Leeham News and Analysis
There's more to real news than a news release.
EADS profits on increased production
EADS, parent of Airbus, reported a stronger-than-expected profit on higher production at its principal subsidiary. The details may be found in this AP story.
A couple of take-aways:
- This better performance, despite the worries over the dollar-Euro exchange rate, slower-than-desired progress in Power8 cost-cutting and new issues with A380 production, may make it more difficult to get cuts from the already recalcitrant labor unions; and
- The A320 family, where higher production rates have kicked in (and going higher still) has proved to be a key to the Airbus recovery and cash flow. When Airbus announced plans to boost production of this family, Boeing criticized the move as unwarranted by market conditions. That was hardly the point; because of delays and cash flow shortfalls in the A380 program, Airbus really had little choice. (That Boeing is now considering boosting the 737 production seems to demonstrate Airbus was right about the market demand, too.)
Airbus plans to take the A330/340 production to 12 a month by 2010 in response to demand for this airplane, higher and sooner than expected. This will further aid the cash flow shortfalls from the A380 program.
Jumping the gun, perhaps?
Northrop Grumman announced the grounding breaking for its KC-45A tanker even though the Government Accountability Office hasn’t rendered its decision on the Boeing protest of the tanker contract award by the USAF to Northrop.
This strikes us as incredibly premature and reminds us of another premature declaration:
Groundbreaking for the KC-45 Tanker Manufacturing Facilities
Set for June 28
Mobile, Alabama Site to Provide KC-45 Tankers to United States Air Force
WASHINGTON – May 13, 2008 – Northrop Grumman Corporation (NYSE: NOC) and its key subcontractor, EADS North America, will join local, state and federal officials and the citizens of Mobile, Ala., in a groundbreaking ceremony on Saturday, June 28. Ground will be broken at Mobile’s Brookley Field, where two adjacent manufacturing facilities will be built to produce the nation’s new fleet of aerial refueling tanker aircraft.
The ceremony has been scheduled pending the outcome of the Government Accountability Office review of the tanker contract award. “We anticipate a favorable decision and look forward to starting construction on this historic facility,” said Ronald D. Sugar, Northrop Grumman chairman and chief executive officer. “We’re committed to transforming Mobile into the centerpiece of an expanding aerospace corridor.”
“This event underscores the fact that we are ready to get to work now,” Sugar said. “We need to move forward quickly to provide our men and women in uniform what the Air Force has identified as its number-one acquisition priority – the new refueling tankers they so desperately need.”
Northrop Grumman and EADS North America are committed to the U.S. Air Force and also have contractual agreements in place with one another, the state of Alabama and the city of Mobile to ensure construction of the facilities is ready to move forward.
“We are excited that Brookley Field will once again be a hub of American military aircraft manufacturing,” said Rep. Jo Bonner of Alabama’s 1st Congressional District. “There is no doubt that Mobile is poised to be the crown jewel of a rapidly growing aerospace center of excellence in the Southeastern United States, bringing thousands of jobs and creating endless opportunities for our entire region.”
EADS North America will deliver the KC-45 aircraft platform to Northrop Grumman. Airbus, an EADS company, is responsible for manufacturing at its Mobile final assembly facility and will assemble, test and certify the aircraft before delivery. Following delivery to Northrop Grumman, the aircraft will receive the necessary military modifications to turn the commercial airframe into a U.S. Air Force KC-45 Tanker. In keeping with U.S. Department of Defense requirements, only Northrop Grumman and U.S. government employees with appropriate security clearances will militarize the tanker aircraft.
“EADS North America is fully committed to providing Northrop Grumman with an aircraft built in the U.S.,” said Ralph D. Crosby, Jr., EADS North America chairman and chief executive officer. “More importantly, our men and women in uniform require and deserve the most capable system available. They have been waiting far too long for a modern tanker. Our entire team is ready to get to work now.”
Northrop Grumman’s architectural and engineering firm for the facility, BRPH Companies Inc., was selected last year and is prepared for the construction phase. Northrop Grumman’s facility is scheduled for completion and initial operation late next year. BRPH is leading a team consisting of KBR’s Mobile office and Thompson Engineering, headquartered in Mobile.
The groundbreaking ceremony occurs just a few days after the 60th anniversary of the start of the Berlin Airlift. This is significant because Brookley Field was the base from which C-54 transport aircraft supported the airlift.
