Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: Air Transport’s route to 2050. Part 19. April 25, 2025
- How good is the C929? Part 2. April 24, 2025
- Boeing First Quarter Results Update: China is 10% of the backlog, with 500 in “Unidentified” April 24, 2025
- Boeing First Quarter Results: Tariffs, Return flights, $10.55bn asset sale April 23, 2025
- RTX Q1 2025 Earnings: GTF Talk Takes A Back Seat To Tariffs April 22, 2025
Tankers: to split or not to split
Update, May 4: Veto threat over split tanker effort: read all about it.
Update, May 3:
US Rep. John Murtha (D-PA), chair of a House appropriations committee, has dropped (for the moment) his effort to insert into the FY2010 budget language requiring a split buy between Boeing and Northrop for the KC-X tanker. See this story.
Original Post:
Well, blow us down. Loren Thompson, the defense analyst, now favors a split buy.
He’s been all over the map on this procurement. A big defender of the Boeing KC-767 lease deal when that was on the table. For the KC-767 vs. the Northrop KC-30. Defending the KC-30 award after it was given. Supporting the Boeing protest. Now this.
Followers (including this column) of Thompson, who is quoted frequently as a defense expert, respect his thinking but can’t help be a little baffled on this program.
Thompson’s rationale is what we’ve been advocating since we began following the competition several years ago: split the buy for operational reasons. The two tankers are differently sized: some missions are better suited for the KC-767 and some are better suited for the KC-30. Double the procurement, retire the old KC-135s more quickly.
On the other hand, US Rep. Norm Dicks (D-Boeing/WA), claims he was quoted out of context by KIRO TV a while back, which reported Dicks could “live with” a split buy. Now Dicks is back on his sole-source band wagon (for Boeing), even though Boeing now is fine with the idea.
And now, a plug for our Eco-Aviation conference. More information may be found here.
Replacing the A320, 737
We attended the joint anouncement April 28 by Boeing and CFM International for the enhancements to the 737NG, something we had forecast in an article for Aviation and the Environment magazine way back in December. Except for the possibility of re-engining the 737 with the Pratt & Whitney Geared Turbo Fan (a prospect that was only evaluated and not forecast in our AE piece), we were right on the money.
Production assessment, Round 3
Some interesting items came out of the Boeings 1Q09 earnings call yesterday (April 22) with regard to production and deferrals.
Oversales of the 737 have been a key element in Boeing being able to maintain current production levels of 31/mo, despite the global recession. As was previously acknowledged by Boeing, 2009 737 oversales were about 100. On the year-end 2008 earnings call in January, CEO Jim McNerney acknowledged that oversales for 2009 had been reduced to about 15% over the production (which mathematically equated to about 55-56 737s).
Boeing will leave Seattle: prediction
Update, April 27: It has been pointed out to us that The Everett Herald wrote that we advocated changing and cutting unemployment insurance and taxes during our speech to the Economic Development Council of Snohomish County. This is not correct. We took no position on the then-pending legislation in Washington State. What we did say is that we agreed with County Executive Aaron Reardon’s characterization that a change by the Legislature in 2005 to the 2003 Boeing 787 incentive plan was “bait-and-switch.” This concurrence apparently led the paper to conclude we supported the change proposed this year.
The Washington State Labor Council wrote us with this information about the 2005 change:
EHB 2255 was the bill in 2005 that restored UI benefits from four-quarter averaging (which it was changed to as part of the 2003 7E7 incentive package, a significant cut of up to $200/week for some workers) back to two-quarter averaging where it was prior to 2003. There was only one business in Washington that testified in support of this restoration of benefits. It was BOEING. Bob Watt. Check it out (under “pro”) right here: http://apps.leg.wa.gov/documents/billdocs/2005-06/Pdf/Bill%20Reports/Senate/2255.SBR.pdf
Update, April 24: Bryan Corliss wrote a five page article for the May issue of Seattle Business Monthly that just hit the web. The article, entitled “Boeing, Boeing…Gone,” is an excellent analysis of the current state of affairs in the perennial controversy over the issues involved in Boeing staying in Puget Sound or moving elsewhere. We knew he was working on a piece–we’re quoted extensively in it–but did not know who else he was talking to. We note that other observers touched on virtually the identical points and came to the identical conclusions we discussed in our EDC presentation below. Corliss knows Boeing as well as any local reporter. He covered the company for years for The Everett Herald, leaving when he obtained a fellowship at New York’s Columbia University. Michelle Dunlop succeeded Corliss, who returned to the Seattle area after conclusion of his Columbia work to resume his coverage of Boeing for other publications.
