Checking jobs at Northrop? Check Boeing, too

US Sens. Patty Murray (D-Boeing) and Maria Cantwell (D-WA) have asked the White House to investigate the claim by Northrop Grumman that 48,000 direct and indirect jobs will be created with the KC-30 program.

The KC-30 will be assembled in Mobile (AL) for the USAF’s KC-45A program.

Murray, who is actually D-Washington, is Boeing’s most vocal and hyperbolic advocate (along with US Rep. Norm Dicks, also D-Boeing/Washington), and has vowed to block the Air Force award to Northrop because the KC-30 is based on the Airbus A330-200, and Murray has been leading a crusade against Airbus for years.

Murray, Cantwell and a couple of other members of Congress want the White House to determine how Northrop’s job count increased from 25,000 to 48,000 after the award was announced and after the jobs issue erupted as a major point of controversy, according to this report in The Seattle Post-Intelligencer.

It’s a fair question and one we raised at the time in this report on our Corporate website. We were surprised and skeptical of the doubling of jobs claim as well. Our report details how Northrop got its new number.

Whether one accepts Northrop’s methodology or not is a matter of debate, but at least Northrop offers up one. Boeing does not for its job claims of 44,000 direct and indirect jobs for the KC-767 program, despite having been asked several times by reporters and analysts (including us). Furthermore, there is ample reason to suspect the Boeing figure.

In 2001, Boeing claimed 22,000 jobs were tied to the 767 program when the company was producing these at a rate of 36 a year–two to three times the rate proposed by the Air Force for the KC-45A program. Boeing also claims just 25,000 jobs associated with the C-17, which is has more US content than the 767 (the 767 fuselage, tail and certain wing components are built in Japan, Italy, the UK and Canada while these are built in the US on the C-17). The production rate for the C-17 is similar to that proposed for the KC-45A.

So how can Boeing claim there are twice the jobs at as little as one third the rate for the KC-767 vs. the commercial 767 at its peak? How can there be nearly twice the jobs associated with the KC-767 vs. the C-17? Boeing has never answered either of these questions.

As long as Boeing boosters want an investigation about Northrop’s jobs claim, this should be expanded to include Boeing’s job claims.

Having said all that, on the merits of the award, the entire jobs issue is irrelevant anyway. Jobs were not part of the RFP or evaluation process. This issue has been political from the get-go, and should have no bearing on the award at all; the award should be entirely about technical merits.

ILFC 787s face 27+ month delay for all 74 orders

Leasing giant International Lease Finance Corp. revealed today in a federal filing that its entire order of Boeing 787s will be delayed “an average in excess of 27 months per aircraft and span across ILFC’s entire order.” The company’s parent AIG Group revealed this news in its March 31 first quarter Securities and Exchange filing, accompanying the announcement of a huge loss for the quarter made after the stock market closed Thursday, May 8.

The first of ILFC’s 787s were originally scheduled to be delivered in 2010 through 2017. The delay, which is in line with other customers that have so far publicly revealed the impact, means that the first ILFC 787 will be delivered in 2012 or 2013 (depending on what month the original delivery schedule began).

More, 3:00PM PDT: James Wallace of The Seattle Post-Intelligencer just published this item about Air Canada’s 787 order being 30 months late.

New, Monday, May 12, 1000 AM PDT: ILFC’s own 10Q filing (made Friday) with the SEC is more detailed about its 787 delays.  ILFC says the airplanes will be delivered 19-30 months late, with the average delay in excess of the 27 months reported in the AIG 10Q.

Clarity on the A380 delays, sort of

With conflicting news reports over did the letters Airbus sent to customers specifically refer to potentially new delivery delays in the A380 program or not, we today spoke to one of the airlines at the center of the controversy. We’re told that the reporting media took some liberties with interpretation about what was in the letter and what it meant.

While the carrier declined to provide us a copy of the letter so we could see for ourselves, our interpretation (we deliberately choose this word for the irony here) of the airline’s comment is that delays were not mentioned.

Qantas Airways received the aforementioned letter and told a local newspaper that nothing about a delay was contained in it. The news report of this letter is here.

Enders transcript on A380 issues

Here is the portion of the German interview with Airbus CEO Thomas Enders concerning the A380 situation. “MB” is the German reporter; “TE” is Thomas Enders. The transcript was made available by Airbus.

MB: Good Mood you could need, as not all things went as optimal in the last years.