About the KC-45
The KC-45 Tanker aircraft will be assembled in Mobile, Ala., and the KC-45 team will employ 48,000 American workers at 230 U.S. companies in 49 states. It will be built by a world-class industrial team led by Northrop Grumman, and includes EADS North America, General Electric Aviation and Sargent Fletcher.
Northrop Grumman Corporation is a global defense and technology company whose 120,000 employees provide innovative systems, products, and solutions in information and services, electronics, aerospace and shipbuilding to government and commercial customers worldwide.
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0508-292
Checking jobs at Northrop? Check Boeing, too
US Sens. Patty Murray (D-Boeing) and Maria Cantwell (D-WA) have asked the White House to investigate the claim by Northrop Grumman that 48,000 direct and indirect jobs will be created with the KC-30 program.
The KC-30 will be assembled in Mobile (AL) for the USAF’s KC-45A program.
Murray, who is actually D-Washington, is Boeing’s most vocal and hyperbolic advocate (along with US Rep. Norm Dicks, also D-Boeing/Washington), and has vowed to block the Air Force award to Northrop because the KC-30 is based on the Airbus A330-200, and Murray has been leading a crusade against Airbus for years.
Murray, Cantwell and a couple of other members of Congress want the White House to determine how Northrop’s job count increased from 25,000 to 48,000 after the award was announced and after the jobs issue erupted as a major point of controversy, according to this report in The Seattle Post-Intelligencer.
It’s a fair question and one we raised at the time in this report on our Corporate website. We were surprised and skeptical of the doubling of jobs claim as well. Our report details how Northrop got its new number.
Whether one accepts Northrop’s methodology or not is a matter of debate, but at least Northrop offers up one. Boeing does not for its job claims of 44,000 direct and indirect jobs for the KC-767 program, despite having been asked several times by reporters and analysts (including us). Furthermore, there is ample reason to suspect the Boeing figure.
In 2001, Boeing claimed 22,000 jobs were tied to the 767 program when the company was producing these at a rate of 36 a year–two to three times the rate proposed by the Air Force for the KC-45A program. Boeing also claims just 25,000 jobs associated with the C-17, which is has more US content than the 767 (the 767 fuselage, tail and certain wing components are built in Japan, Italy, the UK and Canada while these are built in the US on the C-17). The production rate for the C-17 is similar to that proposed for the KC-45A.
So how can Boeing claim there are twice the jobs at as little as one third the rate for the KC-767 vs. the commercial 767 at its peak? How can there be nearly twice the jobs associated with the KC-767 vs. the C-17? Boeing has never answered either of these questions.
As long as Boeing boosters want an investigation about Northrop’s jobs claim, this should be expanded to include Boeing’s job claims.
Having said all that, on the merits of the award, the entire jobs issue is irrelevant anyway. Jobs were not part of the RFP or evaluation process. This issue has been political from the get-go, and should have no bearing on the award at all; the award should be entirely about technical merits.
ILFC 787s face 27+ month delay for all 74 orders
Leasing giant International Lease Finance Corp. revealed today in a federal filing that its entire order of Boeing 787s will be delayed “an average in excess of 27 months per aircraft and span across ILFC’s entire order.” The company’s parent AIG Group revealed this news in its March 31 first quarter Securities and Exchange filing, accompanying the announcement of a huge loss for the quarter made after the stock market closed Thursday, May 8.
The first of ILFC’s 787s were originally scheduled to be delivered in 2010 through 2017. The delay, which is in line with other customers that have so far publicly revealed the impact, means that the first ILFC 787 will be delivered in 2012 or 2013 (depending on what month the original delivery schedule began).
More, 3:00PM PDT: James Wallace of The Seattle Post-Intelligencer just published this item about Air Canada’s 787 order being 30 months late.
New, Monday, May 12, 1000 AM PDT: ILFC’s own 10Q filing (made Friday) with the SEC is more detailed about its 787 delays. ILFC says the airplanes will be delivered 19-30 months late, with the average delay in excess of the 27 months reported in the AIG 10Q.
Airbus still leads orders, barely
Airbus and Boeing have updated their orders for April (Boeing through April 29, Airbus for the entire month) and Airbus maintains a slight lead over Boeing for net orders, 397 to 346, year-to-date.
But the Airbus tally doesn’t reflect what’s happened to the 65 orders for Skybus Airlines of the US, which has ceased operations following bankruptcy. If these show up as canceled in the May tally, Boeing will almost certainly for ahead for the month.
