Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- 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
- Natilus: Composite BWB, entry-into-service by 2029, 570 on order April 17, 2025
- China bans Boeing, US parts imports in tariff war April 15, 2025
- Boeing welcomes COMAC competition as Asia-Pacific demand soars April 15, 2025
Congressional move ill-advised
A move in the US House to adopt legislation to overturn the USAF tanker award to Boeing is ill-advised on a number of levels.
According to a story in The Seattle Post-Intelligencer, Boeing supporters in the House, incensed over the award by the Air Force to Northrop Grumman and Airbus parent EADS selecting their A330-based KC-30 for the KC-45A tanker, are thinking about adopting legislation to block the award. The details, according to the news story:
- Prohibit the award of a US government contract to any company found by the US government to be receiving illegal subsidies;
- Direct the USAF to reconsider the competing tanker proposals and “factor in subsidies;”
- Direct the USAF to reopen the bidding and allow Boeing to propose a tanker based on the 777;
- Cancel the NGC contract outright.
There are so many things wrong with this approach.
- The World Trade Organization hasn’t ruled on the US complaint, so the USA’s interpretation of what constitutes “illegal” subsidies may or may not hold up before the international body charged with adjudicating these things. Apparently this minor legal detail doesn’t matter to the members of Congress who are behind this one. Furthermore, following the same concept, the EU has “found” Boeing to be receiving “illegal” subsidies (also a complaint before the WTO). If Congress adopts this clause, then the EU would be perfectly justified in retaliating against Boeing by adopting a similar rule. Bad idea all the way around.
- We’ve written on this one before. The USAF has no expertise to factor in anything about the subsidies. It needs to stay away from this topic.
- Boeing had the option to offer a “KC-777” alone or in tandem with the KC-767. Boeing says it was discouraged from doing so, but as far as we know hasn’t presented written evidence to support this, at least publicly. Presumably this element is detailed in the protest filed with the Government Accountability Office. If so, then the GAO can determine whether the USAF improperly steered Boeing away from offering the KC-777 and equally presumably, this might be grounds to send the competition back to the drawing board (so-to-speak). Congress doesn’t need to be involved on this element.
- This is the worst possible interference in Congressional meddling. It sends a message to any foreign defense company, and any domestic company partnering with a foreign company, that it’s a waste of time to compete for Defense business. As we wrote March 22, Britain’s BAE Systems was the sixth largest DOD contractor in 2006. What kind of message would this Congressional action send to BAE? Boeing partnered with Italy’s Alenia to offer the C27J twin-engine turbo prop for light cargo operations. It so happens the Alenia airplane won this contract. The Congressional action proposed on canceling the Northrop deal has all sorts of horror-ramifications.
Let the GAO deal with this, like the law allows. If the GAO upholds Boeing’s protest, so be it. But if the GAO rejects the protest, Boeing and its supporters need to let this one go. In fact, Boeing would be better off calling off the dogs on this Congressional fight. Boeing might win the battle but lose the war. The EU won’t sit back idly if Congress interferes, and Boeing will be the one to pay the penalty, not some member of Congress with a few district jobs to protect.
As we previously said, Boeing would be far better off to devote its engineering resources to fixing the 787 program and developing the Blended Wing Body for the KC-Y competition scheduled for 2020. A KC-BWB, and subsequent commercial applications of the BWB, would be far more advanced than the KC-30 or anything else Airbus has to offer, and superior to the KC-777. Go for this gold, and the advanced technology that comes with it. Don’t stick with an airplane originally designed in the late 1970s-early 1980s. Think ahead. Be bold.
Blended Wing Body test model. Source: Boeing
Reasoned pro-Boeing tanker piece
Here’s one of the most well-reasoned, pro-Boeing tanker pieces we’ve seen, completely devoid of the histrionics of the Boeing supporters.
Minimal job loss over KC-767 tanker
A survey released today (March 22) released by the Pacific Northwest Aerospace Association of 55 companies in the Puget Sound area (Seattle) finds that the loss of the KC-767 contract to Boeing results in the loss of fewer than 250 jobs. Fewer than 400 jobs would have been added.
Boeing had previously projected the tanker contract would have added 9,000 jobs in Washington State and the local politicians have been in an uproar over the job loss because the tanker contract went to Northrop Grumman. The same PNAA survey projects the KC-30 will 13-22 jobs annually. Northrop projects its tanker contract will add more than 4,000 statewide.
The full results of the survey are here.
