Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Airbus sees Boeing as medium-term competitor, with Comac next June 14, 2025
- Boeing bullish on 20-year forecast, despite short-term headwinds June 14, 2025
- Embraer’s 20-year market forecast under 150 seats: fewer turboprops, jets about the same June 14, 2025
- Airbus Canada CEO: Airbus is here to stay in Canada June 14, 2025
- Little known, most unknown in Air India 171 crash June 13, 2025
Politics continue on the tanker
(Special projects precluded us from updating last week, so some of the links below backtrack into then.)
Politics continue to plague the tanker program even though the Bush Administration has punted the decision to the next presidency. Today we play catch-up with selected stories of interest.
Update, September 26:
Inside Defense reports that US Rep. John Murtha (D-PA), chairman of the House Appropriations subcommittee, says a split buy between Northrop and Boeing is the only way to recapitalize the USAF tanker program any time soon.
Murtha generally has been supportive of Boeing’s KC-767 tanker proposal.
He’s added language to the 2009 defense appropriations bill directing the DOD to study the feasibility of a split buy, Inside Defense reports. Murtha, according to the publication, acknowledged that Boeing and DOD don’t like the idea and he didn’t know if Northrop does, “But let me tell you something, we’re not going to have tankers if we don’t do that, I’m convinced,” Inside Defense quotes Murtha as saying.
Murtha predicted that in a re-compete, Northrop is likely to receive the order because its plane is ready to go.
Inside Defense is a paid-subscription service only but readers may register for free and receive three free articles (and then pay a la carte thereafter). This article may be found here, with the registration process the first thing you will see.
Update, September 25:
Be careful what you ask for. US Rep. Norm Dicks (D-Boeing/Washington) announced that he’s inserted language in a new House bill to require the USAF or DOD to review any adverse ruling from the World Trade Organization on the “illegal” subsidies complaints filed by the US Trade Representative and the European Union against Airbus and Boeing. He has said for years that Airbus received “illegal” subsidies and presumes the WTO will back up the USTR complaint. Most objective observers, including us, agree with his biased viewpoint on this one.
But most objective observers, including us, also think the WTO will find Boeing received “illegal” subsidies as well–something Dicks and other Boeing supporters in Congress seem blind to.
The full House has to approve Dicks’ language (likely) and then the Senate has to agree (unlikely).
A decision by the WTO is overdue.
Update, September 24:
Mobile Press-Register: Gates against tanker split buy.
Aviation Week: DOD’s Gates eyed changes to RFP before canceling contract.
JD Crowe at The Mobile Press Register is at it again.
Update, September 23:
Associated Press: DOD Secretary Robert Gates says the next administration should buy the cheapest tanker.
Original post:
Washington Times: [Tanker] Rigged in Boeing’s favor. US Sen. Richard Shelby (R-Northrop/Alabama) writes in an Op-Ed piece that DOD’s decision punting the tanker to the next presidency was nothing more than a sop to Boeing.
JD Crowe at Mobile Press-Register
Business Week: Boeing’s CEO beat the Pentagon, but lost some, too. Boeing CEO Jim McNerney gambled in taking on the Pentagon over the tanker, and won.
Defense Industry Daily: A400M delays creating contract controversies. Airbus’ sole military program isn’t going too well. (We count the KC-330 as a broader EADS program; the A400M is Airbus.)
Washington Post: Defense buyer says Northrop’s bid was $3bn cheaper than Boeing. DOD’s John Young said the smaller KC-767 should have been cheaper to buy than Northrop’s KC-30–but it wasn’t. We say perhaps the US taxpayer was going to benefit after all from all those “illegal” subsidies alleged to be provided to Airbus.
Inside Defense: Flyoff will determine tanker win. The Air Force’s top buyer predicts a flyoff between Boeing and Northrop for the tanker contract. Inside Defense is a paid subscription service but with registration you can get three freebies, including this article.
Los Angeles Times. Northrop entitled to termination fee. The Pentagon says Northrop is due tens of millions of dollars for the canceled tanker contract.
What now for the tanker?
In today’s column we discuss the tanker, how much the IAM strike is costing Boeing every day and how long the strike may last.
Out of all the twists and turns in the seven year old effort to replace aging Boeing KC-135 aerial tankers, no one we spoke with predicted that the Department of Defense last week would dump the entire competition in the trash can. What happens next and what are the ramifications for Northrop, EADS, Boeing and the Air Force?
