final RFP it is too early to offer any details about Boeing’s path forward.
Boeing remains committed to providing the most capable tanker to the warfighter and the best value for the American taxpayer.
No comment on whether Boeing will protest the DRFP.
Steve Trimble of Flight Global has a series of short items in his blog. Rather than linking each one, here’s the link to his home page–select the individual tanker items as you will.
Taking the low road
We’re back from a week of travel where we had no access to the Internet and one of the first things we saw was the news report about “Alabamians to Build American Tankers” and their radio ads blasting Boeing for its original scandal in the tanker program and connecting it to the re-compete for the USAF aerial tanker.
There is no getting around the fact that the competition is where it is today because of improprieties of the 2001-2004 tanker award. But Boeing’s Jim McNerney, in one of his early acts as the new CEO, stepped up and authorized a fine of more than $600 million to settle this scandal and the Lockheed Martin trade secret theft case, and declined to take the tax deduction that was permissible because it wasn’t the right thing to do. These two actions are one reason we continue to have great respect and regard for McNerney’s leadership.
Thus, with Boeing having settled this matter, it should not be an “issue” in this competition, factual history notwithstanding.
We’ve often been critical of Boeing’s PR, advertising and political lobbying campaign over the tanker competition. We’ve thought that the campaign was ill-advised and sometimes distorted and had no place in the competition. We’ve also repeated called on Boeing and Northrop Grumman to tone down the rhetoric or ideally stop altogether. This “Alabamians to Build American Tankers” is a new low in this entire competition.
The pro-Boeing site Tanker War Blogs has a good synopsis and has some information about who’s behind this trash.
Thursday’s Farnborough impressions
Airbus had its press briefing, rescheduled from Monday, much to the puzzlement and speculation of observers and rivals (or, perhaps, that should be in the singular).
The speculation was rife: Airbus’ super-salesman John Leahy had a big order up his sleeve for announcement. British Airways would announce an A350-1000 order. Cathay Pacific Airways would order the A380 and A350.
Alas, it was none of these. CEO Thomas Enders started the briefing saying that he thought it be more productive for Airbus to recap the week, with orders to talk about, than to start the week with nothing to say. And that’s what it was.
Airbus ended the week with 247 firm orders plus commitments for nine airplanes. One hundred of the orders, however, are left over from the Dubai Air Show–the contract was signed at Farnborough, but these can’t truly be considered a part of this air show.
The breakdown is 128 A320s (70 from Dubai); 11 A330s; 98 A350s (30 from Dubai); and 10 A380s, though four of these were ordered instead of the carrier taking four test airplanes, so this is only a net gain of six.
The A350 program has now sold 472 firm orders, a rate Leahy and the statistics say is faster than the Boeing 787.
This tally is also Airbus’ second best Farnborough Air Show, following the one two years ago when 280 orders were announced.
Other highlights from the Airbus conference:
- Airbus is looking at developing a freighter for the A330-300, with a decision perhaps 6-12 months out;
- The company is spending about $160 million annually (at current Euro exchange rates) on research to enhance the A320 between now and a replacement airplane, involving weight savings, new interiors and a soon-to-be-tested blended winglet developed by Aviation Partners;
- Application of the new P&W Geared Turbo Fan on the A320, once rejected by Leahy, may be a possibility after all, depending on customer demand and the outcome of test flights of the GTF on the A340 test bed;
- The A350 is essentially sold out through 2017, which parenthetically is also about the same time as the 787; and
- 3,000 aircraft flying today are 20 or more years old; in five years, this number will double.
Tom Williams, EVP-Head of Programs, called Bombardier’s launch of the CSeries a “brave thing.” He believes the plane will be seen as an interim plane, bypassed by the next generation of single-aisle aircraft, serving a niche market that he believes is much smaller than Bombardier forecasts; that it will be an orphan aircraft, without a family to buy “up” to; and it will enter the low-end of the Boeing and Airbus markets.
Airbus’ end-of-show brief was a very useful wrap; Boeing might want to follow suit at future shows. This timing by default gives Airbus the headlines as the show wraps.
Other stuff, mostly whimsical:
- Every time a military jet fighter or bomber throttled up for take-off, car alarms up and down the nearby parking lot went off;
- “Green” aviation was a theme through the air show, right down to the notices on the waste bins to recycle. Maybe they do things differently in Europe than in the US, but there were no separate bins for plastic bottles, newspapers, and trash like back home;
- At a big 2 1/2 hour press conference on Green aviation where Boeing Commercial President Scott Carson and Airbus CEO Tom Enders were featured speakers, Boeing didn’t have hand-outs of Carson’s speech–not even on flash drive–while the Airbus flash drive was packaged in an oversized, non-recyclable box with non-recyclable plastic neatly holding the drive;
- At the same eco-conference, an engineer for Rolls-Royce engines couldn’t figure out how to work his Power Point presentation;
- Boeing had a very classy eco-aviation center;
- BAE Systems had perhaps the most interesting aircraft display, an indoor retrospective of aviation pioneers with replicas of several wood-and-wire era bi-planes; and
- Reporters still rate the Airbus media chalet lunch menu the best-of-show, an important item considering most journalists are moochers; Boeing had a good cut fruit tray, though, something Airbus should do next time.
