Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
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- Boeing CEO promises company is turning around…again April 24, 2024
- Solid start for stand-alone GE Aerospace despite cuts to LEAP output April 23, 2024
- SPEEA, Boeing at impasse over safety program, union says April 23, 2024
- Better transparency needed on Boeing’s 1Q earnings call April 22, 2024
Boeing and the Southern strategy?
Steve Wilhelm of the Puget Sound Business Journal (Seattle) has a long story about Southern states “eyeing” Boeing in the wake of the IAM strike. Speculation has been rampant (in peaks and valleys) that Boeing might be fed up with its unions in heavily unionized Washington State and be looking South when it comes time to build its next airplane (or two).
One quote from the story that is filled with irony is:
“If I was a Boeing executive, I’d look at the state of Alabama and see there’s a qualified work force … I’d take a look at the assets we have,” said Stephen Nodine, president of the Mobile County Commission, whose offices are in Mobile, Ala.
Alabama, of course, is the proposed site for the Northrop Grumman/Airbus KC-30 tanker proposed in competition with Boeing’s KC-767, which will be assembled in the Seattle area if Boeing ultimately wins the contract. But what is more ironic is that Boeing’s Integrated Defense Systems denigrated the skills of the Alabama workers during the tanker competition, suggesting they might have trouble building a tricycle if Northrop got the tanker contract. (It apparently mattered not that IDS has a large facility in Huntsville, AL.) Boeing’s Commercial unit cringed at the IDS statement because the Northrop/Airbus production model isn’t that different from BCA’s assembly model, including the high-profile 787 program (in which case IDS may have a point) but to a lesser degree with the 767 itself.
And speaking of tankers, Northrop didn’t even wait for the new Congress and the new president to take office before resuming the tanker wars with an advertisement that got the Pentagon’s chief purchaser up in arms (so to speak). Read about this one here and here.
We criticized Northrop for being slow off the PR and advertising mark in 2007, letting Boeing’s well-oiled machine set the agenda and frame the debate. (Once Northrop got running, it did make up for lost ground and scored some great PR/advertising hits.) But this advertisement, and more so it’s timing, strikes us as very premature. Nobody knows who the decision-makers in the Pentagon will be (and in any event, they shouldn’t be influenced by ads) and we doubt Members of Congress are paying much attention to the tanker debate right now anyway. With four million people expected for the inauguration of Barak Obama and the organization of the power structure in Congress, we suspect the Members of Congress might just be focused on something else right now.
767 sales keep line alive for tanker
Boeing last week announced an order for four more 767s (in this case, -300ERs) that help keep the line alive pending a new competition for the USAF aerial tanker.
Boeing previously booked an order for nine 767s for All Nippon Airways, a customer affected by delays with the 787. Japan Air Lines is expected to take nine 767s as well; there are nine listed on Boeing’s website as unidentified–these are believed to be JAL’s. Another airline ordered two 767s.
All four carriers are 787 customers affected by the delays.
There are now 68 unfilled orders listed on Boeing’s web site for the 767. Boeing’s production rate is currently one a month but it likely will go to two a month as early as 2010.
This is good news for Boeing in keeping the 767 line active while Boeing competes for the KC-X contract. (Good news, that is, which originates from the bad-news 787 delays, of course.)
It’s unclear how the Department of Defense and the Air Force will handle the new round of KC-X competition. DOD hasn’t said if it will simply restart the competition suspended from the GAO decision upholding the Boeing protest or completely restart the competition. If the former, a decision could be rendered within a year and the 767 production rate is moot. If the competition is completely restarted, worse-case, it could take up to four years. Before the 767 orders were placed to take care of 787 customer delays, the backlog was about four years at one a month. The current backlog and production rate gives Boeing four years to keep the line open.
Update, November 11: Lan Chile just announced the acquisition of four 767-300ERs for delivery starting in 2012 to accommodate delays in its 787 order.
Bad news for Northrop?
With Pennsylvania Congressman John Murtha (D-Foot-in-Mouth) suddenly in danger of defeat in Tuesday’s election after calling his constituents racist and rednecks, Norm Dicks (D-Boeing/Washington) is in line to succeed Murtha as chairman of the House Appropriations Committee.
This would be bad news for Northrop Grumman and its effort to sell the Airbus-based KC-30 to the USAF instead of Boeing’s KC-767. Regular readers need no reminder of the dynamics here.
Update, 10:15 PM EST, November 4: Northrop can breath easier; NBC News just declared Murtha was reelected.
Back to the Tanker: Price Competition
A new strategy for the competition to award an Air Force contract for the aerial tanker might be a compromise for the next president, according to this article.
A sidebar to the home page has the following item, which does not have its own URL and may disappear after a few days. So with full credit to the USAF Aimpoint:
AMC: Securing Today’s Energy, and Fueling Tomorrow’s Mission
A 2006 study revealed 82 percent of the Air Force’s total energy consumption is aviation fuel. Air Mobility Command, through its fleet of tankers and airlifters, used 27 percent of that total, or roughly $1.5 billion. For over a year, AMC has undertaken an ambitious fuel efficiency program making use of the best airline industry programs/practices. Doing so not only ensures our mobility fleet operates more efficiently, but will secure today’s energy in order to fuel tomorrow’s missions.
