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.
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.
Let’s put some context into the latest news about the new round of expected delays of the Boeing 787.
When Richard Safran, aerospace analyst, wrote recently that he forecast another six month delay for the project, he wasn’t really denounced but he was dismissed by some, using the old “rumors and speculation” gig.
But when Steven Udvar-Hazy predicted another six month delay, people listened. Hazy is Boeing’s largest customer—as he is of Airbus—and his comments carry a lot of weight. Boeing had to walk a real tightrope with him: the company said Hazy is a valued customer, but his statement was just his opinion.
Hazy’s opinions are usually based on fact and his opinions matter. Just ask Airbus about Hazy’s opinions about the A350 two years ago. His opinions caused Airbus to redesign the Airbus, and sales took off.
Boeing has a real conundrum. Analysts, airlines, lessors, investors and the media are clamoring for information. Will there be another delay? How long? What’s the problem? Or problems?
For Boeing, the information is coming out in dribs and drabs, and not from their official sources. For long-term Boeing watchers, however, there has been subtle difference this time. Boeing is tending to confirm some detail this time that it didn’t in advance of the last go-around, and it’s leaving some wiggle room in its responses about delays.
This time, Boeing has confirmed there are wiring redesigns occurring (which the company says is part of the routine process in any new airplane program) and that a design changes on the wing box are underway, albeit adding that such things are routine in a new airplane program—as indeed, broadly, they are. Boeing also is sticking with the official line that power-on is set for April and first-flight for June but adds that the program reassessment continues. Previously, Boeing wouldn’t acknowledge issues and kept sticking to the timetable.
Why won’t Boeing be more forthcoming about the delay, people are asking? Probably because officials don’t yet know. And this time Boeing wants to get the story correct.
We talked to an aerospace analyst at ISTAT’s annual meeting last week, who said Boeing CEO Jim McNerney was pretty exercised over the creeping delays and this time wants his team to be sure there won’t be any more surprises after this next program update. McNerney, according to this analyst, said he can’t keep going back to shareholders with more delays.
His concern is obvious: look at the trend line on the Boeing stock since last October, when the first delivery delay was officially announced. Boeing stock is off more than 30% while the Dow Jones is off 14% from the October highs. (Some of Boeing’s decline is also due to the loss of the tanker contract.)
James Wallace of The Seattle Post-Intelligencer today had a similar report to what we heard a week ago.
“People familiar with the company’s thinking say Chairman and Chief Executive Jim McNerney, along with 787 program boss Pat Shanahan and Boeing Commercial Chief Executive Scott Carson, do not want anyone at Boeing to make comments about the status of the program until they are certain that the schedule will not be changed after the next program update in early April,” Wallace wrote.
Boeing is in the same predicament that Airbus faced with the A380. The creeping delays drove everyone mad, and Airbus had to stop and undertake a full program reassessment before finally saying it would take another year before its industrial problems were fixed. The consensus is the 787 will need another six months, but will this be all? Will Boeing be able to really convince the market it finally has a handle on the issues?
In addition to responding to all the stories now, these things are part of Boeing’s conundrum.
Update, 1155am PDT: Here’s a podcast in the 787 situation. It’s 11 minutes.
Update: 1155am PDT: James Wallace updates things on his blog.
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.
Steven Udvar-Hazy, the CEO of International Lease Finance Corp., carries enormous weight in the airline industry. His ILFC is the biggest customer of Airbus and Boeing. His public criticism of the A350 (Version 4.0) at the ISTAT conference two years ago (in response to a question we asked, BTW) set the stage for Airbus to redesign the aircraft.
Hazy once said he doesn’t think the A380 will sell more than 300-400 and he doesn’t think the 747-8I will sell well, either. Both predictions remain to be seen, but people listened.
While the world waits for Boeing to tell us about the latest delay for the 787, Hazy told the JP Morgan Aviation & Transportation conference today that he expects an all-in delay of 15-16 months from the original May 2008 delivery schedule, according to someone who was there. That means August or September of 2009 before the first delivery.
Hazy is usually extremely well clued in on these sorts of things. He told us of the third delay for the A380 before this became public, and we broke the news at the time.
It’s like the old EF Hutton slogan: When EF Hutton talks, people listen. EF Hutton is defunct, but this analogy isn’t to suggest that ILFC is headed that direction. It’s simply a great line.
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.
Boeing has had a long run in the spotlight, given the tanker award and protest and the Goldman Sachs report predicting another six month delay for the 787.
For a change, let’s take a look at the Airbus and the A380.
Airbus predicts a market of nearly 1,700 passenger and cargo airplanes in the Very Large Aircraft (VLA) category in its new forecast issued this year. Boeing forecasts 960 VLAs in its market outlook issued last year. Each prediction is for a 20-year period, or 2027 for Boeing and 2028 for Airbus.
The math is pretty simple: to achieve 1,700 VLA sales under the Airbus forecast (and it doesn’t matter whether it’s Boeing or Airbus, both the A380 and 747-8 are VLAs), this is an average of about 85 sales a year beginning this year.
To achieve the 960 figure from Boeing beginning last year, that means an average of 48 VLA sales a year.
Airbus predicts 30 sales for the A380 this year. Boeing hasn’t made a public prediction for the 747.
It’s pretty clear Airbus is just a tad short.
For comparison, Boeing has sold 1,522 747s since the first order in 1966, 42 years ago. That’s an average of 36 a year, and this started when the 747 had a monopoly for a few years as the world’s first jumbo jet–and maintained a monopoly on trans-ocean routes until the DC-10-30/40 and L-1011-500 began making serious inroads.
We’ve always thought Boeing’s forecast of only 300-400 sales of the A380 was woefully inadequate. But we’ve also thought the Airbus forecast of 1,700 VLAs in 20 years was wildly optimistic.
The math certainly suggests as much.
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.