Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Engine makers tout “Plan A” but have “Plan B” backups in R&D June 23, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 27. June 20, 2025
- Pontifications: A Personal Note June 19, 2025
- Airbus books 142 firm orders as Boeing retracts from the Paris Air Show June 19, 2025
- AIN Media Group Agrees to Acquire Leeham News & Analysis June 17, 2025
Odds and Ends: More on EADS-BAE; surviving crashes
EADS-BAE: NOW that a few days have passed since the announcement BAE and EADS want to combine, here’s some more worldwide press:
Reuters: Government demands could make or break deal.
Interactive Investor: Merger will advance EADS military goals.
Mobile Press Register: Merger will advance Gulf Coast aerospace cluster.
London Daily Post: Defence worried about UK security.
International Business Times: US access key to merger.
Surviving crashes: A crash test of a Boeing 727 in Mexico drew snickers from some quarters, but the test concluded it’s safer to sit in the rear of the airplane than in the front. No kidding, and this is not new; this has been known in aviation for decades. But we actually like the response of Ted Baker, the founder and long-time CEO of National Airlines in the US (he sold out around 1961). When asked by a reporter where the safest place to sit in a plane in the event of a crash, the blunt Baker replied, “flat on your ass.” And you didn’t need a crash test to figure this one out.
Shrinking UAV market: Once thought to be one of the bright spots in a shrinking defense budget, Boeing now says the drone market will decline despite moves to increase civilian use.
US Defense sequestration: USAF tanker on hit list
The White House issued a 394 page report on what defense programs are subject to sequestration. The USAF tanker replacement–a program won by Boeing in a bitter contest–is on the hit list (PDF Page 274, document page Appendix B 38). It’s something called the Replacement Transfer Fund, Appropriation Discretionary. Whatever all this means.
Around the world in 5 minutes
This has nothing to do with aviation (except implicitly that’s how Matt got from one place to another) but this is just so darn cool, we have to share it.
[youtube http://www.youtube.com/watch?v=Pwe-pA6TaZk&w=560&h=315]
And here are outtakes from the trip.
[youtube http://www.youtube.com/watch?v=l4quCAG4eCc&w=560&h=315]
BAE Systems is growth opportunity for EADS
Update, Sept. 13: Here are some stories from today:
Bloomberg: EADS move seen by Boeing as growth; Revives decade-old plan; and this update about the rankings:
BAE is the ninth biggest vendor to the U.S. government, with $7.3 billion in direct, or prime, contracts in the year that ended Sept. 30, according to a Bloomberg Government study ranking the top 200 contractors. EADS ranks No. 100, with $684 million in awards.
Reuters: US approval seen likely.
AOL: Big deal in Europe, not so much US.
Mobile (AL) Press-Register: EADS-BAE in merger talks, with a spin on local impact.
Original Post:
The prospective combination of BAE Systems and EADS is a growth opportunity for EADS, particularly in the US, where it has been striving for years to expand its defense footprint.
BAE Systems in 2009 was the Defense Department’s #5 of the Top 10 defense contractors. At that time 50% of BAE’s business was in the US. We have checked more recent figures. EADS North America, during the KC-X tanker competition, did about $1bn worth of business with the US government, in defense, Homeland Security and other contracts. We don’t believe this has appreciably changed in the 18 months since the tanker contract was awarded to Boeing.
Although the immediate reaction among observers and media is that the combination will make a strong competitor to Boeing, in fact BAE Systems services defense segments that are more closely aligned with Lockheed Martin and Northrop Grumman than with Boeing. There is also little if any overlap between BAE and EADS, whether here or in Europe and the UK, where BAE is headquartered.
BAE has about 40,000 employees in the US.
The combination, which has to be approved by the boards of both companies as well as a host of governments on both sides of the Atlantic, will certainly strengthen EADS and its argument that it is a substantial contributor to the US economy and US employment. Airbus, a wholly owned subsidiary that accounts for around 80% of EADS revenues, purchases $12bn in goods and services in the US and says it employs or supports 100,000 jobs directly or indirectly.
