On the road

We’re on an extended travel schedule, so there won’t be much in the way of updates on this site.

In advance of the anticipated June 19 GAO decision on the tanker competition, we’ll have some documents to post to our Corporate Site June 17.

Airplane crossing

St. Maarten landing. Via Airliners.net

The landings at St. Maarten in the Caribbean are notorious for being close to the beach. This is the best photo we’ve ever seen of just how close.

Lots of Boeing, Airbus, tanker news

It’s been a busy 24 hours. In no particular order:

Boeing drops out

Boeing has dropped out of its participation to build the Joint Cargo Aircraft, called the C27J, because it could not reach a financial arrangement with the European manufacturer. This report from from the publication, The Hill.

The C27J is a small, twin-engine turbo-prop.

Why is this interesting?

  1. Boeing teamed with Alenia of Italy to offer this airplane to the Army after EADS teamed with Raytheon to offer a competing C-235 and C-295.
  2. The Alenia-Boeing team won the competition.
  3. The C27J is to be assembled in Florida even though it’s a European airplane.
  4. If this sounds familiar, it is. While Boeing was complaining about Northrop teaming with Europe’s EADS with plans to assemble the KC-30 in Alabama, Boeing was following the same business model for the C-27J.

Grounding 737s

Continental Airlines yesterday followed United Airlines in announcing the grounding of a whole bunch of Boeing 737 “Classics” because of the current price of oil. Wednesday, United said it will ground 95 737-300s and -500s. Thursday Continental said it will put down 65 -300s and -500s. Some media, seeing only the name “Boeing 737,” jumped to the conclusion that Boeing will be hurt.

This isn’t true, of course, at least not in the direct sense. The 737 Classic is not the current-production 737NG, so no harm there. But what these actions do suggest is that none of the US legacy carriers will order replacement aircraft any time soon as they preserve cash to see them through this crisis.

Jobs, jobs, jobs

The pro-Boeing website Tanker Blog Wars was the first to report a study by a liberal think tank examining the jobs claims of Boeing and Northrop Grumman for their respective tankers. The 11 page report says Northrop’s selection will mean the loss of 14,000 US jobs compared with Boeing, a far cry from the 44,000 jobs Boeing’s supporters recklessly claim.

This is the first report we’ve seen anywhere that details how Boeing claims 44,000 jobs will be created by its KC-767. (Boeing has refused to say.) Thousands of them come from a principal called “re-spending.” The report explains just what this means. The take-away, however, is that when this principal–which we think is a stretch to include after reading the explanation–when excluded from the computation means Boeing will have “only” 28,000 direct and indirect jobs for the tanker, a number far closer to the 22,000 and 25,000 jobs we’ve consistently pointed to in previous reports.

The 22,000 comes from the jobs created by the 767 program at its peak production of 36 a year in 2001, when 36 airplanes a year were delivered. The 25,000 figure comes from the jobs claimed by Boeing for its C-17 program, which at its peak delivered 18 planes a year–the same number proposed at the top end for the tanker program–and the C-17 has higher US content.

According to the think tank, Northrop’s KC-30 will produce 17,000 jobs if 60% US content is assumed and 14,000 jobs if 50% US content is assumed, excluding the re-spending. Northrop initially projected 25,000 jobs and later revised the prediction to 44,000 jobs. The former was using a Department of Commerce formula and the latter using a Department of Labor matrix and also based on talking to its sub-contractors.

The think tank talks about the Commerce formula but doesn’t address the Labor one. Still, this is the first outside study we’ve seen and it’s completely devoid of the histrionics employed by Northrop’s critics.

One note: the labor union International Association of Machinists is on the think tank’s large board of directors, as are several other unions. The IAM is one of Boeing’s unions and it has been highly critical of the tanker award.

Countdown to GAO decision

June 19 is the deadline for the Government Accountability Office to render its decision on the Boeing protest over the tanker award to Northrop. This Reuters report quotes the Pentagon’s top buyer as saying small errors in the process shouldn’t undo the award. In legalese, these would be known as “harmless errors.”

Boeing is cautiously optimistic, though it notes that only 25% of the protests to the GAO are successful. Wall Street analysts are split on predicting the outcome, with some saying it will succeed and others saying it won’t.

And then there is the NA KOA Aviation Partners protest we’ve been writing about.

We’re making this definitive prediction: the protest will either be affirmed or denied.

Airbus vows to avoid Boeing mistakes

James Wallace at The Seattle Post-Intelligencer has this interesting interview with Airbus COO John Leahy about the A350, the A380 and the Boeing 787. Leahy says Airbus not only learned from its own mistakes on the A380 production, it’s been carefully watching Boeing’s problems with the 787 production and vows to avoid them with the A350.

Top Air Force officials “resign”

Reuters just moved this report:

WASHINGTON (Reuters) – U.S. Air Force Secretary Michael Wynne and Air Force Chief of Staff Michael Moseley intend to resign, a congressional source told Reuters on Thursday.