TE: This can be said like that.

MB: Let’s talk about some of these things. The Airbus A380, the most known topic. The new large aircraft, where big delays occured in the past. And again,as reported in the last days, there should be new dealys. Is this correct?

TE: I cannot answer you this question here and now. I said last week that we currently run a major review, the result does not exist so far. Why do we do this? This is quite easy: Our plan to ramp-up production is definitely quite ambitious. We want to deliver this year – after delivering the 1st to SIA last year – 13 aircraft, then double this number and double again. In addition, there is the change-over from the so-called WAVE 1 to the WAVE 2, simply meaning that WAVE 1 has been handwork/manual work – this has not been and is not an industrial process. The second wave then foresees to run up a real industrial process, including all corresponding, existing tools, especially to get the electrics under control in the sense of a -like we call it – digital mock-up, a digital image. And this crosspoint quasi prompted me to say that we now have to look at this and to see if we indeed manage the production or if this is not the case respectively which counteractive measures we have to take.

MB: Regarding the electrics you are a burnt child. The original problems which lead to the first big delay with all its consequences, irritation on customers’ side etc., were also connected with electrics, tubes etc. How can this happen at all? Such a in detail planned project? How can things get ot of hand as strong?

TE: Mr. Beise, please relieve me of this. I could easily continue on talking the next remaining 30 minutes about cables and cabeling-problems. Let me describe it as follows: We had abosultely underestimated the complexity of this aircraft – in development, but also in production and equipment- especially also here in Hamburg. We then had not been able to equip sections- for delivery to the final assembly line in TLS – here and at other sites in a way that we could efficiently assembly them. We have today where we sit around 2000 Germans in TLS who work on this aircraft, and especially rework the work in TLS, which upstream, meaning in HAM, had not been finished in time.That this is not the most efficient way of working, that this is very costly for the company, is comprehensible. We now have to come back as fast as possible to “Plan A” , meaning equpiment of the sections in HAM and other sites before they get in the FAL and block it with rework, in order to enable the FAL to then work properly and enable us to ramp-up.

UW: Let’s come back again to the figueres. You want to deliver 13 A380s next year..

TE: no,no ..

UW: this year, 2008. You just said you cannot confirm the information from the weekend, that this number probably cannot be achieved. On how many will you come?

TE: If I knew this, I would have already finished my review. But I have not. I pointed out last week on a tour in the Middle East in Dubai that we are doing this examination and the moment this is finished, we will say what we believe to be able to achieve in this year and what we believe to achieve in the next year. This is our duty for our customers, who have corresponding capacities in their planning. But this has to be done properly and I will not make a snapshot and shoot figueres out of the hip. We know how much depends on that within the company.

UW: This means a date for the start of serial production you cannot name?

TE: Oh, we are within the serial production. I mean we already delivered 3 aircraft this year, SIA now has a total of 4, company UAE is urgently waiting for their first aircraft this summer, company Qantas, these are the 3 airlines which get equipped this year, the aircraft are standing here in HAM for visit – or I have to say actually not, as the aircraft are under strongest “sealing”, as the friends from UAE and QFAs of course do not want to release their cards. Also – this is running! SIA will have 6 aircraft by summer, followed by UAEW and QFA. I do not want to see the impression that we are still sticking in the fogg like 2 years ago. This is not the case. It is now simply a thig we are always doing – also in other programmes

Airbus still leads orders, barely

Airbus and Boeing have updated their orders for April (Boeing through April 29, Airbus for the entire month) and Airbus maintains a slight lead over Boeing for net orders, 397 to 346, year-to-date.

But the Airbus tally doesn’t reflect what’s happened to the 65 orders for Skybus Airlines of the US, which has ceased operations following bankruptcy. If these show up as canceled in the May tally, Boeing will almost certainly for ahead for the month.

Boeing has 236 net 737 orders for the year; Airbus has 300 net A320 family orders.

Boeing has two 747 orders vs. three A380s.

Boeing has no 767 orders vs. Airbus’s 57 A330 orders (11 of which are freighters).

Boeing has 30 777 orders vs 32 A350-900s and 0 A350-1000s.

Boeing has 79 787 orders vs 15 A350-800s.

