Update, Sept. 17: While looking for something else we came across this old item from Forbes magazine in 2004-5, when Boeing was temporarily led by the late Lew Platt following the fall from grace of former CEO Harry Stonecipher.
Platt, then the chairman and CEO, had this to say about the start of the KC-X competition then. It sounds like what we are hearing today:
Faces In The News
Boeing’s Platt Cheers Airbus, Says CEO Search Narrows
Chris Noon, 06.15.05, 1:49 PM ET
NEW YORK – Doers and doings in business, entertainment and technology:
Boeing (nyse: BA – news – people ) Chairman Lewis Platt plays hard, but fair. Despite the trans-Atlantic spat over subsidies, Platt doesn’t think Airbus should be frozen out of bidding for U.S. military contracts. “What I’m looking for is a level playing field. Part of that means they should be able to compete for business in the United States,” he was quoted as saying in The Associated Press. EADS, which owns about 80% of Airbus, may be disqualified from bidding on a U.S. Air Force contract for refuelling tankers because of a House of Representatives amendment barring the Pentagon from purchasing goods from any foreign companies receiving government subsidies. Brussels countered Washington’s complaint against Airbus subsidies last month with one of its own.
Aviation Week has a long story on the tanker that explains why cargo capability is desired.
Update, September 16: IAG has a 15 minute podcast with Boeing’s Bill Barksdale on the KC-7A7 program.
Separately, Sen. Patty Murray (D-Boeing/WA) and some 45 Members of Congress call on the USAF to consider the WTO findings in the competition for the KC-X contract, and Murray calls on President Obama to penalize Airbus and the KC-30 tanker for the WTO finding. The Members of Congress say the prospect of awarding the contract to Northrop Grumman (Airbus) would reward illegal action.
Don’t these guys get it? (Obviously not.) When (not if, in conventional wisdom) the WTO also finds Boeing benefited from illegal aid, what the devil will these Members of Congress say then?
As for Murray’s call for Obama to act now, Patty needs to read the WTO rules: Article 23 specifically prohibits premature imposition of penalties. Premature means before the case is over, and the case won’t be over until a final report is issued and any appeals are concluded. We know the EU will appeal and we fully expect the USTR to appeal findings on complaints that weren’t upheld. It will be years before these are completed. In the meantime, it would be illegal under WTO rules for the US to adopt any penalties.
On the one hand, Sen. Murray wants to slam Airbus and Northrop for illegal activities. On the other, she wants to do this before the WTO rules say you can, an action that would be illegal. Sen. Murray can’t have it both ways.
Update, September 15: Flight International reports that Boeing is considering moving its tanker finishing work out of Wichita (KS) in order to lower the price. We can’t help but wonder what US Rep. Todd Tiahrt (R-Boeing/KS) and Sen. Sam Brownback (R-Boeing/KS), two of Boeing’s most hyperbolic tanker supporters, might say about this.
Flight also reports in the same piece that Boeing is going to get very aggressive on pricing, having lost on this point to Northrop Grumman and the Airbus-based KC-30. This is going to be watched very closely by Northrop and EADS, because during the Round 2 USAF debrief, the companies noted that their pricing was shared with Boeing lawyers and they fear this sensitive information will put them at a competitive disadvantage in this round.
We had asked Boeing about this at the time, and Boeing’s tanker team told us the pricing information stopped with the Boeing legal team, precisely because of the proprietary nature of this information. Northrop and EADS aren’t convinced (they haven’t seen any proof on this point one way or the other) and could take action if they come to believe Boeing has an unfair advantage in this round.
Boeing is wasting no time kicking off its campaign to win Round 3 of the KC-X tanker competition.
This Reuters story says Boeing won’t get fancy in its proposed KC-777 or KC-767 (marketed, for the moment, under the generic name KC-7A7, until Boeing understands what the US Air Force wants and then decides which tanker to offer). Boeing won’t offer a tanker based on its proposed KC-767 Advanced Tanker, the so-called Frankentanker that was offered in Round 2 as a paper concept combining major components from the 767-200, 767-300 and 767-400.
