GAO Protests often fail, Boeing concedes

Reuters published this piece late Thursday about Boeing’s concession that protests over government awards often fail.

Boeing, of course, is talking about its protest to the Government Accountability Office over the USAF award to Northrop Grumman for the KC-45A tanker contract.

This isn’t news–Boeing said as much when it filed the protest in March. But as the clock ticks down to the June 19 deadline for the GAO to release its findings, we’ve noticed something else that’s been ratcheting up significantly: the press, politician and labor activity on Boeing’s behalf.

In recent weeks, there have been an increasing number of Op-Ed pieces, actions by state legislatures condemning the award, calling for investigations, and this week alone the launch of a new pro-Boeing website, the issuance of a “white paper” (see our previous item on this one) and the 180 degree about-face by Loren Thompson of the Lexington Institute, who must be dizzy from about-facing so often. (He was for Boeing before he was for Northrop before becoming for Boeing again.) There was even an e-mail blast to Members of Congress that was all about the dastardly EADS (Northrop’s prime sub-contractor and parent of Airbus) and very little about the attributes of the KC-767, signed by about a dozen military types from several branches of the service of various ranks.

We’ve seen this same pattern of activity before. In the weeks leading up to the February 29 tanker award announcement, similar pro-Boeing stuff was coming from similar constituencies with similar messages. We concluded then that Boeing was laying the groundwork with Congress in case the award went against it (which we, and universally all other observers, did not expect). We believe this ratcheting up of activity is in the expectation that Boeing will lose the GAO protest–and this time Boeing expects that as well. (Which means that we, having called it wrong on the award, won’t be surprised if the GAO upholds the protest.)

We understand that the GAO has completed its work, but don’t know this definitively. Watch for even more activity on behalf of Boeing between now and the June 19 deadline for the GAO to announce its decision.

“White Paper” rips Tanker Award

A labor union of technical engineers issued an 11-page “white paper” today ripping the USAF tanker contract award to Northrop Grumman and the KC-30 over the Boeing KC-767. The two page press release summarizes the white paper findings.

The press release focuses entirely on EADS, parent of Airbus and maker of the A330-200 on which Northrop’s offering of the KC-30 is based. Northrop’s identified as a “minority” partner.

(During a conference several months ago, Northrop acknowledged that about 50% of the contract revenues flow to EADs/Airbus. Engines, in this case provided by GE (an American company), typically represent about 20% of the cost of a commercial airliner. This clearly makes Northrop a “minority partner.” But it’s important that although 50% of the revenues may flow to EADS/Airbus, payments to suppliers to EADS/Airbus also flow back to suppliers, with more than 200 based in the US. Northrop says that about 60% of the KC-30 by value is US-sourced.)

The White Paper is replete with errors and misrepresentations and cites “facts” without sourcing them.

  • It claims the KC-30 isn’t as structurally as sound as the KC-767 without backing this claim up.
  • It states (accurately) that currently only 1% of all cargo carried by the Air Mobility Command is carried by tankers but ignores statements and conclusions by the Air Force that a new way of carrying troops and cargo is required for the future, requiring a multi-role tanker-transport.
  • It claims EADS and Northrop “have conceded” the KC-30 is “much more costly” to operate than the KC-767; they’ve done nothing of the kind. They have conceded the KC-30 burns 6% more fuel than the KC-767, a far cry from the 24% cited by a Boeing-paid consultancy.
  • It claims Boeing has delivered 2,000 tankers in 75 years–but ignores the fact that the last Boeing-manufactured tanker, the KC-135, was delivered 42 years ago, and that the last tanker delivered by McDonnell Douglas, now a part of Boeing, was delivered 20 years ago.
  • It correctly notes that the KC-30 is in testing but ignores the fact that the KC-767AT proposed by Boeing for the Air Force is only a “paper” airplane; and the the KC-767 tanker delivered to Japan in February and March was years late and still hasn’t entered service; or that none of the KC-767 tankers ordered by Italy have been delivered and are years late.
  • It correctly notes that Boeing has designed an delivered five generations of aerial refueling booms but the sixth generation proposed to the Air Force is only a paper design. It correctly notes that the EADS boom is in testing.
  • It fairly questions past performance issues with Northrop and EADS but ignores the past performance issues of Boeing, particularly with the Italian and Japanese tanker programs.
  • It charges that 44,000 US jobs will be “exported.” This is the flimsiest claim of all. Boeing has never validated how it asserted the KC-767 will support 44,000 US jobs. Northrop initially claimed 25,000 US jobs will be supported, for a net difference of 19,000 jobs that would be subject to “export.” But Northrop later revised its figure that the KC-30 will support 48,000 jobs and “showed its math.” We’re still skeptical of this figure (how can a plane with less US content than claimed by Boeing for its KC-767 (at 85%) support more jobs?), but Northrop at least has been public about how it claims its number while Boeing refuses to do so.
  • It visits the claim of “illegal” subsidies to Airbus. Until the World Trade Organization rules in this case, perhaps as soon as next month, these are still allegations–as are the claims by the European Union that Boeing also received “illegal” subsidies. This issue is a red herring all around.

