Boeing today (March 28) acquired the Vought share of Global Aeronautica, giving the 787 manufacturer a 50% stake in the company.
The plant in Charleston (SC) has been one of the key trouble spots in the 787 program. Flightblogger’s Jon Ostrower reported the probable move way back in December.
This is a good move for Boeing in straightening out the program. Although it’s unclear today just how much of the 787 production problems continue to originate at Charleston, the 787 production system still is under major stress. The world waits for Boeing’s program update–the internal assessment continues–and the date for the program update, thought by some to be next week, by some the following week, remains unscheduled and unconfirmed.
Is the buyout related to the recent news about redesign of the center wing box? The answer, in our opinion, is “no.” Charleston isn’t responsible for the wing box; the Japanese are. Furthermore, we’re told from inside Boeing that the wing box issue was old news (at least one Wall Street analyst says the same thing) and that the redesign occurred quite some time ago for the first six airplanes (or seven, depending on who’s talking).
What made it news is that Boeing didn’t tell anyone and with its in-the-bunker mentality since things went south on the production schedule (a phrase used both inside and outside of Boeing), not being forthcoming, the statement by ILFC CEO Steven Udvar-Hazy that Boeing had to redesign the wing box became news for a news-hungry media.
Even within Boeing, there is complaint that Boeing isn’t forthcoming and therefore winds up de facto letting others reveal problems.
But we digress. Today’s news is tangible evidence that Boeing is taking back control of its own destiny. It’s a major step, it’s not the first and it won’t be the last. But for all interested parties, it’s certainly the right step.
Boeing placed nationwide advertisements Tuesday about its protest over the USAF award to the GAO.
This is part of the public relations campaign by Boeing we’ve disliked. Just as we thought the USAF award had to be done on its merits and not some PR campaign, the protest to the GAO should be done on its merits and not on the basis of some PR campaign.
We’re disappointed with this approach.
Update, March 27, 0830 PDT: Yesterday the Air Force and Northrop filed dismissal requests with the GAO over portions of the Boeing protest.
Says a Northrop source:
“Bottom line is Boeing played super bowl, accepted rules, played game fully expected to win, and lost. Now says rules not fair. Should have said rules were not fair before kickoff. Did not.
“Legally they had 10 chances to protest before they submitted. They instead said it was fair up to when they lost. Cause they expected to win.”
Here’s the official announcement from Northrop about its filing:
Northrop Grumman, today, filed a motion with the GAO to dismiss significant portions of Boeing’s “PR-Plated” protest of the Air Force tanker award.
Northrop Grumman’s motion argues that much of what Boeing complains about was contained in the KC-X Request for Proposal and should have been questioned, or perhaps protested, before Boeing submitted its final bid.
We are challenging Boeing’s protest claims on the grounds that:
– Boeing’s challenge of the KC-30′ superior aerial refueling and airlift capability is untimely and should be dismissed.
– Boeing’s challenge of the RFP’s Integrated Fleet Aerial Refueling Assessment (IFARA) evaluation structure is too late.
– Boeing’s claims that its past tanker experience and superior survivability, and the issue of government subsidies were ignored by the Air Force are untimely because tanker experience was not a proposal requirement and the other items should have been challenged by Boeing long before it submitted its proposal.
– Boeing’s challenge to the Air Forces decision to increase Boeing’s cost proposal is untimely because Boeing knew the basis for the increase long before filing its final proposal.
– Boeing’s claim that the Air Force improperly evaluated its schedule is untimely because Boeing knew of the schedule issue before submitting its final proposal.
Filing a protest – especially when it’s a protest seeking to block the deployment of a defense system as vital to our men and women in uniform as the KC-45A tanker – is extremely serious business.
While Northrop Grumman fully supports the protest process, Northrop Grumman filed this motion as an effort to clear the air and afford the GAO the opportunity to do its job without distraction.
Boeing responded that it objects to any effort by Northrop or the USAF to limit the scope of the protest.
We didn’t support the filing of a protest but as long as one was filed, we believe that a vigorous “prosecution” of it is the only way to clear the air. We’re in no position to judge the merits of the protest, and neither is anybody in Congress on either side of the issue. We believe that it’s in the best interests of everyone involved to thoroughly address all points.
While we think Northrop has some points as outlined above, we’re not sure that dismissing issues on technicalities makes good sense, because it give critics of the award further opportunity to moan. We lean toward letting all issues remain in the protest and letting the GAO affirm or dismiss them, one-by-one, as the best way to answer all the questions and critics.
Having said that, there is one element to Boeing’s complaint we think is stretching the point. Boeing complains that the USAF did not take into account the first KC-767 delivered to Japan. We think this is irrelevant. The first delivery to the Japanese industrial partner, not even the Japanese Air Force, took place February 19, just 10 days before the Air Force announced its award. The second delivery was March 5, five days after the award was announced. Delivery of the second obviously came too late for inclusion in the evaluation process and this is probably also true for the first. More relevant to the evaluation process was Boeing’s performance leading up to delivery of the first tanker, and Boeing’s track record on the Japanese and related Italian KC-767 contracts was poor.