It’s been pointed out to us that the A330 competes with the 787 as much as it does with the 767, because the 787 is designed to replace the 767 and the A330 seating capacity is similar to the 787. If one accepts this thesis, and there’s certainly merit to it, then the category stacks up this way:

767-767F/787 orders, 79, vs A330P (46), A330F (11) and A350-800 (15), or Airbus total 72.

Boeing single-aisle airplanes: 235, twin-aisle: 111.

Airbus single-aisle: 300, twin-aisle and wide-body cargo: 107 (minus 10 A318s).

Boeing’s YTD orders have a mix of 32% twin-aisles and 68% single-aisles.

Airbus’s product mix is 26% wide-bodies and 78% narrow bodies.

Dueling tanker press releases

In a rare confluence of timing, Boeing and Northrop Grumman issued press releases on the same topic at about the same time. Here they are, in their entirety; our commentary follows after the Northrop release:

Boeing KC-767 Tanker: Sized Right for the Fight
Wednesday May 7, 12:23 pm ET

ST. LOUIS, May 7 /PRNewswire-FirstCall/ — The KC-767 Advanced Tanker developed by Boeing (NYSE: BANews) was sized to meet the aerial refueling requirements of the U.S. Air Force’s mission and exceeded performance requirements to replace the aging, yet storied fleet of KC-135 medium tankers.Despite the fact that the stated parameters for evaluating the aircraft said no extra credit would be assigned for exceeding certain requirement objectives, the Northrop Grumman and European Aeronautic Defence and Space Company (EADS) team received such credit. As a result, the oversized Airbus A330-based KC-30 was selected. Boeing has protested the decision to the U.S. Government Accountability Office.

According to the Statement of Objectives for the KC-X program, the primary mission of the new tanker would be aerial refueling rather than hauling cargo or transporting passengers. In order to meet the documented mission requirements, Boeing offered the KC-767, which efficiently fulfills the vital mission of a mid-sized aerial refueling fleet while also exceeding the highest requirements for airlift, passenger and aeromedical evacuation capabilities.

“Tanker flight crews are asked to bring the right amount of fuel to the fight in the most efficient, reliable manner, and the KC-767 meets that fundamental requirement,” said Mark McGraw, vice president, Boeing Tanker Programs. “Asking these aircrews to fly longer missions in larger, less survivable planes with more fuel capacity than needed and vast amounts of unused cargo and passenger space just doesn’t add up.

“The Boeing KC-767 exceeded the requirements in a manner that still kept the plane right-sized and efficient,” McGraw said. “Our competition likes to talk about offering more, more, more — but in reality, the KC-30 will cost more to operate, more to maintain, and more to house, with the U.S. taxpayer footing the bill.”

A larger plane — like the KC-30 tanker offered by Northrop Grumman and EADS — simply results in wasted capacity, wasted efficiency and wasted taxpayer dollars.

The contrasts between the KC-767 and the KC-30 are notable and worth considering in determining the appropriate tanker for the mission:

    -- Fuel Capacity -- The historical average offload on a tanker mission is
       60,000 to 70,000 pounds of fuel. The Air Force fuel offload requirement
       was set at 94,000 pounds of fuel at 1,000 nautical miles, comfortably
       above the historical average. The KC-767 exceeded the 94,000-pound
       requirement by 20 percent while remaining within the optimum size for
       medium tanker operations. The KC-30 fuel capacity exceeded that
       requirement by 50 percent -- meaning more than half of its fuel load
       would be unused during an average mission. The result: a large tanker
       that burns more fuel and requires significantly higher costs in
       maintenance and support.
    -- Cargo/Passenger Capacity -- In 2006, the Air Force moved less than
       1 percent of its cargo and passengers in tankers. The KC-767 does offer
       significantly more cargo and passenger capacity than the KC-135, but
       not at the expense of airplane size or efficiency. Again, the KC-30
       carries more passengers and slightly more cargo based on weight, but
       with a bigger, less survivable and more costly plane.
    -- Aeromedical Evacuation -- The Air Force Request for Proposals set an
       objective requirement of being able to carry 24 litters and 26
       ambulatory patients. The KC-767 carries 30 litters and 67 ambulatory
       patients, far exceeding the highest requirement. The Air Force praised
       the KC-767's superior aeromedical crew stations, its ability to
       generate oxygen onboard, and the power provided for aeromedical crew
       systems. The KC-30 again offered more quantity with less quality and
       less survivability.

