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Old 02-29-2008, 10:33 PM   #1
JBM
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Exclamation Airbus Trumps Boeing on Tanker Deal

This doesn't directly concern civil aviation, but Airbus scored a major coup when the Northrop Grumman/Airbus team won a $40 billion contract to produce 176 KC-45 tankers based on the A330, besting the Boeing 767 variant.

If you recall, in 2004 the USAF initially awarded a unique lease/purchase deal for 767-based tankers, but the deal was voided when improprieties in the non-competitive process were discovered that resulted in the resignations of key Air Force and Boeing officials. Subsequently, the Air Force reopened the process as a competitive program. Boeing continued to offer the 767, and Airbus teamed with Northrop Grumman (the latter to provide the actual refueling system) on the A330 refueling platform.

A key factor in the bidding is said to have been the greater capacity of the A330, although the Air Force will not discuss its rationale publicly until officials sit down with Boeing to explain their decision.

Obviously, with an initial order for 176 aircraft that will ultimately expand to about 500, this is a HUGE deal for Airbus and comes at a time in which they are finally getting the A380 production line on track and the A350XWB project is in question (although as resources are released from the A380 project as the assembly line becomes fully operational, they may yet get the A350XWB rolling). Although the basic aircraft will be manufactured in Airbus's European facilities, the fit-out of the refueling system and other military systems onboard will take place at a new plant in Mobile, AL, and the engines will come from GE factories in the USA. First flight is expected to be in 2010, and the Air Force hopes to have it operational in 2013.

How does this affect the civil aviation world? Boeing was counting on their proposed tanker program to keep the 767 assembly line going. It will impact employment at Boeing facilities in Washington state and Kansas. We'll see if Boeing closes this line to push the 787 in its stead.

See http://www.cnn.com/2008/US/02/29/air...ers/index.html
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Old 02-29-2008, 10:57 PM   #2
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I agree that this is huge positively for Airbus, and negatively for Boeing, although I don't believe that once Boeing's improprieties were revealed they had any chance at this contract. It seemed very clear that the Pentagon was not yet through punishing Boeing. I think now, Boeing will be able to successfully compete again. As it turns out, this is also a very big deal for Northrup Grumman, perhaps not financially, but most certainly symbolically.

As for Airbus, it's a good thing they've gotten it. From what I read an hear, production of the A-380 is still mired due to the electrical systems production, or better said, lack thereof. Airbus has only delivered 3 of the 23 A-380's completed to date, and none yet with the new electrical system, which will allow them to ramp up to full production speed. The continued delays have supposedly caused the break-even point of A-380 production to have risen to 450 planes, while orders have been holding for some time at 189 planes.

The A-350 is also not without problems and continues to undergo some aircraft design changes, and it's now clear that numerous production design changes will have to be made. I've got to believe that there will be significant delays before the first A-350 takes to the air.

Meanwhile at Boeing, it's starting to sound like there may be one more production delay on the Dreamliner, although possibly not a particularly significant one, before their testing and production can really get going.

There sure is a lot of uncertainty these days in the commercial aviation aircraft business.
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Old 03-02-2008, 06:00 PM   #3
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Apparently, there were five major categories in the evaluation between the Boeing 767 tanker and the NG/Airbus A330, and the latter won 4 of the 5, so it will be difficult for Boeing to win an appeal of the decision.

Boeing may have nobody to blame but themselves. According to a 2006 article in the Seattle Times (http://seattletimes.nwsource.com/htm...7tanker26.html), Boeing had considered offering the Air Force a 777-based tanker after Airbus/Northrop Grumman upped the ante with the A330. Boeing had sold 767-based tankers to Japan and Italy, and perhaps they felt confident that a proven design would win out over something that existed only on paper. Had Boeing gone with the 777 version instead of the 767 version, they might have triumphed in the end.

Although this isn't going down very well with senators and representatives from states in which Boeing has facilities that build the 767 and/or would have contributed to the Boeing tanker project (I'm shocked to hear that!), those in Alabama are elated because of the new jobs coming to that area. The big objections involve loss of jobs to other countries as well as national security. There is a reasonable national security argument to be made, and also an international diplomacy issue involved--buying key equipment from a foreign country (France is the big mover behind Airbus/EADS) that hasn't always seen eye-to-eye with us.