A full re-start by the Air Force/DOD on the competition will probably take anywhere from two-four years before a new contract is awarded. There would have to be a full reassessment by the Joint Requirement Oversight Council (JROC) and the Request for Information (RFI) process; the Defense Acquisition Board reviews and approval of the Request for Proposal; determination of the Source Selection Authority; and the actual evaluation process. Plus any additional appeals of the decision.
Could the new Administration, whether it is McCain or Obama, simply pick up more or less where the Bush Administration left off? We suppose that in theory it could but in practice it’s unlikely. Boeing has been very clear that it views any changed to the specifications for a larger airplane as requiring a compete re-start, and having won its political point and getting DOD Secretary Robert Gates to cancel the Northrop Grumman award, Boeing and its supporters are hardly likely to support anything absent a full do-over.
In the meantime, in what is a reversal of rhetoric by Boeing and DOD, both now take the position that the aging KC-135 tankers are good enough to last while the competition is re-run. Throughout the competition both originally took the position that there was great urgency to proceed with the tanker replacement program because the KC-135s were essentially ready to fall out of the sky. (A separate government-funded study took a different view, arguing there was plenty of life left in the airplanes.) After Boeing protested the Northrop award, Boeing’s spin shifted to “what’s the hurry? There’s plenty of life left in the KC-135s.” Boeing ought to know; it also has the maintenance contract on the KC-135 fleet.
Be that as it may, who are the winners and losers in the decision by Secretary Gates to punt this to the next Administration? Here’s our take:
Winners
- Boeing, its lobbying efforts, its Congressional supporters and Boeing’s labor unions. Boeing’s incredibly effective lobbying campaign certainly won the battle. But will it cost Boeing in the coming war? See Potential Losers.
- Boeing, also because it gets a third shot at the tanker contract in what will be Round 4 of the process (including the abortive re-bid that was just ash-canned).
- Boeing, because plans by Airbus to build the A330-200F in US-dollar based Alabama are put on hold. This will keep pressure on Airbus for the Euro-dollar exchange rate and complicates Airbus’ decisions over production for the A350.
- Washington State and Kansas. The KC-767, or if Boeing elects to offer a KC-777 and should it be selected, will be built in Washington and modified in Kansas. Gates’ decision keeps them in the game.
- The Taxpayers, if you believe Boeing’s assertions that Northrop’s KC-30 is too big, too costly, and will (essentially) bankrupt the USAF in 40-year life-cycle operating costs. (OK, Boeing didn’t actually make the bankruptcy claim but you get the drift.) Read more
Tanker update, 9/3
DOD Buzz has this interesting report on the prospect of a split buy for the tanker competition.
AFP, the European news agency, reports DOD/USAF officials are worried another tanker protest will be filed, no matter who wins Round Three.
Reuters has this report on a USAF general urging quick action.
Update, 12:50 PM PDT, Sept. 4: In true military fashion, it’s hurry up and wait–the final RFP for the tanker has been delayed another week, according to this report in The Hill newspaper.
Update, 4:45 PM PDT, Sept. 5: DOD has tough decision on tanker
Predictable and disappointing
Northrop Grumman’s opposition to granting Boeing’s request for a six month response time instead of 45-60 days for the re-bid on the KC-X competition is predictable and disappointing.
Boeing also threatened to no-bid the contract if it doesn’t get its way on the request.
As readers know, we have always felt the KC-30 was the more capable airplane for the KC-X than the KC-767 offered by Boeing. We’ve sided with Northrop on any number of issues during the competition. But not this one, as we opined on August 22.
Northrop believes that Boeing is stalling on the bet that the Democrats will increase their majorities in the House and the Senate in the November election, and that this will increase Boeing’s sympathy in Congress. We have no doubt this is part of the Boeing calculus. So what? EADS decided to locate the KC-30 production facility in Republican Alabama at a time when the Republicans controlled Congress. That was hardly a coincidence. Politics have permeated this process from the start and while there is plenty of reason to stop now, that’s not going to happen.
Boeing, in its political gambit, is taking a risk that falls into the “be careful what you ask for category,” however. While it seems certain Democrats will increase their majority in Congress, it’s hardly a sure bet today that they will win the White House. Sen. John McCain is giving Barak Obama a run for his money and if McCain wins, this won’t be good news for Boeing.