Boeing has 236 net 737 orders for the year; Airbus has 300 net A320 family orders.
Boeing has two 747 orders vs. three A380s.
Boeing has no 767 orders vs. Airbus’s 57 A330 orders (11 of which are freighters).
Boeing has 30 777 orders vs 32 A350-900s and 0 A350-1000s.
Boeing has 79 787 orders vs 15 A350-800s.
It’s been pointed out to us that the A330 competes with the 787 as much as it does with the 767, because the 787 is designed to replace the 767 and the A330 seating capacity is similar to the 787. If one accepts this thesis, and there’s certainly merit to it, then the category stacks up this way:
767-767F/787 orders, 79, vs A330P (46), A330F (11) and A350-800 (15), or Airbus total 72.
Boeing single-aisle airplanes: 235, twin-aisle: 111.
Airbus single-aisle: 300, twin-aisle and wide-body cargo: 107 (minus 10 A318s).
Boeing’s YTD orders have a mix of 32% twin-aisles and 68% single-aisles.
Airbus’s product mix is 26% wide-bodies and 78% narrow bodies.
Dueling tanker press releases
In a rare confluence of timing, Boeing and Northrop Grumman issued press releases on the same topic at about the same time. Here they are, in their entirety; our commentary follows after the Northrop release:
Boeing KC-767 Tanker: Sized Right for the Fight
Wednesday May 7, 12:23 pm ET
According to the Statement of Objectives for the KC-X program, the primary mission of the new tanker would be aerial refueling rather than hauling cargo or transporting passengers. In order to meet the documented mission requirements, Boeing offered the KC-767, which efficiently fulfills the vital mission of a mid-sized aerial refueling fleet while also exceeding the highest requirements for airlift, passenger and aeromedical evacuation capabilities.
“Tanker flight crews are asked to bring the right amount of fuel to the fight in the most efficient, reliable manner, and the KC-767 meets that fundamental requirement,” said Mark McGraw, vice president, Boeing Tanker Programs. “Asking these aircrews to fly longer missions in larger, less survivable planes with more fuel capacity than needed and vast amounts of unused cargo and passenger space just doesn’t add up.
“The Boeing KC-767 exceeded the requirements in a manner that still kept the plane right-sized and efficient,” McGraw said. “Our competition likes to talk about offering more, more, more — but in reality, the KC-30 will cost more to operate, more to maintain, and more to house, with the U.S. taxpayer footing the bill.”
A larger plane — like the KC-30 tanker offered by Northrop Grumman and EADS — simply results in wasted capacity, wasted efficiency and wasted taxpayer dollars.
The contrasts between the KC-767 and the KC-30 are notable and worth considering in determining the appropriate tanker for the mission:
-- Fuel Capacity -- The historical average offload on a tanker mission is
60,000 to 70,000 pounds of fuel. The Air Force fuel offload requirement
was set at 94,000 pounds of fuel at 1,000 nautical miles, comfortably
above the historical average. The KC-767 exceeded the 94,000-pound
requirement by 20 percent while remaining within the optimum size for
medium tanker operations. The KC-30 fuel capacity exceeded that
requirement by 50 percent -- meaning more than half of its fuel load
would be unused during an average mission. The result: a large tanker
that burns more fuel and requires significantly higher costs in
maintenance and support.
-- Cargo/Passenger Capacity -- In 2006, the Air Force moved less than
1 percent of its cargo and passengers in tankers. The KC-767 does offer
significantly more cargo and passenger capacity than the KC-135, but
not at the expense of airplane size or efficiency. Again, the KC-30
carries more passengers and slightly more cargo based on weight, but
with a bigger, less survivable and more costly plane.
-- Aeromedical Evacuation -- The Air Force Request for Proposals set an
objective requirement of being able to carry 24 litters and 26
ambulatory patients. The KC-767 carries 30 litters and 67 ambulatory
patients, far exceeding the highest requirement. The Air Force praised
the KC-767's superior aeromedical crew stations, its ability to
generate oxygen onboard, and the power provided for aeromedical crew
systems. The KC-30 again offered more quantity with less quality and
less survivability.
Setting The Record Straight On Northrop Grumman’s Tanker
Today’s Boeing ad in The Washington Post, “The Tanker Decision. Oversized Aircraft, Oversized Costs. It Doesn’t Add Up” raises a fundamental question: Who should decide the capabilities of the KC-45 refueling aircraft, and how it should be used, the Air Force, or Boeing? Moreover, Boeing continues to make up facts to suit its arguments.