Setting The Record Straight On Northrop Grumman’s Tanker

Today’s Boeing ad in The Washington Post, “The Tanker Decision. Oversized Aircraft, Oversized Costs. It Doesn’t Add Up” raises a fundamental question: Who should decide the capabilities of the KC-45 refueling aircraft, and how it should be used, the Air Force, or Boeing? Moreover, Boeing continues to make up facts to suit its arguments.

In its request to the Government Accountability Office to throw out Boeing’s contract challenge, the Air Force noted that “Boeing’s protest misconstrues the solicitation evaluation terms for aerial refueling, and its interpretation creates a patent ambiguity” regarding what the Air Force wanted.

The Air Force stated in its proposal request that it sought a versatile, multi-role tanker that would meet or exceed its requirements for both refueling and airlift. Boeing argues that its tanker is good enough for refueling – and, based on past operations, additional capability was not needed. But the Air Force made clear it saw great value in Northrop Grumman’s KC-45 because it could carry more fuel, operate from more bases, and transport more materiel, troops and cargo – and evacuate more wounded soldiers from the battle theater. While Boeing’s offer was looking at the past, the Air Force’s selection of Northrop Grumman is all about the future.

The Air Force was abundantly clear about its desire for a versatile tanker throughout the bidding process. In December 2007, Defense Daily interviewed TRANSCOM Combatant Commander Gen. Norton Schwarz and wrote, “The bottom line, Schwartz told Defense Daily, is that unlike tankers of old, the KC-X aircraft will be multi-mission machines. ‘We need, for the benefit of the joint team, to get as much out of that as we can.'” The Air Force also made this clear in the RFP, and in the entire military did the same in a White Paper published a month later. Boeing disparages this recommendation, arguing it knows better than the Air Force what will be needed. Why does Boeing keep trying to redefine the requirement?

Boeing continues to distort the truth even though the company has the real data, claiming that Northrop Grumman’s KC-45 will burn $30 billion more in fuel. To reach that number, they made up their own assumptions and their own formulas. The fact is, the Air Force concluded – in a document provided to both companies – that the KC-45 is actually 6 percent more fuel efficient than Boeing’s proposed aircraft and the life cycle costs of both aircraft was about the same. Who should we believe – the United States Air Force or Boeing?

Boeing also claims that its proposed aircraft would have $19 billion less in infrastructure and maintenance costs. In fact, the Air Force determined that the life cycle cost of both aircraft, which includes these factors, was about the same. Who should we believe—the Air Force or Boeing?

Boeing then claims its can provide more aircraft to battle theaters – conveniently ignoring an important factor in the Air Force’s decision:

Northrop Grumman’s larger, more versatile aircraft can complete the entire host of combat scenarios using fewer aircraft than Boeing – something the Air Force found was a significant value to taxpayers AND battle commanders.

Finally, Boeing tries to bolster its faulty arguments by selectively pointing to criteria included in a 2002 tanker decision. Not only is that document outdated, but it relates to a contracting scandal that led to the contract being competitively bid. Relying on that outdated document, Boeing claims that the Air Force “and taxpayer get an oversized aircraft with oversized costs.”

In fact, the Air Force made clear in the document explaining its selection that “Northrop Grumman’s offer was clearly superior to that of Boeing’s for…aerial refueling and airlift. Additionally, Northrop Grumman’s…superior aerial refueling capability enables it to execute…with 22 fewer aircraft…an efficiency of significant value of the government.”

Our Commentary: Throughout the post-award debate, it’s been largely a battle of he-said, he-said. The GAO will sort who said what out and ideally this will either put an end to the issue by an affirmation of the award or clarify the process and recommend a do-over if it was tainted. (If only Congress will accept the GAO outcome, even if it affirms the award, then all’s right with the world.)
Yesterday, Northrop issued what we thought was one of its most on-point and effective arguments on the size issue. Pointing to the bankruptcy and cessation of service of ATA Airlines, a long-time CRAF (Civilian Reserve Air Fleet) provider, Northrop said the extra cargo and troop-carrying capabilities over Boeing’s KC-767 becomes more important with the demise of ATA and the prospect of more turmoil in the US CRAF reserve airline base. The entire Northrop release on this may be found here.
The Boeing and Northrop efforts have become tiresome and many believe that they are becoming counter-productive, wearing out Congressional members in addition to the publicized weariness of the customer itself, the Air Force.
Although the continued public debate always makes for good media fodder, each side would be better off shutting up and letting the GAO do its work.