The problems with the White Paper go on and on.

McNerney Interview

Business Week has this interview with Boeing’s Jim McNerney.

Honoring WWII USAF

The Collings Foundation is a non-profit group that has four restored, flyable World War II aircraft that tour the US to generate remembrances for the members of the USAF who served, and died, in World War II.

The Boeing B-17, North American B-25 Mitchell, Consolidated B-24 bombers and the North American P-51 fighter will be at Seattle’s Boeing Field June 20-22. Ground tours, and flight-rides, are available for donations.

We’ve had the opportunity previously to ride in Collings’ B-24 (and before that, in the Commemorative Air Force’s B-17). These were thrilling experiences that provide the open-air roar of four piston engines. Merely taking a ground tour provides an amazing experience of just how small and cramped these bombers are–at a time when they were considered giants of the skies.

Check out the Collings Foundation website for the full tour schedule. For those of us in Seattle, take advantage of the ground tours, which are $12/adults, $6/children. The flight-rides are considerably more expensive (credit cards accepted) but well worth the trip and the donations are tax deductible.

Photos may be seen here.

Another You Read It Here First

Bloomberg reports today that Airbus cut its A380 sales forecast this year to 20 from 30, but we reported this last week on our Corporate Website.

“No” to A350 aid

Bloomberg News reports that Airbus has asked for US$18 billion in financial aid for development of the A350 XWB. (Holy smokes, the price of things has gone up.) Here’s the report from The Seattle Times.

Boeing, predictably, doesn’t like the idea. Neither do we.

We’ve long been on record that we don’t like corporate welfare, however it’s masked. This includes launch aid, government loans, research & development funding, tax breaks or anything else. This applies to Boeing, Airbus, Bombardier, Embraer, the Chinese, Japanese and Russians.

Airbus says it wants the loans to have a level playing field for the A350 vs. the 787. Two of the three models are actually competitors to the Boeing 777. If one accepts the Airbus rationale at face value, then it’s aid request should be trimmed by two-thirds to in essence cover only the A350-800 (yes, we know the impossibility of segregating out the one model, but you get our point).

But whatever is done, we still don’t like it. Not for the reasons Boeing complains about. We just don’t like corporate welfare, period.

About face on the tanker?

In an interesting piece that looks like an about face, Loren Thompson of the Lexington Institute now sounds like Boeing when it comes to the USAF tanker award. Thompson just published this piece on his website challenging the Air Force to answer a bunch of questions that are right out of Boeing’s playbook. Setting aside for the moment that the questions may well be answered in the GAO protest investigation, why Thompson is asking these now is ripe for speculation.

Immediately after the award, Thompson–the beneficiary, apparently, of USAF leaks on the award, didn’t raise these questions and praised the Air Force for an open and transparent process. He’s since been the target of more than a little criticism about receiving Air Force leaks. In fact, on March 18, US Rep. Todd Tiahrt (R-KS), a hyper Boeing supporter (and former Boeing employee), wrote Michael Wynne, secretary of the Air Force, demanding to know how Thompson knew the Air Force was going to award the contract to Northrop (albeit only a half hour or so before the announcement–Editor) and knew the rationale behind the decision before Members of Congress did. (The latter is probably a bigger sin than the award to Northrop, in the view of some Members of Congress. Heaven help those who step on Congressional protocol.)