The resignations come after a series of concerns about recent Air Force matters, including a controversial award of a contract for the Air Force’s elite Thunderbirds flying group and the service’s mistaken shipment of fuses for nuclear missiles to Taiwan in 2006, the source said.

“There has been a lack of accountability that raised concerns,” said the source, who had been informed about the matter.

(Reporting by Andrea Shalal-Esa; editing by John Wallace)

NA KOA Aviation Partners, whose obscure protest in the KC-X tanker competition we reported about Tuesday, tells us that Gen. Moseley’s possible role in the tanker procurement is an element in its protest to the Government Accountability Office (GAO). NA KOA says that it believes Moseley may have had some role in how Boeing came to believe the USAF preferred the KC-767, and this was part of NA-KOA’s protest to the GAO as well as its protest to the USAF KC-X contracting office. NA KOA asked Gates’ office to look into this prospect and when a Freedom of Information Act request was denied, went to the GAO.

In a story moved by Wired, Secretary of Defense Robert Gates is quoted as saying the Air Force chiefs’ preoccupation with a surging Chinese military and a resurgence of Russia was mis-guided considering the active wars at hand. We previously reported, citing an Aviation Week news article, that the KC-30s better capabilities across the Pacific in anticipation of a Chinese conflict was one element of the USAF decision selecting the KC-30 over the KC-767.

NA KOA believes this development will have a direct bearing on the Boeing protest and its own.

Airbus slightly ahead in YTD orders

Airbus and Boeing have released their orders through May (June 3 for Boeing) and Airbus remains slightly ahead in net orders for the first five months of the year, 435 to 418.

By category, the statistics stack up like this–all data is net orders, allowing for cancellations.

  • A320 family vs. 737: Airbus, 312, Boeing 301
  • Medium twin-aisle: A330P, 62; A350-800, 15 (total 77); 787-8/9: 79; 767, 0.
  • Large twin-aisle: A350-900, 32; A350-1000, 0; 777-All, 36.
  • Very Large Airplane: A380, 3; 747, 2.
  • Cargo: A330-200F, 11; 767, 0.

As you can see, this year is neck-and-neck in all categories.

Lockheed praises Tanker Decision

In what can only fall into the “wow” category, Lockheed Martin–the USA’s #1 defense contractor–praised the US Air Force for looking beyond the US shores in awarding the KC-X tanker contract to a consortium consisting of Northrop Grumman and France’s EADS, the parent of Airbus.

In a speech, yes, before a European audience, Lockheed’s chairman had this to say:

“The decision by the USAF to purchase Airbus tankers reinforces the openness of U.S. markets and is the most recent example of the growing willingness of the United States to look to global sources of supply for vital equipment.   While our company is not involved in the Tanker program, Lockheed Martin is involved in a number of significant transatlantic programs.”

The full text of the speech may be found here.  A press release may be found here.

The highly unusual nature of one US defense contractor praising a decision like this can’t be considered anything but a blow to Boeing’s long-running campaign about the USAF awarding this contract to a “French” company (notwithstanding that the contract is actually to Northrop Grumman).

Obscure tanker protest may muddy waters

An obscure protest of the USAF tanker award to Northrop Grumman by a two-person company might muddy the waters in the protest by Boeing if allegations contained in the protest prove to have substance. This protest focuses principally on whether the Air Force improperly told Boeing that the service wanted a tanker the size of the KC-767, leading Boeing to decline to provide critical information the small company wanting to offer a “multi-function transport” based on the Boeing 747-8F.

The firm, NA KOA Aviation LLC (pronounced na-ko-a) is registered in Hawaii but operates out of the San Francisco area. On the one hand, information filed by the firm in its protest seems to support the notion that Air Force officials told Boeing unofficially that they wanted a smaller tanker than the Northrop KC-30 or the even larger Boeing 777. On the other hand, NA KOA alleges that this caused Boeing to effectively shut out NA KOA’s proposal to use the 748 in its own tanker proposal through “insider” information obtained by Boeing.

NA KOA has asked the Government Accountability Office to support a split buy between a medium- and a large tanker as a negotiated compromise, or to recommend a recompetition of the entire KC-X program.

NA KOA’s principals are Elizabeth P. Curtis and Paul D. Asmus. Each has around 30 years of experience in aviation. Asmus has filed comments with the US Federal Aviation Administration on safety matters and he once ran for Congress in Washington State in the district that includes Boeing’s Everett factory.

He also has a long history, dating to 1993, of proposing use of commercial airplane derivatives by the Air Force for air mobility solutions involving the Boeing 747-400.

What has unfolded is a story that may have the potential to be significant in the GAO’s assessment of Boeing’s protest. A decision by the GAO is to be issued by June 19.

The crux of NA KOA’s protest, according to Asmus, is who in the Air Force told Boeing what and when about what size airplane the Air Force wanted for the KC-X. Read more

GAO Protests often fail, Boeing concedes

Reuters published this piece late Thursday about Boeing’s concession that protests over government awards often fail.

Boeing, of course, is talking about its protest to the Government Accountability Office over the USAF award to Northrop Grumman for the KC-45A tanker contract.