We see no harm in giving Boeing the six months. We think both sides will produce a better bid, and that’s good for taxpayers.
Meantime, Steve Trimble at Flight International has an interesting take on his blog about how the re-bid can flip-flop some of the suppliers.
Update, 09:15 AM PDT Aug. 26: Innovation Analysis Group does a six minute podcoast with an Israeli reporter discussing Israel’s plan to update its aerial tanker fleet. The air force could use the KC-135/707 for another 20 years if necessary, but it really wants to buy the same aircraft used by the USAF.
Update, 2:30 PM PDT Aug. 26: So far, no final RFP has emerged from DOD; it was thought that it might be issued yesterday. We’re picking up rumblings that it may not come out this week.
Update, 350 PM PDT Aug. 26: Reuters now reports the final RFP may be issued next week.
Update, 12:00 PDT, Aug. 27: The St. Louis Post Dispatch has this piece looking at the strategic implications of the tanker competition.
6 more months makes sense
(Updated 0730 AM PDT with references to EADS North America COO John Young and the “KC-35.”)
Giving Boeing six more months to come up with a revised bid is a prudent and reasonable thing to do. Here’s why.
- Why not? It gives the appearance of fairness and the fact of fairness. Besides, at the EADS media day immediately preceding Farnborough, EADS North American COO John Young predicted the process would take to March anyway. What’s three more months after that?
- Boeing and Northrop will have to “sharpen their pencils,” as DOD procurement chief John Young (no relation to the EADS-NA John Young) put it, and come up with a better price, benefiting taxpayers.
- Northrop and Boeing may sharpen the technical characteristics of the airplanes, providing a better product for the Air Force. We think a KC-777 is a non-starter–it’s just too big for the KC-X (it’s better suited for the KC-Y or KC-Z, as our chart on our Corporate Website this week shows). The 767-400 is the only logical alternative Boeing has to offer for the KC-X competition, even if it still falls short compared with the KC-30 (also see the chart). But what if Northrop responds with a KC-30 powered by the fuel-sipping GEnx engine? This cuts the KC-30 fuel consumption by 15%, providing a better life-cycle cost and thus benefiting the taxpayer. Airbus already did the analysis of an A330-powered GEnx airplane when it first proposed Version 1 of the A350. The GEnx is now certified for the 787, so certifying it for the A330 should be of little concern. We’ll call a GEnx-powered KC-30 the “KC-35.”
- Northrop could propose a “KC-33,” a tanker based on the larger A330-300, though we don’t think that’s necessary.
- Boeing’s “KC-764” could be proposed with the GEnx, which would improve the performance of the 767-400 as well as the fuel economy. NA KOA (remember them?) proposed such an airframe-engine combination as part of its response to the Request for Information from the Air Force at the start of Round Two of the competition, and it had been in touch with Boeing to partner with Boeing on such a project, so there is already some research completed on this. (NA KOA really wanted to offer a tanker based on the 747-400, readers will recall, and filed a protest with the GAO when Boeing refused to go along. The GAO dismissed that protest and last month dismissed NA KOA’s request for reconsideration.)
- Adding six months to the process won’t make any difference in the operation of the KC-135 fleet.
Giving Boeing another six months will likely produce better pricing, perhaps a better plane and perhaps better life cycle costs. DOD should grant Boeing’s request.
Update, 2:00PM PDT: IAG has a new podcast with Boeing IDS spokesman Dan Beck on the Boeing request for six more months.
Playing the Northrop card
The Wall Street Journal just posted a story with a definitive statement from Boeing saying it may no-bid the tanker contract if it doesn’t get six months to prepare a new bid.
The Department of Defense is thinking about adding 15 days, for a total of 60, to its revised Request for Proposals, expected to be issued as early as Monday.
Northrop Grumman threatened to no-bid the original Round Two RFP if certain language was not changed that it considered favored Boeing and disadvantaged Northrop. The language was changed, Northrop remained in the bidding process and to the surprise of everyone–including Northrop–it won the contract, announced February 29.
The WSJ story confirms what was first reported by Amy Butler of Aviation Week magazine, and downplayed at the time by Boeing. Reuters earlier today had a reference to the possibility of a no-bid. The WSJ story quotes Boeing IDS president Jim Albaugh, as a solid a source as possible.
We think Boeing’s request for six months is prudent and reasonable.
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.
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.