Lost in the posturing is the fact that there is still a significant component of this project that will be provided by American labor. According to EADS, "Production of KC-45A airframes will be performed at Airbus’ new Mobile, Alabama aerospace centre of excellence which houses the Airbus KC-45A final assembly facility. In addition the final assembly of Airbus A330 civilian freighters will be performed there..." The GE engines and all the military hardware going into the aircraft are also American-made. Considering how we've been pushing our military aircraft on our allies for years, I have no heartburn with throwing some of our business their way.

Given that the A330 seems to have the 767 beaten on so many key points (especially fuel capacity), it might just be time for Boeing to say "the better person won" and go on with making the 787 and 747-8 projects fly and build better mousetraps.

N.B. I made an error and an understatement in my initial post. The original KC-45 award was in 2001 rather than 2004. Also, not only did heads roll at the Pentagon and Boeing over the lease/purchase fiasco, a former Air Force procurement officer who later became a Boeing employee went to prison for favoring Boeing in contract deals prior to becoming a Boeing employee
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Old 03-02-2008, 06:04 PM   #4
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Thanks for the excellent analysis JBM.
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Old 03-07-2008, 08:12 AM   #5
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Default Pelosi: It's McCain's Fault

Remarkably, Speaker of the House Nancy Pelosi is blaming Sen. John McCain for the Airbus/Boeing tanker fiasco. Referring to the decision to overturn the original award of the 2001 lease/purchase deal, Financial Times quotes:
"My understanding is that it was on course for Boeing before. I mean, the thought was that it would be a domestic supplier for it," Ms Pelosi told reporters.
"Senator McCain intervened, and now we have a situation where the contract may be - this work may be outsourced."
Let's see...Boeing struck a deal with the Air Force that ultimately resulted in the resignation of Boeing's CEO, and jail time for Boeing's CFO and the Air Force procurement officer (civilian) who negotiated the deal--and somehow, this is McCain's fault???!!!!

No. Boeing first lost the first non-competitive contract because of their own malfeasance, and they lost the second competitive process because their tanker reportedly lost on four out of five evaluation areas. The A330 was apparently clearly better than the 767.

Apparently, Boeing will mount a challenge based on administrative, legal, and political considerations:
  • The evaluation criteria were not made clear to Boeing, i.e. the Air Force wanted a larger aircraft but did not communicate that to Boeing, so they offered a 767 instead of a 777; and,
  • Anti-competitive practices in the form of subsidies from European governments allowed Airbus to undercut Boeing on price.
We'll have to see how this plays out. From what I've seen, price was not the major factor, and as far as the evaluation criteria are concerned, we'll have to see what case Boeing can make. If you recall the previous post, Boeing had in fact considered offering a 777-based design, but for whatever reason went ahead with their 767 tanker.

There is still some hope for Boeing down the line. The KC-10 tankers, based on the McDonnell-Douglas DC-10, are significantly newer than the 707-based KC-135, but they too are nearing the end of their useful service lives. The USAF may throw Boeing a bone and select a 777 tanker to replace the KC-10 in the next decade.

BTW, you've heard the story of B-52s and KC-135s being older than the pilots who fly them? That's not the whole story. Many of aircraft are older than the pilots who are retiring from flying them!
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Old 03-07-2008, 08:57 AM   #6
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The Dems are trying to throw McCain under the bus any chance they get. This Dem agrees with you JBM, that McCain had absolutely nothing to do with it. Loosing the original contract was the fault of Boeing's top management, as was the final contract loss.

Not getting the new contract was, in my opinion, much more the fault of Boeing's top management's poor decision in designing their bid, than Northrop's or EAD's good decisions for their bid. I had thought Boeing had no chance to get the contract because I thought the Pentagon thought they needed to be further punished. I was wrong. It appears that the contract was still Boeing's to loose, and by choosing the 767 instead of the 777 they lost the contract. It's that simple. Furthermore, based on the carefully documented decision to award the contract to Northrop/EADS, I think it will be particularly difficult for Boeing to be able to successfully challenge the decision.

Oh yes, Speaker Pelosi, ... I'd like to point out that Northrop Grumman is a US domestic corporation, and that Boeing has many international partners.
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