In its request to the Government Accountability Office to throw out Boeing’s contract challenge, the Air Force noted that “Boeing’s protest misconstrues the solicitation evaluation terms for aerial refueling, and its interpretation creates a patent ambiguity” regarding what the Air Force wanted.
The Air Force stated in its proposal request that it sought a versatile, multi-role tanker that would meet or exceed its requirements for both refueling and airlift. Boeing argues that its tanker is good enough for refueling – and, based on past operations, additional capability was not needed. But the Air Force made clear it saw great value in Northrop Grumman’s KC-45 because it could carry more fuel, operate from more bases, and transport more materiel, troops and cargo – and evacuate more wounded soldiers from the battle theater. While Boeing’s offer was looking at the past, the Air Force’s selection of Northrop Grumman is all about the future.
The Air Force was abundantly clear about its desire for a versatile tanker throughout the bidding process. In December 2007, Defense Daily interviewed TRANSCOM Combatant Commander Gen. Norton Schwarz and wrote, “The bottom line, Schwartz told Defense Daily, is that unlike tankers of old, the KC-X aircraft will be multi-mission machines. ‘We need, for the benefit of the joint team, to get as much out of that as we can.'” The Air Force also made this clear in the RFP, and in the entire military did the same in a White Paper published a month later. Boeing disparages this recommendation, arguing it knows better than the Air Force what will be needed. Why does Boeing keep trying to redefine the requirement?
Boeing continues to distort the truth even though the company has the real data, claiming that Northrop Grumman’s KC-45 will burn $30 billion more in fuel. To reach that number, they made up their own assumptions and their own formulas. The fact is, the Air Force concluded – in a document provided to both companies – that the KC-45 is actually 6 percent more fuel efficient than Boeing’s proposed aircraft and the life cycle costs of both aircraft was about the same. Who should we believe – the United States Air Force or Boeing?
Boeing also claims that its proposed aircraft would have $19 billion less in infrastructure and maintenance costs. In fact, the Air Force determined that the life cycle cost of both aircraft, which includes these factors, was about the same. Who should we believe—the Air Force or Boeing?
Boeing then claims its can provide more aircraft to battle theaters – conveniently ignoring an important factor in the Air Force’s decision:
Northrop Grumman’s larger, more versatile aircraft can complete the entire host of combat scenarios using fewer aircraft than Boeing – something the Air Force found was a significant value to taxpayers AND battle commanders.
Finally, Boeing tries to bolster its faulty arguments by selectively pointing to criteria included in a 2002 tanker decision. Not only is that document outdated, but it relates to a contracting scandal that led to the contract being competitively bid. Relying on that outdated document, Boeing claims that the Air Force “and taxpayer get an oversized aircraft with oversized costs.”
In fact, the Air Force made clear in the document explaining its selection that “Northrop Grumman’s offer was clearly superior to that of Boeing’s for…aerial refueling and airlift. Additionally, Northrop Grumman’s…superior aerial refueling capability enables it to execute…with 22 fewer aircraft…an efficiency of significant value of the government.”
Leeham website updated wk/May 6
Our Corporate website has been updated with commentary and links to news articles. This week we put some perspective into the recent stories about potentially new A380 delays and the reports of new delays for the Boeing 787. The link to our Corporate site is here.
More delays for 787, A380: German magazine
Reuters picked up a report from a German magazine saying Boeing and Airbus are notifying customers of new delays in the 787 and A380 programs. Here’s the report; we’ll try for comment ourselves.
New, 1045 AM PDT: Reuters has a follow-up report, quoting Yvonne Leach, a Boeing 787 spokesperson, denying the German magazine story. According to the new Reuters report, Leach says there’s been no change to the basic 787 schedule announced last month, in which a 15-month delay for initial entry-into-service was identified. Reuters reports Leach said that on average, delivery delays will be about 20 months.
Note the phrase “on average” in the Reuters story. This doesn’t specifically discount the 27 month figure reported by the German magazine while affirming the 15 months EIS delay.
Monarch Airlines, in an internal memo, reportedly told employees its 787s will be 30 months late; Monarch has not confirmed (to us, anyway) the authenticity of this memo. This was followed by an interview by Royal Jordanian Airlines in which it expects 787 delays of up to 30 months; and Lan Chile, which anticipates a 24 month delay for its 787s.
