Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- RTX Q1 2025 Earnings: GTF Talk Takes A Back Seat To Tariffs April 22, 2025
- Tariffs Tumult Takes Over GE Aerospace Q1 2025 Earnings Call April 22, 2025
- Boeing reports mixed results of latest employee survey, but middle management and officers remain key obstacles April 22, 2025
- Hopes for 1Q financial progress turns into bumpy ride for Boeing April 21, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 18. April 18, 2025
Weak Euro helps Airbus vs. Boeing
The weak Euro at its present level could help Airbus lower the cost (mostly in Euros) and therefore the price (entirely in dollars) by as much as 10%, according to Charles Armitage, an aerospace consultant based in London.
Check out this story in Aviation Week.
This is bad news for Boeing generally and for the KC-X competition specifically. This could put pressure on Boeing Commercial Airplane prices.
WTO vote watered down, meaningless
We’ve gotten a hold of the US House amendment that was approved in the matter of the WTO subsidy issue in the KC-X competition–which Boeing and its supporters touted as a key victory to ensure the subsidies found by the WTO to be illegal and which would be considered in the evaluation if the Senate goes along–and the final version, which as adopted is meaningless pulp.
The adopted language is far different than what was initially proposed.
Here is what Boeing supporters in the House suggested: Original Amendment.
Here is what what actually adopted: Approved Amendment.
The Original Amendment was a clear violation of the WTO rules, which provide that no complaining government can impose self-help prior to completion of the entire WTO process, including the issuance of the Final Report (which has been done in the US vs Airbus case), appeals (not done) and WTO authorization for sanctions (not done).
Let’s talk about the planes
Update, June 4: Reuters has this recap from Jim McNerney’s appearance at an investors’ conference in which he says EADS could win the tanker competition on price–a key point of our column below.
Original Post:
Note: this is a very long column.
In a previous post, we lamented that the debate over the KC-X procurement seemed to be about everything BUT the attributes of the planes offered by Boeing (the KC-767 NewGen) and EADS (the KC-45, based on the Airbus A330-200).
The public relations campaign and the shrill political posturing has been about the WTO trade dispute between the US (Boeing) and the EU (Airbus) over illegal subsidies to both companies and whether these should be included in the Pentagon’s evaluation; about jobs; about extending the deadline to submit bids so EADS can do so; and about freezing Obama administration appointments in a particularly snitty move by an EADS Senator.
None of these has anything to do with how the USAF evaluates the plane. The USAF evaluates the equipment on the merits of performance, capabilities, life cycle costs, military construction costs (MilCon) and a bunch of technical requirements, 372 in all.
If the airplanes’ costs come within 1% of each other, another 93 discretionary criteria will be scored, including exceeding capabilities.
Will WTO vote really matter?
Update, 0815 AM PDT: Boeing just responded to email questions posed last week, mainly dealing with WTO issues but also with the airplane. Here is the exchange.
Q. How can Boeing and its supporters be pursuing legislation in Congress that amounts to self-help, which is illegal under WTO rules?
A. I think this question is best answered by the sponsors of the legislation.
Q. If the Northrop mark-up of 10%-15% is correct and even if you take into account the WTO findings on Airbus @ $5m per plane (which would be illegal under WTO rules, but supposing this is done anyway), the elimination of NOC seems to more than make up for any such penalty, what is Boeing’s reaction to this math?
A. We won’t have a reaction to any hypothetical pricing scenarios. The U.S. Air Force will evaluate price in this competition.
Q. Do you agree that a WTO finding against Boeing would likewise have to be assessed by USAF and added back into Boeing’s cost?
A. You might want to engage the USTR concerning potential “findings” in the future.
Q. Please update Boeing’s previously stated, generalized concern about the fixed price aspect of the contract. Is this a continuing concern and how much of a concern is it to the company? How much affect does this have on the ability to submit “a financially responsible proposal”?
A. We stated previously that stable, clear requirements and mature technologies are critical to a successful fixed-price development acquisition. The current acquisition approach will be successful if (government and industry in partnership) adhere to these parameters. Boeing is committed to working with this contracting approach in partnership with the customer as the process moves forward.
Q. Please comment on the risk factors to Boeing of having a developmental airplane derived from the troubled Italian tanker platform, and how much uncertainty this adds to creating a financially responsible proposal.
A. I’m not sure why you’ve focused solely on the Italian KC-767…especially since we’ve delivered all four KC-767Js to our Japan customer and they’re flying real missions in operational squadrons. That said, we have mitigated tremendous risk through our international tanker programs and strongly believe we can limit risk in our U.S. Air Force offering.
Original Post:
The US House of Representatives last week voted to direct the USAF to take into consideration the WTO finding that Airbus illegally benefited from improper subsidies during the development of a family of airplanes.
This includes the A330-200 on which the EADS KC-45 is based. EADS plans to bid this airplane in the USAF KC-X competition.
The US Senate must go along. We don’t know at this point if this is something the President must sign or not.
Never mind that this action is completely illegal to the very WTO rules Boeing, the US Trade Representative and the Congressional supports seem to cherish.