Here we go, the first fall-out of the Airbus-Boeing trade Interim Report. Brazil (Embraer) complained to the European Union about launch aid by Canada to Bombardier for the CSeries and asked the EU to force Canada to cancel the package. Predictably, Canada invited Brazil to…do…something.
Update, Sept. 10: When the WTO Interim Report finding Airbus violated certain rules against certain subsidies under the WTO, Boeing supporters were quick and prolific to jump on leaked reports and briefings and some called for the US Defense Department to exclude the Northrop Grumman/EADS/Airbus bid from the KC-X tanker re-compete.
Airbus supporters were strangely quiet, we thought.
Today, Sen. Richard Shelby (R-Northrop/AL) made public a letter to Ron Kirk, the US Trade Representative, on the issue. The full letter may be found here. A key excerpt:
As we discussed, many press reports are not accurately describing the complete results of the report. In fact, on every Airbus airplane there was a claim against, the loan mechanism used was ruled legal under the WTO. It is also my understanding that Reimbursable Launch Investment or “launch aid,” was determined to be an acceptable funding mechanism by the WTO. Reimbursable Launch Investment was used on the A330-200, the airframe that will be offered for the tanker contract. The A330-200 was found to have received investment aid within the permissible benchmarks under WTO guidelines – meaning that the funding received was not found to be a prohibited subsidy. Most importantly, as you stated in our meeting, Boeing was not materially injured by any action taken by Airbus.
This Reuters report tries to make sense of the conflicting claims by the EU and Americans over who won what in the finding issued Friday by the WTO three judge panel.
Here is a somewhat different version of the Reuters report with additional detail.
Other stories of note:
Bloomberg has this report about the massive amount of aid the US pumped into various industries and how this might affect the Airbus WTO finding.
EurActiv.com provides this European perspective, including a suggestion that negotiations to settle the dispute could begin in March.
Metal Miner, a trade publication that follows the metals industries (of no small importance to airplanes), has this take on the WTO stuff, in the same format of our take below.
Below is our take on the whole matter.
A few days have passed and the initial frenzy over the WTO finding that Airbus benefited from illegal aid has died down. Still, since the finding itself has not been made public and we’re all reacting to leaks and “briefings” of partisan interests, trying to make sense of the finding is challenging at best.
Update, Sept. 6: There is a report out of Germany that the WTO found state loans to Airbus to be acceptable. The conflicting information and enigma goes on.
Update, 2:00pm: The New York Times says 70% of the USTR/Boeing complaint against Airbus was rejected by the WTO. The link is contained in the NY Times reference below in the list of articles.
News Flash, 11:35 AM: Reuters is now quoting EU sources that the WTO didn’t hand the US and Boeing the victories that have been claimed:
WTO did not rule Airbus aid illegal – EU sources
BRUSSELS, Sept 4 (Reuters) – Comments that the World Trade Organisation on Friday backed a U.S. complaint against European Union aid to plane maker Airbus are wrong and misleading, EU sources with knowledge of the WTO ruling said.
“The ruling is not a black-and-white case. It simply is not a great victory for the United States,” one source told Reuters on condition of anonymity.
“The claim that the WTO ruled that subsidies given (by the EU) to Airbus for their A380 plane were illegal is wrong and misleading.”
Reuters reported earlier from Washington, citing a person familiar with the case, that the WTO had ruled that billions of dollars in European loans to help Airbus develop civilian aircraft were an illegal subsidy under world trade rules.
Another EU source said aid given by Brussels to the European plane maker for its A350 aircraft was “not mentioned in the (WTO) report and so would not have to be repaid”.
He was speaking after the WTO issued a pivotal, but highly confidential, ruling on subsidies given by the EU to Airbus that stands to impact the global aircraft sector.
The Hill, Aug. 31: This specialty web publication follows Congress and has this long analysis of the prospect of the WTO ruling on the tanker competition, published in advance of the Sept. 4 report.
Key articles on the WTO dispute:
Reuters, Sept. 3: This one is a good recap of implications, reported in advance of the WTO staff report.
