Leeham News and Analysis

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.