But does it really matter? The answer may surprise everyone, but it may very well not matter. EADS still could offer an airplane that will be Boeing on price.
Here’s why.
So’s your old man
More mirthful back-and-forth between Boeing and EADS.
Boeing today fired off a rebuttal ad to the EADS “Get Real” ad published right after it got back into the KC-X tanker competition.
Boeing also posted this message on its website:
Hoisted on own petard?
Update, May 19: With all the references in Comments about the GAO ruling, we are linking the 150+ page report here, courtesy of Sgt. Mac: GAO KC-X 2008 Protest
Update, May 17, 4:30PM PDT: Reuters has this story that Boeing will bid for the tanker “despite concerns.”
Original Post:
We had been planning to write a column about whether Boeing may be in danger of being hoisted on its own petard when two news items appeared Friday (May 14) that accelerated this column.
The first appeared in Army Times/Defense News (sister publications), quoting an unidentified Boeing executive as saying Boeing might night bid on the KC-X because officials feared it could not win the contest because EADS would be able to undercut the price due to subsidies at Airbus. (This also would explain the question we raised in our post, Why aren’t they talking about the airplane?)
The second story appeared in The Seattle Post-Intelligencer refuting the Defense News piece.
Why aren’t they talking about the airplane?
In the previous post, we talk about the WTO issue being pursued by Boeing and its supporters. In this post we ask, “Why aren’t they talking about their airplane?”
This is about the strangest marketing campaign we’ve ever seen, and one of the things we do is marketing. Boeing has a product–but it’s nowhere to be seen in the public relations campaign.
Isn’t the KC-767 worth talking about?
Playing with fire
The renewed effort by Boeing and its supporters to focus on the WTO ruling against Airbus on illegal subsidies in the KC-X competition (see preceding post) is playing with fire.
The hyperbole by Washington State’s Members of Congress is particularly shrill.
The Reuters article linked in the preceding post reports some key issues that need to be remembered: there remains a pending ruling on the EU complaint that Boeing received illegal subsidies; both sides can appeal; and if the US unilaterally imposes penalties, which a Congressional law mandating consideration of the ruling would amount to, this violated WTO rules.
Boeing goes to Congress on KC-X
Update, May 13:
DOD refuses to give award date
In case anybody wonders, the effort to force DOD to add $5bn (the amount found Airbus illegally benefited on the A330-200) to the KC-X contract price equals $28m per airplane.
11:00 AM PDT: We just received this statement from EADS North America:
“The Boeing Bill is one more attempt to avoid competing on the merits of the tanker. Unlike EADS North America, Boeing doesn’t have a tanker that meets requirements, it faces tremendous technical risk in producing one and is therefore determined to take away the warfighter’s right to choose. We believe our fighting men and women deserve the most capable system—and they deserve the right to select it.”
4:00 PM: More from the “So’s your old man” department, this one also from EADS North America:
1. All reimbursable launch investment loans for A330-200 aircraft development have been repaid – with interest. In fact, since 1992 Airbus and EADS has averaged repaying $1.40 for every dollar received in reimbursable launch investment (this figure covers more than the A330-200). Boeing has received over $16 billion in federal grants, $6 billion in state and local subsidies and over $2 billion in anti-competitive export subsidies already declared to be illegal by the WTO ($1 billion of which came after the WTO ruling) (Editor’s note: this refethis relates to a previous WTO ruling that Boeing illegally benefited from Foreign Sales Corporation [FSC] tax breaks). In fact Boeing is the only company that has been formally sanctioned by the WTO for illegal export subsidies—including illegal support for the 767. (Editor’s Note: FSC and the expectation that the 767 will also be a part of the pending WTO ruling against Boeing, due next month.) No Boeing subsidies have been repaid and all should be considered in the context of Boeing bill introduced today.
2. Boeing also receives significant subsidies from foreign governments. In fact, Boeing has moved the design and manufacturing of major components overseas to secure foreign government subsidies. To date, Boeing has taken at least $1.5 billion from Japan and more than $500 million from Italy to put manufacturing jobs in those countries.
3. A very important issue is that this bill would put the US in the position of violating the WTO agreement. It is illegal under the terms of the WTO treaty to act punitively before the WTO process is completed (it’s called “self help” in the treaty). This is clearly a case of prematurely using WTO findings to justify punitive actions. Article 23 of the Treaty forbids such action and the US could be found to be a treaty violator and subject to sanctions-all for the benefit of Boeing.
Original Post:
Boeing has gone to its supporters in Congress to introduce a bill to force the Pentagon to take into consideration the adverse WTO ruling in the Airbus subsidy case, according to this Reuters report.
Read the report carefully: there are several key points in it, among them:
KC-X’s latest twist: Contract after the election
Update, May 5:
The Pentagon denied the Defense News story. Here’s Defense News’ own report.
Original Post:
In a move that probably surprises no one, the Defense Department says it will issue the contract for the KC-X on November 12, which just happens to be after the November elections.
Here’s the story from Defense News.
Gollleeee. Whoda thunk it?