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.

30 month delay on 787?

Flight International reports that Royal Jordanian Airlines believes its order for Boeing 787s could be as much as 2 1/2 years late. Monarch Airlines is also reported to be thinking its 787 orders could be 30 months late, but this one as yet is unconfirmed.

New, 0950 AM PDT: Flight International’s affiliate Air Transport Intelligence reports Lan Chile expects a two-year delay in its 787 deliveries. Writes ATI: “With regards to the delivery schedule of the Boeing 787,” says LAN CFO Alejandro De La Fuente, “It is likely there will be significant delays estimated around two years.”

For all the confidence Boeing expressed on its program update call about its revised schedule, outlining a 15-month delay, it’s becoming clear that its customers are unconvinced. The question for Boeing is how does it deal with the continued skepticism?

New, 120 PM PDT: Boeing issued this press release about the fifth 787 entering final assembly, with some detail about the reduction in traveled work.

More A380 delays or not

In a confusing set of stories, reports suggest that there may be a new round of delivery delays for the Airbus A380. These generated from comments made by Airbus CEO Thomas Enders, who said Airbus is engaged in a major review of the A380 production to assess the delivery schedule of 13 A380s this year and more in succeeding years.

This apparently was interpreted to mean that Airbus might not deliver the 13 airplanes promised this year. A spokesman immediately denied that’s what was meant.

We’re told by two sources–one inside Airbus and one a former Airbus executive–that program reviews are normal and there’s much ado about nothing on this one. The former Airbus executive told us he was puzzled why Enders even made the remarks.

Given the A380’s delay history, any hint of delays–whether founded or unfounded–are bound to cause concern and questions such as expressed in the news reports. This is similar to the trials now experienced by Boeing with the 787 program and fears by 777F and 747-8 customers of knock-on effects to these programs.

The 777F program appears to be on track now that there is no conflict in flight testing schedules between the 787 and 777F, as emerged on a previous 787 revised schedule. Some customers remain concerned–and are predicting–delays of several months in the 747 program, however, because of the level of engineering resources previously diverted to the 787. These customers believe Boeing won’t have time to catch up on the 747 to keep this program on track. Boeing previously pushed back roll-out by three months, according to reports, but has vowed to keep to the delivery schedule even if it means initially delivering a plane that’s about 1% overweight, according to Flight International.

New, 2:00 PM PDT: Speaking of A380 delays, Reuters has this report about Airbus penalty payments to Emirates Airlines for the delays. An excerpt: DUBAI (Reuters) – European plane maker Airbus paid Dubai’s Emirates EMAIR.UL as much as $110 million during the last year in compensation for the late delivery of the A380, of which the Arab carrier is the largest customer, Emirates said.

To fuel or not to fuel

Here are a couple of items about the refueling capability of the KC-30/KC-330 tanker, which is one point of controversy in the continuing saga of the Boeing-Northrop Grumman tanker contract award.

Boeing likes to point out that Northrop’s KC-30 hasn’t passed gas through its bloated airplane (sorry, we couldn’t resist the puns) and that there are delays in the EADS/Airbus KC-330 program to Australian. The KC-330 is the basis for the KC-30.

Aviation Week has this story about the KC-330 and some issues with the refueling boom. Northrop Grumman provided a link to this video showing fuel transfer on an Airbus A310 test-bed aircraft.

Northrop likes to point out that Boeing’s sixth generation boom proposed for the air force hasn’t been built, nor has the airplane to which this boom will be installed.

New, 0920 PDT: A Reuters report published in London’s The Guardian raises precisely the issue we raised weeks ago: that efforts by the US Congress to overturn the tanker award based on jingoism can potentially do more harm do Boeing in the global market than letting the USAF award stand, assuming the GAO reject’s Boeing’s protest.

Leeham website updated 4/29

Our Corporate Website has been updated with a new Commentary, News Articles and the Boeing Conference Call transcript.

This week we examine the pledge by Boeing CEO James McNerney to tone down the rhetoric in Boeing’s protest of the USAF tanker contract award to Northrop Grumman, and Northrop’s response to McNerney’s pledge. We also touch on the 747-8I, the close tie between GE and Boeing on the 787 program; and Boeing’s Shadow.

The Corporate Site is here.

Profile on Boeing’s McNerney

The Wall Street Journal’s Lynn Lunsford has a good piece on what Boeing’s CEO, Jim McNerney is doing about the 787 and KC-X and how McNerney views things at the moment. It’s a rare interview granted by the low-key McNerney.

Speaking of the tanker, Northrop Grumman, in one of its e-blasts, cites a National Journal story suggesting Boeing is willing to spend an eye-popping $250 million to overturn the tanker decision. Boeing denies the figure. The story may be found here.