Separately, as the reader knows there has been a great deal of focus on the fact that a foreign company (EADS/Airbus) is the prime subcontract to Northrop and there are other foreign subcontractors from Europe involved. The stated concern is whether these foreign suppliers will be reliable to the US in time of war.
We think the concern is less about foreign suppliers than it is about Airbus. BAE Systems of the UK is the sixth largest supplier to our Department of Defense. It builds many of the armored personnel vehicles used in Iraq and Iran and has many contracts to DOD and our Homeland Security department, including contracts involving intelligence matters. Fully one third of BAE’s revenue in 2007 came from the US DOD, equaling the revenue from European defense sources.
EADS subsidiaries other than Airbus already have contracts with DOD, and EADS is a supplier to the Boeing 787.
Speaking of job losses, here’s a satirical look at Sen. John McCain’s role in the tanker controversy.
Northrop’s conference call transcript
Here’s the Northrop Transcript of Northrop Grumman’s conference call refuting Boeing’s conference call the same day. Boeing did not create a transcript of its conference call, a spokesman told us. But fundamentally, by comparing Northrop’s transcript to Boeing’s redacted protest, the reader can get the full picture.
Hopscotching through Europe
We’re sometimes accused of having a warped sense of humor (guilty) that occasionally gets us in trouble with readers. But we simply can’t help ourselves.
We found something in the Boeing tanker protest that we could not help but chuckle at. Boeing has made a real issue over the inexperience of Northrop Grumman and EADS compared with Boeing on building tankers. Boeing also has criticized the production model of Northrop/EADS. The Airbus A330-200 on which the Northrop KC-30 is based in built in England, Spain, Germany and France and the fuselage components will be shipped to Alabama for assembly. (Not unlike the 787 and KC-767 production models, but that’s neither here nor there).
In the protest, Boeing had this gem:
“…The Northrop/EADS…production process…will hopscotch through Europe to produce some planes….”
Who says Boeing doesn’t have a corporate sense of humor?
Separately, Northrop said in a conference call that 50% of the revenue from the tanker will make its way to EADS, which then has to pay its suppliers. We took a stab at assessing this figure on our corporate website in a report. It looks like we were pretty close in our assessment.
Boeing’s Redacted Protest on Tanker
Here’s Boeing’s Tanker Protest filed with the Government Accountability Office over the Air Force award of the KC-45A tanker contract to Northrop Grumman. It’s an executive summary and there’s a lot that’s not in it, but it’s the closest thing the general public will get to reading the file.
Leeham.net updated/Looks at Tanker
Our corporate website, Leeham.net, has been updated with an in-depth look at the Boeing protest of the KC-30 tanker award; the surprise doubling of the Northrop Grumman jobs for the KC-30; and a Wall Street Journal story looking at the reasons for the Boeing protest.
Why Boeing protested tanker award
Because we were traveling this week, we’re a little behind on these sorts of things. Boeing’s press releases concerning the tanker protest don’t do justice to their reasoning. James Wallace of The Seattle Post-Intelligencer posted an audio of the 64 minute conference call in which Boeing executives explain why they protested. You may listen to this audio here.
Podcasts on the tanker and Southwest Airlines
Here’s an 11 minute podcast on the Boeing protest of the tanker award to Northrop Grumman.
Here’s an 8 minute podcast on the latest travails of Southwest Airlines and what might this mean.
Northrop’s job figures
As we noted Tuesday, Northrop issued a press release saying that its KC-30 program will produce 48,000 new jobs. This compares with the 44,000 jobs Boeing claims for its KC-767AT.
We find something really odd here. Setting aside for the moment that Northrop for more than a year claimed its tanker would produce 25,000 and accused Boeing of grossly inflating its figure, and setting aside for the moment the methodology described in the press release, here’s the deal:
The KC-30 has only 60% US content by value vs. the 85% claimed by Boeing (Northrop’s analysis of the KC-767 US content is 69% but that’s neither here nor there for purposes of this discussion). Northrop now claims its airplane, with less US content than the KC-767 (using either the Boeing or Northrop claim of content for the KC-767, BTW) will produce more jobs than Boeing claims. (Boeing also has previously said its number was conservative.)
Considering that one key message of the political battle is the “exporting” of US jobs, Northrop’s new jobs claim comes at an interesting time and with an interesting number despite its tanker’s lower US content.
The Politico, a website that follows all things in the political arena, reports that Northrop and EAD lobbyists are focusing on the jobs that they assert will be created by the KC-30 program.
The timing and new number certainly have the appearances of oddity and desperation.