Leeham News and Analysis

Assessing the fall-out on the tanker

In the three days since the USAF awarded the tanker contract to Northrop Grumman, the fallout has been swift and vitriolic.

Before going there, we’ve updated our corporate website with some analysis of our own. We take a look at the financial impact as we see it for Airbus. It’s less than you might think.

We also take a look at why the KC-30 won over the KC-767. We also posted a link to a Mobile Press-Register interview with the Pentagon’s top procurement officer that’s pretty instructive about how the selection process worked.

Now to the up-to-the-minute news.

Predictably, certain members of Congress are apoplectic over the tanker award to Northrop and its prime sub-contractor, EADS, parent of Airbus. This is particularly so for the delegations from Washington State, where Boeing’s KC-767 would have been built, and Kansas, where it would have been outfitted with the military hardware. Boeing’s labor unions are also, shall we say, a bit upset.

The reactions are understandable, but to be honest, misdirected. As defense analyst Loren Thompson pointed out in his report of Monday, the competition wasn’t even close–Northrop won going away in the assessment of capabilities. Northrop, in using the Airbus A330-200 platform, simply had a better airplane and a better proposal than did Boeing. Northrop also has a tanker that’s in testing (for the Australian Air Force, with delivery scheduled early next year), while Boeing’s KC-767 Advanced Tanker is merely a computer airplane (we used to say “paper airplane”). The 767AT is not the same airplane Boeing sold to the Italian and Japanese air forces. Furthermore, those tanker programs were beset by aerodynamic flutter and certification issues, and delivery to each country is years late. The USAF took note of these problems and Boeing lost major ground as a result in the competition.

The Congressional reaction (and the labor unions, too, for that matter) should really be directed at Boeing. Mismanagement of the KC-767 “standard” program, an inferior proposal and a less capable plane resulted in the loss. The critics now implicitly suggest that the Air Force should buy an airplane that doesn’t meet the desires of the Air Force. Boeing, typically, continues its public relations campaign feeding this anger rather than accepting that its proposal simply didn’t cut it.

Admittedly this would not be the first time Congress has imposed an unwanted procurement on a military service branch, should Congress overturn the USAF selection. Washington Senator Patty Murray, the No. 4 ranking Democrat in the Senate, is Boeing’s most vocal supporter and the most vitriolic critic of Airbus. She wants to give the contract to Boeing. Murray’s proclivity for imposing systems is well documented. The local papers reported a recent instance in which she earmarked money for a high speed boat for the Coast Guard to be built by a small Washington State shipyard (which, not so coincidentally, was a campaign contributor). The Coast Guard didn’t want the boats, didn’t ask for the boats and when the boats were completed found that they were totally unsuitable for their intended use. Never put into service, the Coast Guard immediately surplussed the boats.

Boeing spent the last year at least in a well-orchestrated public and political relations campaign raising red-herring issues about the competition that had little to do with the technical merits of the airplanes (ie, subsidies to Airbus and inflated job figures that, in our analysis, bore little relationship to reality). On the few technical merits that were raised, the data was questionable (notably fuel burn claims) and the Air Force itself discounted much of Boeing’s information, according to Loren Thompson.

Boeing went into the competition believing it would get the award, and in this the company was not alone. Right up to the end, every aerospace analyst that weighed in believed Boeing would win. But Boeing’s over-confidence led to an arrogance, we are told, that didn’t play well with the Air Force during its information-gathering. Boeing and Northrop met with the Air Force throughout the process to learn where their proposals were good and where they fell short, allowing plenty of opportunity for additional information to be provided.

With this process, Boeing had a sense of how the competition was going and this could well explain why Boeing engaged in the heated public and political relations battle that it did, concluding that they might well lose on the merits, and this fight would shift to Congress. We opined months ago that this was indeed Boeing’s strategy, though we never wavered in our belief that the USAF would nonetheless find a way to choose Boeing.

There were signs that we picked up, though, that Boeing was worried. We were told directly that Boeing-Everett (WA), where the tanker would be built, was worried about their prospects. We also were told of the existence of a memo from Boeing chairman James McNerney writing that a loss of the tanker project would not be devastating to Boeing. We could never confirm this memo existed, much less that McNerney wrote what was purported. We were also told that Boeing considered the prospects of a win no more than 50-50, late in the game.

In the end, all the political and union posturing, huffing and puffing and threats should be allowed to simply go away. Northrop and EADS won this thing fair and square, it seems, and by a wide margin. Boeing’s proposal simply wasn’t good enough. Why should the war fighter make do with less than the best? We’ve already seen what can happen (in Iraq) when this does happen. Let’s not perpetuate the bad.That’s how the Japanese auto industry overtook the American auto industry.

Boeing should simply cut its losses and apply its energy and talented resources toward the KC-Y tanker program, slated for 2020, and develop the Blended Wing Body for this. The BWB would be a leap in technological advancement that surpasses the A330 (as the A330 surpassed the 767) and even the 787 and the forthcoming A350. Forget offering the 777 in 2020; it will be too old by then. Go with the BWB and Boeing will reclaim its leadership in tankering.