Press coverage of the tanker award

Here are some interesting articles about the tanker award to Northrop Grumman:

From the Everett Herald, a look at the new Alabama aerospace center.

From Europe’s AFP news service, US legislators blast award;

From the Chicago Tribune, Boeikng staggered by loss;

We’ll have our own full analysis Tuesday (March 4) on our website.

What does the Northrop win mean?

Every aerospace analyst surveyed by Bloomberg a week ago figured Boeing would win this competition. We did, too.

So what happened? In the end, it came down to what we have been saying all along: did the Air Force want “just” a tanker or did it want a solid, multi-role tanker transport? The Air Force went for the MRTT, saying the selection came down to one word: “more.”

So what does this mean? It’s obviously a big win for Northrop and Airbus and a big loss for Boeing. But perhaps not to the extent some might think.

At a production rate of 12-18 tankers a year, this is the proverbial gnat on the elephant’s rear when you consider that Airbus (or Boeing) deliver around 450 airliners annually.

Depending on the financial assumptions, the revenue to Airbus (or, had it won, Boeing) would have been perhaps around $3bn. This is certainly nothing to sneeze at but when you consider Airbus parent EADS revenue last year was around $55bn (final figures yet to be announced) and Airbus is 80% of this (Boeing was $66bn last year), the figure takes on some context.

Further reduce the $3bn to the airframer, because the engine suppliers grab 25% of this and the rest of the suppliers (avionics, landing gear, etc. etc.) take a portion, and the net revenue to the airframer is far less than the raw numbers suggest.

We’ll have a full financial analysis Tuesday on our corporate website.

Expect Boeing to protest and Boeing’s partisans to take it to Congress.

It’s Northrop Grumman!

Just got word from three sources-Northrop Grumman!

USAF changes specs, may taint process

Incredibly, Reuters reported yesterday that the Air Force changed its criteria at the last minute in the KC-X program that lowered the score of the Northrop Grumman KC-30 proposal. The Mobile Press-Register reports that Boeing’s KC-767 score was also lowered but that the effect was to reduce the cargo-troop carrying capability important of the tankers, which was a major KC-30’s selling point.

This is an astounding development. The USAF has made every effort to provide the appearance of fairness in what is perhaps the most controversial procurement program in decades. By making this last-minute change that undercuts a major attribute of the KC-30 only taints the process and is sure to be a basis of a Northrop protest if it loses. This is also likely to attract the attention of Sen. John McCain, who campaigns on his oversight of the previous scandal of the KC-767 award in 2002.

Furthermore, recall that Northrop nearly withdrew from the competition because the Air Force initially wasn’t going to place a lot of importance to the cargo-troop capability of the evaluation process. For the Air Force to change the criteria at this late date invites a protest–even Boeing might cite this if it loses, on procedural grounds.

This is a dumb, dumb move on the part of the Air Force, no matter how they explain it.

US Airways says ‘no’ to A340 China lift

US Airways received an award to fly from Philadelphia to China in 2009 and there were wide reports that the company was looking for Airbus A340s to serve as interim lift until the A350 could be delivered beginning in 2014.

Even one official of the company said so at the annual media day today. But in private conversation with CFO Derek Kerr, he told us it ain’t gonna happen. Kerr said he has no interest in the A340 and the airline will use the A330-200, with load restrictions when necessary, to serve the route until the A350 can be delivered.

Dodging a bullet

Boeing dodged a bullet when a court refused to let a discrimination lawsuit go forward, but the bullet missed two targets: the discrimination itself but also perhaps the tanker contract.

We’re told that under federal rules, Boeing could be ruled ineligible for federal contracts if found guilt of discrimination. In received a phone call just this week from someone taking issue with our view that the KC-X contract was Boeing’s to lose. This person believed that Boeing could lose it because of alleged discrimination.

If this caller was correct–and we simply didn’t have time to check out the facts–then maybe Boeing dodged this bullet, too.

Welcome to this new format

Welcome to this new page for news and comment by Leeham Co LLC.

This allows us to be more flexible and timely on matters Airbus and Boeing, and by extension EADS, Northrop Grumman (concerning the KC-30 tanker) and on occasion suppliers to them.

Our scheduled updates are the first, third and fifth Tuesdays of the month. Breaking news may prompt updates in between.

While this site is under construction, please pick up your news and comment at our corporate site.

We hope you’ll enjoy this new on-line newsletter format and the flexibility.