Boeing may have lots of legitimate grounds for complaining about the award, but failure to consider delivery of the Japanese tankers isn’t one of them. Inclusion in Boeing’s high profile complaining only undermines their other salient points.
With delivery delays of around 15 months now expected for the Boeing 787 program, where does Boeing turn to help its customers?
One suggestion was upping the production of the 767, currently at one a month. This won’t work–it takes about two years to do so, according to Boeing. By then the 787 program should be more or less back on track.
A blogger suggested that the 777 could be the answer. Not likely, either, because the 777 has a four year backlog and is being produced at the rate of seven a month, its highest ever.
The used airplane market is very tight. Boeing is looking for 777s, 767s and even Airbus A330s and A340s with little luck.
Boeing and the airlines will have to cope as best they can.
Here’s the backlog chart for Boeing. The production rates are:
787: planned–initially 3/mo, increasing to 10/mo within 18 mo
|Unfilled Orders by Model||Through February 2008|
|Total Unfilled Orders||3544|
|Total Unfilled for 737||2154|
|Total Unfilled for 747||123|
|Total Unfilled for 767||50|
|Total Unfilled for 777||360|
|Total Unfilled for 787||857|
|Total Unfilled Orders||3544|
A move in the US House to adopt legislation to overturn the USAF tanker award to Boeing is ill-advised on a number of levels.
According to a story in The Seattle Post-Intelligencer, Boeing supporters in the House, incensed over the award by the Air Force to Northrop Grumman and Airbus parent EADS selecting their A330-based KC-30 for the KC-45A tanker, are thinking about adopting legislation to block the award. The details, according to the news story:
There are so many things wrong with this approach.
Let the GAO deal with this, like the law allows. If the GAO upholds Boeing’s protest, so be it. But if the GAO rejects the protest, Boeing and its supporters need to let this one go. In fact, Boeing would be better off calling off the dogs on this Congressional fight. Boeing might win the battle but lose the war. The EU won’t sit back idly if Congress interferes, and Boeing will be the one to pay the penalty, not some member of Congress with a few district jobs to protect.
As we previously said, Boeing would be far better off to devote its engineering resources to fixing the 787 program and developing the Blended Wing Body for the KC-Y competition scheduled for 2020. A KC-BWB, and subsequent commercial applications of the BWB, would be far more advanced than the KC-30 or anything else Airbus has to offer, and superior to the KC-777. Go for this gold, and the advanced technology that comes with it. Don’t stick with an airplane originally designed in the late 1970s-early 1980s. Think ahead. Be bold.
Blended Wing Body test model. Source: Boeing
Eco-Aviation continues to gain ground in the US. Environmental forces in Europe have been targeting aviation for several years, and very aggressively. In the US, the issue has been much slower to catch on.
Airbus and Boeing have been working for years to reduce the environmental impact of their airplanes. The development of the A380, 787 and A350 are manifestations of this effort. In concert with the engine makers, GE/CFM, Rolls-Royce, Pratt & Whitney and International Aero Engines, the manufacturers have worked to reduce CO2 emissions.
We’ll be taking a more in-depth look at this issue next week on our corporate website bi-weekly update. In the meantime, Air Transport World and Leeham Co. have organized the USA’s first dedicated Eco-Aviation conference.
This conference has representation of the environmental community, US regulators, airframe and engine manufacturers and the airlines.
More information about the conference may be found here.
A survey released today (March 22) released by the Pacific Northwest Aerospace Association of 55 companies in the Puget Sound area (Seattle) finds that the loss of the KC-767 contract to Boeing results in the loss of fewer than 250 jobs. Fewer than 400 jobs would have been added.
Boeing had previously projected the tanker contract would have added 9,000 jobs in Washington State and the local politicians have been in an uproar over the job loss because the tanker contract went to Northrop Grumman. The same PNAA survey projects the KC-30 will 13-22 jobs annually. Northrop projects its tanker contract will add more than 4,000 statewide.
The full results of the survey are here.
Separately, as the reader knows there has been a great deal of focus on the fact that a foreign company (EADS/Airbus) is the prime subcontract to Northrop and there are other foreign subcontractors from Europe involved. The stated concern is whether these foreign suppliers will be reliable to the US in time of war.
We think the concern is less about foreign suppliers than it is about Airbus. BAE Systems of the UK is the sixth largest supplier to our Department of Defense. It builds many of the armored personnel vehicles used in Iraq and Iran and has many contracts to DOD and our Homeland Security department, including contracts involving intelligence matters. Fully one third of BAE’s revenue in 2007 came from the US DOD, equaling the revenue from European defense sources.
EADS subsidiaries other than Airbus already have contracts with DOD, and EADS is a supplier to the Boeing 787.
Speaking of job losses, here’s a satirical look at Sen. John McCain’s role in the tanker controversy.
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.