In the letter, Tiahrt requested that Wynne provide:

  • All documentation briefed or provided to Thompson regarding the KC-X decision;
  • A list of government officials who discussed the tanker decision with Thompson on Feb. 29, the date the award was announced;
  • Northrop’s official bid proposal;
  • Boeing’s official bid proposal;
  • Any appropriate data to the competition and award.

More: We can’t help but speculate–and that’s all it is–that with this kind of heat on leaks to Thompson, perhaps his sources, and his answers, have dried up on this issue and what we’re seeing now is a bit of frustration emerging.

We’ll remind readers that although we did not support Boeing’s filing of a protest, once it was filed we agreed that it needed to be vigorously pursued and that all of Boeing’s questions needed to be answered. These include the same questions Thompson raises. Only by addressing the questions thoroughly can the integrity of the USAF process be affirmed or disallowed (for the lack of a better term). Also reminding readers, our position was and is that if the GAO affirms the USAF decision, Boeing and its supporters should respect this decision. If the GAO upholds Boeing’s protest and recommends a re-run of the competition, the USAF Northrop and its supporters should likewise respect this conclusion (the USAF is not legally bound by a GAO recommendation, it should be noted).

Of course, a compromise can always be worked out by doubling the procurement and splitting the contract. As we wrote last week on our Corporate site, we believe there are missions for which the KC-767 is better suited than the KC-30 and vice versa. Furthermore, replacing 500 old KC-135s at the current proposed rate of 12-18 a year is ridiculously low. The US is spending something like $1 billion a day in Iraq (which Iraqi oil production was supposed to pay for, it might be remembered, according to Vice President Cheney); doubling the tanker production equals a month-and-a-half of expense of the Iraq war–spread out over many years it would take to produce the tankers. It’s a good investment.

New, Wednesday, 700 AM PDT: James Wallace at The Seattle Post-Intelligencer interviewed Thompson–here’s his report.

Speaking of aerial tankers, has a nice photo here.

White House threatens veto on KC-45A curbs

The White House threatened to veto a House of Representatives bill that includes, among other provisions objected to by the White House, provisions that would undo the USAF KC-45A tanker award to Northrop Grumman, according to this Reuters report.

It’s a lengthy article and the references to the tanker controversy are minimal, but it’s significant that there appears to be White House support for Northrop’s contract. This may explain what is widely perceived to be a Boeing strategy to delay the contract through protests (and appeals, if its protest is denied by the GAO) and political tactics with Congress until after the next president takes office–on the assumption the next president will be a Democrat. Both Hillary Clinton and Barack Obama, the Democrats, have questioned the contract (though Obama is more temperate in his comments than Clinton). John McCain, the Republican, is no fan of Boeing and blocked the 2004 contract to Boeing after discovering improprieties.

Airbus worth “less than zero”

This Bloomberg report quotes Lehman Brothers’ aerospace analyst as concluding there is no value attributable to Airbus reflected in the share price of parent EADS. The value of EADS’ non-Airbus business make up all the share price. Morgan Stanley analysts come to essentially the same conclusion, according to Bloomberg.

Things only “seem” to be the case

There’s a very subtle difference in the language of Boeing’s press release today touting its KC-767AT tanker attributes.

Ever since the USAF awarded the KC-45A tanker contract to Northrop Grumman, Boeing has said the Air Force wanted a “medium” sized tanker and told everybody who would listen (and many who wouldn’t) that the Air Force repeated told Boeing that it wanted a “medium” tanker.

The press release today states, in part:

“The Air Force Request for Proposals seemed to call for a medium-sized tanker designed to meet the unique needs of today’s expeditionary Air Force.” (Emphasis added.)

This “seemed to call” language is a far cry from the definitive statements made by Boeing since the February 29 award.

There’s another element beginning to emerge to all this “size” issue. Information that’s been provided to us within the last week suggests that as far back as 2006, Boeing was citing Air Force “indications” about a “medium” size tanker. We’re still looking into this and we don’t yet know where the information will lead us, but there may be more to all this than currently is known outside of a very few circles.