Skip to comments.Report: Boeing losing ground in tanker bid
Posted on 02/21/2011 7:00:00 PM PST by sukhoi-30mki
Report: Boeing losing ground in tanker bid
Dayton Business Journal - by Steve Wilhelm, DBJ Contributor .
Reports indicate that The Boeing Co. may be losing ground in its bid for the $35 billion U.S. Air Force KC-X tanker modernization contract to Airbus and perhaps Northrop Grumman Corp. But the protracted fight over the next Air Force tanker may bring with it this benefit for taxpayers: a better aircraft for less money.
In a blog published Feb. 20, aerospace analyst Scott Hamilton points out that the original 2001 contract won by Boeing would have leased 100 tankers to the Air Force for $200 million each.
By the time of the 2008 contract, which EADS won, the cost had been trimmed to $175 million each, and Hamilton expects this time the price will be trimmed by another 5 percent to 10 percent. EADS stands for European Aeronautic Defense and Space Co., the European parent of Airbus.
Additionally, both the Boeing and EADS aircraft are better technically than in 2001, with Airbus having refined its design while developing the KC-30A tanker for the Australian Air Force, while Boeing's proposed NextGen 767 tanker is a substantial improvement over the aircraft Boeing offered in 2001.
Both aircraft builders have spent a lot of dollars and euros on media pitching their proposals to decision-makers, much of it through aerospace trade journals, but Hamilton contends that Boeing hasn't fully marketed its advantage in offering a secure production line, while EADS must build a new factory in Alabama, and train workers for it.
Likewise Boeing hasnt strongly enough emphasized its deep experience maintaining tankers versus EADS, an omission that Hamilton calls "baffling."
While arguably most U.S. citizens would rather their government buy a U.S.-origin tanker this is decidedly a global market, and the content lines are blurry.
Both the U.S.-origin Boeing 767-based tanker and the European-origin Airbus A330-based tanker incorporate sizeable content of parts and assemblies from the other's region. And the precedent of buying equipment from each other is well established, with European armed forces buying Boeing military aircraft, including a British purchase of Boeing C-17 transports and an Italian purchase of 767-based tankers.
As for domestic jobs generation the competing tanker models are close together, with the Boeing proposal generating 50,000 U.S. jobs versus 48,000 from the EADS version, according to Hamilton.
The tanker competition will essentially be won by the low bid, and EADS has strong incentives to underbid Boeing, given Airbus' desire to build a plant in the U.S. to also build A330 freighters.
And here the three years of 787 delays may benefit the European-origin tanker, because one of EADS' strengths is the order book for about Airbus 1,100 A330s, compared to just 49 back orders for Boeing 767s.
Orders for the A330 have come in large part from airlines needing new wide body capacity, but forced to turn to the A330 because the combination of the 787's large order book, and its delays, means those carriers wouldnt be able to get delivery of Boeing 787s for years.
The A330 is a newer and slightly larger design than Boeing's 767, which also has won a few orders due to the 787's delay. But many of those have been a sop to 787 launch customer All Nippon Airways, which has taken the brunt of the 787's repeated delays, and has taken a few heavily discounted 767s to meet its capacity demands.
This order volume gives EADS economies of scale that may help it trim its price enough to win the tanker contract. Not to mention that EADS already has a completed aircraft to offer, although the A330-based tanker model has suffered its own delays, while Boeing still has to factor in the expense of developing the NextGen 767.
Given the problems Boeing has had finishing the 787 and 747-8, and the need for engineers and capital to develop a 737 successor, developing a new 767 tanker might be a task best avoided.
The Air Force is expected to announce its choice by Friday, Feb. 25.
Perhaps theres enough exhaustion around the process that there won't be appeals.
Or if not that, perhaps there's so much political paralysis that the Air Force will be forced into buying some of both models, the so-called "split buy," despite the higher costs of such a move at a time of military budget cuts.
That would make them 0 for 2.
Surprisingly balanced story.
I guess I’m just simple minded, but as a tax payer in a country whose citizens are crying for jobs I find it outrageous that we’d send our tax dollars to another country and supply jobs for their citizens. But that’s just me.
In the entire history of building tankers, Boeing has never won a US tanker competition.
The KC-135 was sole sourced, and Boeing lost to McDonnell Douglas' KC-10.
................aerospace analyst Scott Hamilton points out that the original 2001 contract won by Boeing would have leased 100 tankers to the Air Force for $200 million each.........................
Oh Yeah! Let’s compare the original deal, negotiated by Linda Daschle (remember her and D’Ashole the Senate Majority leader) to the current situation.
And then lets compare the efficiency of Boeing’s building their aircraft at their facilities; to Airbus opening and staffing a new facility in an area of the US that is not noted for skilled aircraft builders, with huge learning curves on millions of individual parts aircraft.
Then figure in the differential for the probably 25% personal income taxes on domestic Boeing employees income, versus the US based Airbus employee’s income.
We’ve got 20 percent under-employment, why is this contract not a slam-dunk in favor of domestic Boeing??
Is our government totally incompetent????
Why doesn’t that graphic have winglets on the tanker jet to decrease air turbulence??
20 year old pic??
It’s from the article link-probably from the earlier KC-767 avtar.