Leeham website updated wk/May 6

Our Corporate website has been updated with commentary and links to news articles. This week we put some perspective into the recent stories about potentially new A380 delays and the reports of new delays for the Boeing 787. The link to our Corporate site is here.

Emirates, Ethiad say A380 delays now possible

Emirates Airlines, which has ordered more Airbus A380s than any other carrier, says it has been notified by Airbus that new delivery delays next year are possible. Here is the story. Ethiad Airlines says the same thing in this piece.

Airbus CEO Tom Enders is ambiguous when asked directly in this story.

New, 1130 AM PDT: The International Herald Tribune is reporting that Airbus denies it mentioned the possibility of new A380 delays in its letters to customers. Here’s the story.

More delays for 787, A380: German magazine

Reuters picked up a report from a German magazine saying Boeing and Airbus are notifying customers of new delays in the 787 and A380 programs. Here’s the report; we’ll try for comment ourselves.

New, 1045 AM PDT: Reuters has a follow-up report, quoting Yvonne Leach, a Boeing 787 spokesperson, denying the German magazine story. According to the new Reuters report, Leach says there’s been no change to the basic 787 schedule announced last month, in which a 15-month delay for initial entry-into-service was identified. Reuters reports Leach said that on average, delivery delays will be about 20 months.

Note the phrase “on average” in the Reuters story. This doesn’t specifically discount the 27 month figure reported by the German magazine while affirming the 15 months EIS delay.

Monarch Airlines, in an internal memo, reportedly told employees its 787s will be 30 months late; Monarch has not confirmed (to us, anyway) the authenticity of this memo. This was followed by an interview by Royal Jordanian Airlines in which it expects 787 delays of up to 30 months; and Lan Chile, which anticipates a 24 month delay for its 787s.

So how could this be, when Boeing announced a 15-month delay for EIS?

It’s because there will be a much slower ramp-up on the production schedule. Boeing’s original plan was to be at 10 per month by 2010; now this won’t happen until 2012, Boeing said in its April program update. The ripple effect is what’s at hand here.

As for the same original report by the same German publication that there is another delivery delay in the offing for the Airbus A380 2009 schedule, we’re still trying to nail this one down.

New, Sunday, 800 AM PDT: The European news agency AFP picks up a report from another German magazine saying that Airbus will “nearly” deliver 13 A380s this year (which by our interpretation means Airbus “won’t”) and that it will miss its target of 25 deliveries next year. Here is AFP’s story. Our inquiry of Airbus produced this response, quoting directly:

Airbus and in particular Airbus President and CEO Tom Enders have said on several occasions that our delivery schedule has always been and will continue to be a major challenge for the company until the ramp-up is completed.

Currently, the A380 is in the critical phase of steep production ramp-up and the changeover from the recovery wiring installlation (Wave1) to the ramp-up mode with full industrialization (Wave2) .

A major review of the programme at this transition phase is standard practice.This includes amongst other things an analysis of the progressive shift of the experienced work force from Wave1 to Wave2 aircraft, the ramp-up readiness of the supply chain and the status of the delivery schedule. It confirms the continues tight management attention the A380 programme and its delivery schedule are receiving in order to satisfy our customers.

So far, no A380 customer has specifically revealed new delay timeframes although the Reuters report indicated that the first German magazine said Airbus has notified customers.

New, Monday, 715 AM PDT: Airbus spokespersons, reached Monday by European media, decline to comment on the reports of the German publications that it won’t deliver 13 A380s this year or 25 next year, causing EADS stock to fall.

A380 lease rates

Commercial Aviation Online (CAO), the subscription-based news service owned by the company that owns Flight International, Airline Business and other publications, reports that Singapore Airlines completed financing of its third Airbus A380 with a lease structure in Europe. The purchase price by the lessors is reported to be $198.6 million with a lease rate of $1.7 million a month, for what’s know as a lease-rate factor of 0.85%.

Before people jump to conclusions about the purchase price, comparing it to today’s list price of more than $300 million for the A380, remember that Singapore ordered the A380 years ago and received launch customer pricing for it. (Business Week reported at the time that launch customer pricing was in the $140 million range, something neither Airbus or Singapore ever confirmed.)

The lease rate factor for an airline of Singapore’s quality is also fairly standard.

Disclosure: We write for CAO, but did not write this story.