This isn’t news–Boeing said as much when it filed the protest in March. But as the clock ticks down to the June 19 deadline for the GAO to release its findings, we’ve noticed something else that’s been ratcheting up significantly: the press, politician and labor activity on Boeing’s behalf.

In recent weeks, there have been an increasing number of Op-Ed pieces, actions by state legislatures condemning the award, calling for investigations, and this week alone the launch of a new pro-Boeing website, the issuance of a “white paper” (see our previous item on this one) and the 180 degree about-face by Loren Thompson of the Lexington Institute, who must be dizzy from about-facing so often. (He was for Boeing before he was for Northrop before becoming for Boeing again.) There was even an e-mail blast to Members of Congress that was all about the dastardly EADS (Northrop’s prime sub-contractor and parent of Airbus) and very little about the attributes of the KC-767, signed by about a dozen military types from several branches of the service of various ranks.

We’ve seen this same pattern of activity before. In the weeks leading up to the February 29 tanker award announcement, similar pro-Boeing stuff was coming from similar constituencies with similar messages. We concluded then that Boeing was laying the groundwork with Congress in case the award went against it (which we, and universally all other observers, did not expect). We believe this ratcheting up of activity is in the expectation that Boeing will lose the GAO protest–and this time Boeing expects that as well. (Which means that we, having called it wrong on the award, won’t be surprised if the GAO upholds the protest.)

We understand that the GAO has completed its work, but don’t know this definitively. Watch for even more activity on behalf of Boeing between now and the June 19 deadline for the GAO to announce its decision.

“White Paper” rips Tanker Award

A labor union of technical engineers issued an 11-page “white paper” today ripping the USAF tanker contract award to Northrop Grumman and the KC-30 over the Boeing KC-767. The two page press release summarizes the white paper findings.

The press release focuses entirely on EADS, parent of Airbus and maker of the A330-200 on which Northrop’s offering of the KC-30 is based. Northrop’s identified as a “minority” partner.

(During a conference several months ago, Northrop acknowledged that about 50% of the contract revenues flow to EADs/Airbus. Engines, in this case provided by GE (an American company), typically represent about 20% of the cost of a commercial airliner. This clearly makes Northrop a “minority partner.” But it’s important that although 50% of the revenues may flow to EADS/Airbus, payments to suppliers to EADS/Airbus also flow back to suppliers, with more than 200 based in the US. Northrop says that about 60% of the KC-30 by value is US-sourced.)

The White Paper is replete with errors and misrepresentations and cites “facts” without sourcing them.

  • It claims the KC-30 isn’t as structurally as sound as the KC-767 without backing this claim up.
  • It states (accurately) that currently only 1% of all cargo carried by the Air Mobility Command is carried by tankers but ignores statements and conclusions by the Air Force that a new way of carrying troops and cargo is required for the future, requiring a multi-role tanker-transport.
  • It claims EADS and Northrop “have conceded” the KC-30 is “much more costly” to operate than the KC-767; they’ve done nothing of the kind. They have conceded the KC-30 burns 6% more fuel than the KC-767, a far cry from the 24% cited by a Boeing-paid consultancy.
  • It claims Boeing has delivered 2,000 tankers in 75 years–but ignores the fact that the last Boeing-manufactured tanker, the KC-135, was delivered 42 years ago, and that the last tanker delivered by McDonnell Douglas, now a part of Boeing, was delivered 20 years ago.
  • It correctly notes that the KC-30 is in testing but ignores the fact that the KC-767AT proposed by Boeing for the Air Force is only a “paper” airplane; and the the KC-767 tanker delivered to Japan in February and March was years late and still hasn’t entered service; or that none of the KC-767 tankers ordered by Italy have been delivered and are years late.
  • It correctly notes that Boeing has designed an delivered five generations of aerial refueling booms but the sixth generation proposed to the Air Force is only a paper design. It correctly notes that the EADS boom is in testing.
  • It fairly questions past performance issues with Northrop and EADS but ignores the past performance issues of Boeing, particularly with the Italian and Japanese tanker programs.
  • It charges that 44,000 US jobs will be “exported.” This is the flimsiest claim of all. Boeing has never validated how it asserted the KC-767 will support 44,000 US jobs. Northrop initially claimed 25,000 US jobs will be supported, for a net difference of 19,000 jobs that would be subject to “export.” But Northrop later revised its figure that the KC-30 will support 48,000 jobs and “showed its math.” We’re still skeptical of this figure (how can a plane with less US content than claimed by Boeing for its KC-767 (at 85%) support more jobs?), but Northrop at least has been public about how it claims its number while Boeing refuses to do so.
  • It visits the claim of “illegal” subsidies to Airbus. Until the World Trade Organization rules in this case, perhaps as soon as next month, these are still allegations–as are the claims by the European Union that Boeing also received “illegal” subsidies. This issue is a red herring all around.

The problems with the White Paper go on and on.

McNerney Interview

Business Week has this interview with Boeing’s Jim McNerney.