Financial Times, Sept. 3: Another good story in advance of the ruling about the broader implications of the US/Boeing win.
AP via Business Week: This story presents a good analysis on how the WTO ruling could hurt both Airbus and Boeing.
Reuters, Sept. 4: This is a great Fact Box recapping all the issues involved.
Reuters, Sept. 4: Boeing’s Defense unit says the Pentagon will have to decide what, if any, affect the WTO action will have on the tanker competition, according to this Reuters report.
The Economist, Sept. 4: Here’s a European take on the WTO trade dispute.
SkyNews (Europe), Sept. 4: As expected, the UK said it will go forward with plans to loan Airbus more than $500m for the development of the A350.
Bloomberg News, Sept. 4: This report says the WTO did find illegal subsidies were provided on the A380, conflicting with the Reuters report above.
Bloomberg News, Sept. 4: It didn’t take long for a Boeing supporter to tie the WTO report to the KC-X tanker bid. Note on comment on this issue below the jump at the end of our assessment:
U.S. Air Force Tanker Bid Should Consider WTO, Rep. Dicks Says
2009-09-04 19:22:06.212 GMT
By Gopal Ratnam
Sept. 4 (Bloomberg) — The U.S. Air Force must tailor its new refueling tanker bid by considering today’s World Trade Organization’s ruling that Airbus SAS received some illegal subsidies, Representative Norm Dicks, a Democrat from Washington state, said in a statement.
“It would be inconceivable for the Defense Department to issue its request for proposals for the new Air Force refueling tanker without including a provision which recognizes the ruling issued today by the WTO panel,” Dicks said in the statement.
“The U.S. government cannot reward illegal market actions that have harmed U.S. manufacturers.”
The Hill, Sept. 4: This specialty web publication follows Congress and has this long analysis on the possible effect of the WTO report on the tanker competition.
Aviation Week, Sept. 4: Reporter Robert Wall, one of the most insightful aviation journalists, is based in Europe and has this very good report on the WTO conclusions.
New York Times, Sept. 4: The NYT says the WTO found some but not all Airbus aid was illegal and that “most” of the financial aid to Airbus was legal.
Financial Times, Sept. 4: This London-based story has some specificity on the illegal launch aid attributed to the A380.
Reuters, Sept. 4: This article focuses on the affect of the WTO ruling on the pending KC-X tanker competition.
There won’t be any immediate practical affect from the World Trade Organization staff report that Airbus benefited from improper subsidies in the development of its entire line of aircraft. The immediate affect will be political and public relations points.
Here are some thoughts about the risks Boeing faces about establishing 787 Line 2 in Charleston vs. Everett. An understanding of Washington State politics is at the core of these musings.
Here is a 16 minute podcast about the conference call and news.
Here is a running recap of the Boeing webcast on the announcement today of the new schedule and $2.5bn charge.
Present on the call are CEO Jim McNerney, CFO James Bell, Scott Carson, CEO of BCA, and Pat Shanahan, VP Products at BCA.
McNerney (JM): There is no question the execution of this program has had challenges and there is work still to be done. We see the 787 adding tremendous value to the customers and Boeing.
Carson (SC): We are contacting customers with timing of deliveries. 787-9 first delivery in 4Q13. As part of schedule adjustment increased time between first flight and first delivery to address issues that might arise during testing. First three test airplanes, suitable for flight testing and certification, have limited commercial value.
Boeing’s Press Release: Note webcast at 0700 PDT referenced at the end.
The 787 is to fly by the “end of the fourth quarter” and frst flight in the 4th quarter of 2010. Production rate to 10/mo is now projected in late 2013, a year later than planned on the previously revised schedule.
During the 2Q09 earnings call, Boeing seemed to be laying the foundation that a forward loss might be forthcoming on the 787 program and some analysts shortly thereafter issued notes predicting there will be one. However, within the last two weeks two analysts that we know of have taken a different view. (We see reports from only six of the aerospace analysts who cover Boeing.) Read more