BAE, which owned 20% of Airbus until EADS bought these shares in 2006, isn’t a current supplier to Airbus. Although defense cuts in Europe and the US are limiting growth at this time, these come in cycles and BAE would strategically position EADS to grow its defense business and reduce reliance on Airbus revenues and financial performance.
The new company will be 40% owned by BAE shareholders and 60% owned by EADS shareholders. The current shareholdings in EADS of the German and French governments, presently 15% each, would almost certainly be diluted. (The German EADS shareholdings are currently indirect but may become direct. The French shareholdings are direct.)
The new company would be listed on several European exchanges, including BAE’s listing on the UK stock market.
Boeing & SPEEA: shifting work brings its own hazards–and costs
Boeing & SPEEA: As we routinely do when it comes to trying to understand rhetoric of two warring parties (usually Airbus and Boeing but in this case SPEEA and Boeing), we reach out to third parties. We asked an aerospace engineer not associated with either Boeing or SPEEA about the Bloomberg interview with Boeing’s Mike Delaney in which Delaney was quoted as saying if SPEEA doesn’t accept Boeing’s terms, it will move engineering elsewhere.
Outsourcing engineering has been a sore point with SPEEA for some time and, frankly, outsourcing on the 787 and 747-8 created a lot of problems in the development of these aircraft. So Delaney’s threat can’t be dismissed.
But as with the 787 and 747-8, outsourcing isn’t a simple matter, either. Our third-party noted that engineering tasks may be unique enough that simply shifting work from groups in Seattle to engineers in Wichita (KS), where Boeing is closing its military operation, or to Boeing’s Defense engineers in St. Louis or elsewhere may hardly be a seamless transition.
Boeing, of course, will know this. But at a time when Boeing is ramping up production by 60% and has the 737 MAX, the 787-9, the 787-10, 777X and KC-46A programs underway, we’re not sure shifting work makes a lot of sense.
Even if quality work is assured–in contrast to some of the outsourcing on the 787 and 747-8 programs–and which is by no means a certainty during the switch, transition times could well slow the work at a time Boeing could ill-afford.
But Boeing looks at the long-term. It knew the risks in creating the 787 plant in Charleston. Recall that documents revealed the Charleston move to be high risk for quality, for learning curve and for cost–and the company proceeded anyway because it was fed up with the IAM 751 strikes (or because of incentives, depending on who you believe and we firmly believe the strike theory).
We’ve no doubt that Boeing is fully capable to damning the labor torpedoes. But we firmly hope common sense will prevail for both parties.
Even if a contract is reached, we also firmly believe Boeing will relocate engineering work from Seattle. The sheer volume of growth over the next several decades will demand it. If SPEEA believes otherwise, it’s whistling Dixie. And that’s probably where a lot of the future engineering will be regardless of the outcome of current talks.
Is Boeing Chicago misreading the SPEEA mood–as it did IAM 751 in 2008?
There have been many articles this week detailing the increasingly contentious, evolving situation in the contract negotiations between Boeing and the engineers union, SPEEA.
We’ve previously written that this wasn’t going to be a love-fest. And it isn’t. Jon Talton at The Seattle Times has this comment, which is a pro-union take. Boeing says it wants to control costs, notably with pension and health care costs, but that it will still have industry-leading wages. SPEEA says Boeing is asking for take-aways. This Bloomberg article neatly sums up the Boeing position.
We’re not going to weigh in on the intricacies of who’s right and who’s wrong, for this depends entirely on your point of view. We do have sympathy for the Boeing position that health care and pension costs have to be reset, but we’re not going to opine on the details of any reset.
What we going observe is the following:
Odds and Ends: Airbus takes a look at the future; Air India gets 787 Saturday; John Leahy
Looking at the future: Airbus takes a look at the future in this company-issued document. Airbus discusses the environment, Air Traffic Management and more. This link has more information about how Airbus looks at the future.
Air India: We’ll still believe it when we see it but Air India is supposed to take delivery of its first 787 Saturday. (This is skepticism about the airline, not Boeing, for clarity….) Here is a microsite from Boeing. The best part is the construction of the airplane.
John Leahy: The COO-Customers at Airbus got a promotion of sorts. See this Bloomberg article. It’s well deserved.
Boeing and SPEEA: Things aren’t going at all well in the contract negotiations between Boeing and SPEEA.