Our Airmen aggressively identified and implemented numerous initiatives to reduce aviation fuel consumption and operate the fleet more efficiently. Here are just a few:
-Removed standard ramp fuel loads using only the required fuel for the mission
-Reduced weight by eliminating excess equipment carried on our aircraft
-Enhanced flight planning with accurate computer programs and shorter, direct routes
-Streamlined ground operations through engine shutdown and taxi procedures while minimizing APU usageTransferred additional aircrew training, including practice emergency procedures, to more capable simulators
-Continuously improved data collection tools and metrics to capture improvements
-Standing up a fuel efficiency office to oversee all fuel efficiency initiatives and policy
Although these initiatives are helping to avoid an extra $120M annual fuel bill, we can’t rest on these accomplishments. Other efficient initiatives can be identified, implemented and performed not just by our aircrews, but by Airmen at all levels — throughout the entire Air Force. From commanders, aircraft maintainers, flight planners, to the aircrews who execute the missions, we all need to ensure we do our part to be able to “Secure Today’s Energy, and Fuel Tomorrow’s Missions!”
Obama considers dual tanker buy
The US Air Force AIM online newsletter reported October 24 that presidential candidate Barack Obama is considering a dual tanker purchase. The article is here.
The same publication has another story quoting a retired general as saying delaying the tanker purchase is unwise.
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 canceled (update 9/12)
Update, Sept. 12:
Reuters: EADS threatens no-bid in Round 4. Here we go again. First Northrop threatened a no-bid. Then Boeing. Now EADS. Or not. Now Reuters reports that EADS denies the first story.
Chicago Tribune: Obama slams McCain for ties to EADS, tanker controversy. It was bound to happen: the tanker is now fully caught up in presidential politics.
Mobile Press-Register: McCain ‘just doesn’t get it,’ claims Obama.
DOD Buzz: Direct sale of KC-30 to USAF pondered. Military.com’s blog reports some Northrop supports are trying to figure a way to offer to sell 20 KC-30s to the Air Force on a “commercial deal” that would by-pass the ordinary procurement process. Separately, we learned from two sources that US cargo airline Atlas Air considered a plan to buy the winning tanker and provide fueling services to the USAF.
Update, Sept. 11:
DOD Buzz: IAG does a 16 minute podcast with DOD Buzz, relating a conversation with US Rep. Norm Dicks (D-Boeing) about a possible split buy on the tanker (right at the top of the podcast); and the possibility that Northrop might offer a commercial deal to sell 20 KC-30s to the USAF (about 11:45 minutes).
Steve Trimble at Flight International has one of his as-usual insightful blog items.
Politico: Tanker delay may help McCain.
The Motley Fool takes a whimsical look at the tanker debacle.
Update, 7:00 PM Sept. 10:
Business Week reports that EADS is pondering a legal challenge to the DOD decision to cancel the competition.
CNN/Dow Jones: EADS howls over contract cancellation.
AFP (Europe): Politics charged in cancellation.
Seattle Times: Timeline in tanker saga.
September 9:
The Wall Street Journal reports the Department of Defense has canceled the competition for the KC-X tanker. The report:
The Pentagon cancels tanker competition, saying it’s impossible to pick a winner by January. The Department of Defense is expected to notify Congress and the companies today. Full article to follow.
Bloomberg now also reports cancellation. Here is an update with more information.
Wall Street Journal: Here is the full article, but paid subscription may be required.
This is another stunning twist in the tanker saga. More news to come.
DOD Buzz has this piece.
Our take: We agreed with Boeing that six months was reasonable to do the re-bid, but we don’t know why the analysis could not have transcended administrations. Although the top leadership at the Pentagon might change (even though there has been plenty of speculation that DOD Secretary could stay on, no matter whether McCain or Obama is elected), presumably the evaluators would not change–only the deciders. This development is not good news.
Update, 9:15 AM PDT: Boeing CFO James Bell told a Morgan Stanley conference that the DOD has canceled the procurement and an entirely new Request for Proposal process will begin. This is an important distinction from postponing the competition. See the last bullet point of our post of Bell’s presentation.
Update, 10:45 AM PDT: Here is the statement by Defense Secretary Robert Gates:
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
Back to the tanker
A few interesting stories today on the USAF tanker saga:
Business Week: Boeing’s tanker challenge.
Reuters: US arms buyer faults Boeing. This story quotes a Jacques Gansler of the University of Maryland who now sits on the Defense Science Board. If memory serves correctly, Northrop Grumman partially funded a study at the U of M Gansler oversaw on the tanker. No mention of this is in the story.
Note: Be sure and check out updates to posts below on the 787 and the best-and-final offer.
Update, August 31:
The Tacoma News Tribune has this long analysis on the tanker and whether Boeing should press on.