So how could this be, when Boeing announced a 15-month delay for EIS?
It’s because there will be a much slower ramp-up on the production schedule. Boeing’s original plan was to be at 10 per month by 2010; now this won’t happen until 2012, Boeing said in its April program update. The ripple effect is what’s at hand here.
As for the same original report by the same German publication that there is another delivery delay in the offing for the Airbus A380 2009 schedule, we’re still trying to nail this one down.
New, Sunday, 800 AM PDT: The European news agency AFP picks up a report from another German magazine saying that Airbus will “nearly” deliver 13 A380s this year (which by our interpretation means Airbus “won’t”) and that it will miss its target of 25 deliveries next year. Here is AFP’s story. Our inquiry of Airbus produced this response, quoting directly:
Airbus and in particular Airbus President and CEO Tom Enders have said on several occasions that our delivery schedule has always been and will continue to be a major challenge for the company until the ramp-up is completed.
Currently, the A380 is in the critical phase of steep production ramp-up and the changeover from the recovery wiring installlation (Wave1) to the ramp-up mode with full industrialization (Wave2) .
A major review of the programme at this transition phase is standard practice.This includes amongst other things an analysis of the progressive shift of the experienced work force from Wave1 to Wave2 aircraft, the ramp-up readiness of the supply chain and the status of the delivery schedule. It confirms the continues tight management attention the A380 programme and its delivery schedule are receiving in order to satisfy our customers.
So far, no A380 customer has specifically revealed new delay timeframes although the Reuters report indicated that the first German magazine said Airbus has notified customers.
New, Monday, 715 AM PDT: Airbus spokespersons, reached Monday by European media, decline to comment on the reports of the German publications that it won’t deliver 13 A380s this year or 25 next year, causing EADS stock to fall.
30 month delay on 787?
Flight International reports that Royal Jordanian Airlines believes its order for Boeing 787s could be as much as 2 1/2 years late. Monarch Airlines is also reported to be thinking its 787 orders could be 30 months late, but this one as yet is unconfirmed.
New, 0950 AM PDT: Flight International’s affiliate Air Transport Intelligence reports Lan Chile expects a two-year delay in its 787 deliveries. Writes ATI: “With regards to the delivery schedule of the Boeing 787,” says LAN CFO Alejandro De La Fuente, “It is likely there will be significant delays estimated around two years.”
For all the confidence Boeing expressed on its program update call about its revised schedule, outlining a 15-month delay, it’s becoming clear that its customers are unconvinced. The question for Boeing is how does it deal with the continued skepticism?
New, 120 PM PDT: Boeing issued this press release about the fifth 787 entering final assembly, with some detail about the reduction in traveled work.
More A380 delays or not
In a confusing set of stories, reports suggest that there may be a new round of delivery delays for the Airbus A380. These generated from comments made by Airbus CEO Thomas Enders, who said Airbus is engaged in a major review of the A380 production to assess the delivery schedule of 13 A380s this year and more in succeeding years.
This apparently was interpreted to mean that Airbus might not deliver the 13 airplanes promised this year. A spokesman immediately denied that’s what was meant.
We’re told by two sources–one inside Airbus and one a former Airbus executive–that program reviews are normal and there’s much ado about nothing on this one. The former Airbus executive told us he was puzzled why Enders even made the remarks.
Given the A380’s delay history, any hint of delays–whether founded or unfounded–are bound to cause concern and questions such as expressed in the news reports. This is similar to the trials now experienced by Boeing with the 787 program and fears by 777F and 747-8 customers of knock-on effects to these programs.
The 777F program appears to be on track now that there is no conflict in flight testing schedules between the 787 and 777F, as emerged on a previous 787 revised schedule. Some customers remain concerned–and are predicting–delays of several months in the 747 program, however, because of the level of engineering resources previously diverted to the 787. These customers believe Boeing won’t have time to catch up on the 747 to keep this program on track. Boeing previously pushed back roll-out by three months, according to reports, but has vowed to keep to the delivery schedule even if it means initially delivering a plane that’s about 1% overweight, according to Flight International.
New, 2:00 PM PDT: Speaking of A380 delays, Reuters has this report about Airbus penalty payments to Emirates Airlines for the delays. An excerpt: DUBAI (Reuters) – European plane maker Airbus paid Dubai’s Emirates EMAIR.UL as much as $110 million during the last year in compensation for the late delivery of the A380, of which the Arab carrier is the largest customer, Emirates said.