Update, April 23: Michelle Dunlop of The Everett Herald, in her reporting of our EDC appearance, inserted this little reminder:
Last fall, during the Machinists’ strike, analyst Richard Aboulafia, with the Teal Group, predicted a Boeing exodus over the next decade.
“Over the next 10 years, (Boeing Commercial Airplanes) will move to southern states with weaker unions and right-to-work laws that diminish union power,” Aboulafia wrote in a briefing. “This move will likely happen in phases, with new programs … established elsewhere and the 787 line shifting locations.”
Update, 3:00 PM: In response to an analyst question on the Boeing earnings call, CEO Jim McNerney said a decision on ramping up 787 production beyond the goal of 10/mo (ie, this effectively means a second production line) will be made about a year from now.
Note: This is a 2,400 word report.
We were the speaker today (April 22) at a meeting of the Economic Development Council of Snohomish County, which is the county in Washington State where Boeing’s Everett wide-body production facility is located.
The meeting was scheduled before a flurry of press activity following the unauthorized release of a study by Deloitte Consulting about Washington’s aerospace competitiveness and a second study about Boeing’s impact on the Puget Sound (the greater Seattle area) economy. The second study was by the Washington Research Council (WRC).
The Deloitte study concluded Washington is not competitive with Texas, Kansas and some other Southern states due to its business climate deficiencies, labor issues and other factors. The Washington State Labor Council and the national headquarters of the International Association of Machinists (IAM local 751 represents thousands of Boeing workers in Puget Sound) dismissed the veracity of the Deloitte study because Deloitte has done work for Boeing in the past.
The validity of the WRC study was discounted by a close observer of Boeing because WRC officials have previous connections to Boeing.
Our view on the two studies is this: we don’t really care whether Deloitte has done work for Boeing in the past or not, or if some Boeing talking points were included in the study (which, generally, seems to be true). The underlying thesis that Washington hasn’t attracted significant new aerospace business is indisputably true and most if not all of the statistical data comparing states-to-states is publicly available. (How this is interpreted may be a different and legitimate issue of debate.)
Bottom line: there is something wrong in Washington where new business avoids this state.
As for the WRC study, the conclusions contained therein are probably sound. Whether this study, or the Deloitte report, are orchestrated efforts by Boeing to send a message to the Legislature is hardly the point. There is a problem (a challenging business climate), solutions need to be found or there could be ramifications (the prospect of Boeing leaving Puget Sound in whole or in part). The nature of the solutions are the proverbial devil in the details.
Ahead of Boeing earnings
Update, April 22:
Here is the link to Boeing’s 1Q09 earnings. Here is the link to the 1Q09 PDF slide show that goes with the earnings.
Original Post:
Tomorrow (April 22) is the release of Boeing’s 1Q09 earnings. Here are some thoughts ahead of the release.
- Do not look for any announcement on rate reductions of the 737. Boeing previously announced reductions of the 777 line and freezing rates of the 747 and 767 lines. There continues to be a lot of speculation that the 737 rate will be reduced soon. Whether it is or isn’t don’t expect any announcement tomorrow. Someone will try to get guidance about 2010 rates.
- There continues to be speculation that Boeing Capital Corp. will have to do more customer financing ($1bn) than has previously been announced. As of this moment, we don’t expect anything new on this front, either. There ought to be discussion about the 2009 funding gap and how funding is beginning to look in 2010. Read more
More on the funding gap
A Calyon bank official said at the annual Airfinance Journal conference that Airbus and Boeing may have to increase funding more than the companies expected this year because the funding gap is larger than thought. This Bloomberg story has the details.
Calyon has been one of the most active lenders worldwide.
Gates on split tanker buy: over my dead body
US Defense Secretary Robert Gates said there will be a split buy on the KC-X tanker program over his dead body.
“I’m laying my body down across the tracks,” Aviation Week quotes as saying in this short article.
It’s not Robert Gates but you get the point.
American’s 787 deal
American Airlines revealed the following in its 10Q quarterly report about the provisional order with Boeing for the 787:
In 2008, the Company entered into a new purchase agreement with Boeing for the acquisition of 42 Boeing 787-9 aircraft. Per the purchase agreement, and before delays due to the recent Boeing strike as discussed below, the first such aircraft is scheduled to be delivered in 2012, and the last is scheduled to be delivered in 2018. The agreement also includes purchase rights to acquire up to 58 additional Boeing 787 aircraft, with deliveries between 2015 and 2020. Based on preliminary information received from Boeing on the impact of the overall Boeing 787 program delay to American’s delivery positions due to the strike in 2008, the Company
Will Boeing leave Washington State?
As readers know, there has been a lot of news in the past week about whether the business and labor climate in Washington state is such that Boeing will leave for the sunny South.
Here is a poll–cast your vote to tell us what you think. You may vote multiple choice.