Banking on the property value going up?
Don't worry, USG can't award Boeing without admitting they screwed up from day one...you can go ahead and buy that new Japanese car.
Got a dog in the fight do you?
Banking on the property value going up?
Don’t worry, USG can’t award Boeing without admitting they screwed up from day one...you can go ahead and buy that new Japanese car.
>bought it last weekend, it was made in Eastern Ohio
Odd that you say this; your implication is that the two-engine model is inherently unsafe and the design was approved anyway.
The most dangerous time during flight is during takeoff; as an aerospace engineer I certainly know that. [I've never worked for Boeing so I'm not biased.]
Once, when taking off from Denver on a United flight in a 757, we lost an engine on takeoff. The plane literally lurched several times, like a cold car engine that can't quite get good combustion in the carburetor.
After about 30 seconds of this, and some frozen stares exchanged with my fellow passengers, the lurching stopped and the 757 smoothly accelerated into the rest of its climb. However, a few minutes later it was clear that the plane was not heading to Los Angeles anymore, but was turning around to land at Denver. When we landed, the runway was surrounded by fire trucks and emergency vehicles.
I saw the pilot in the terminal later and asked what happened. He'd lost the right engine on takeoff and couldn't get it started again. A problem, he admitted, but one that all pilots practice for on simulators.
The 757 was fine. Once the pilot shut off the bad engine it completed its climb smoothly and without incident on only one engine. None of us were aware that the plane had a crippled engine anymore.
So I'd suggest that you worry less about airplanes with only two engines. I think my colleagues in industry have done a heckuva job.
As a defense industry veteran and a patriot, I agree with you. But consider:
1) In 2000, Boeing tried to work that sweetheart lease deal with the USAF, non-competitively. John McCain used it as his springboard for his Presidential campaign. The DOD has a long memory and many people were bruised by Boeing's heavy-handedness.
2) Competition is good. If Boeing lost the tanker job, or it was a dual award to both Northrop Grumman (with EADS as its partner) and Boeing, the impact on Boeing's future competitiveness would be long-lasting. Remember, Boeing is the last military transport manufacturer left in the USA.
3) The DOD has already "betrayed" American industry in the past, in part to send a message. Sikorsky lost the Air Force One upgrade competition to Agusta Helicopter a few years ago. It hurt Sikorsky and sent a message to industry. Of course, that is all OBE because the Obama Administration canceled the contract in 2009.
Personally, I think Boeing's chances are excellent because if the USAF chooses NGC/EADS, the uproar will be enormous. The Obama Administration is already hurting badly and, for political reasons, will intercede regardless of the outcome of the independent evaluation. I expect that it will either be a single award to Boeing or a shared award to both companies.
Best argument for Airbus that I've seen. Didn't realize the Boeing labor was that much more expensive.
........................Best argument for Airbus that I’ve seen. Didn’t realize the Boeing labor was that much more expensive................................
I’m trying to net out the after tax expense of a US worker to a foreign worker.
If a US worker works on a US underwritten project, the IRS gets about 25% of the workers wages, thus the net outlay from the US coffers benefits from the taxable wage input.
If a foreign worker works on a US funded project, the IRS gets nadda, nothin, in income tax receipts from the foreign worker.
If GE or PW builds the engines, the US gets significant income tax revenue from both the workers and GE corporate taxes.
If Rolls Royce builds the engines, we receive no domestic worker or US corporate taxes.
When you’re talking multi hundreds of millions per plane, the taxing differentials add up very quickly as to has the net cheapest plane!
So you've established you don't know what you are talking about.
Your original comparison was for "domestic Boeing employees income, versus the US based Airbus employees income."
So now you are trying to change the 'US based Airbus employee' to 'foreign workers'.
I don't expect much intellectual honesty from your ilk, but giving the most favorable reading to the two posts, you could be talking about US based foreign employees of Airbus - Green Card holders. And to give the most favorable slant to your comments, you must be ignorant of the fact that Green Card holders pay US income taxes.
So tell your bosses in Chicago to put someone a little smarter on your project.
Please read again: I’ve added comments for clarity:
....”If a foreign worker”...... A foreign worker is someone in France, Italy, wherever. The US does not get payroll taxes or income taxes on this worker.
If the AirBus contract specs Rolls Royce engines (I don’t know whether it does), the engines are built overseas by “foreign workers, and the US receives no payroll tax, or income tax, or corporate profit taxes for the engine that gets bolted to the fuselage that is built - where-ever.
If the contract specs GE or PW engines, the US employees pay payroll taxes, income taxes, and the corporation pays profit taxes.
I only seriously suggest that a Federal procurement program, assess the US content of labor and parts - which also contain labor - and make a determination as to the overall net cost to the US Treasury.
PAR35, I have no idea where your animus about my comments comes from, but I suggest you read posts accurately, then take your meds, before you make a total raging A-Hole out of yourself!
I suggest you read YOUR posts accurately. Perhaps you can't remember what you posted - even when I quote it.
"Then figure in the differential for the probably 25% personal income taxes on domestic Boeing employees income, versus the US based Airbus employees income."
Why don't you call yourself together for a conference. Are you trying to compare your Boeing union labor to "US based Airbus employees" (post 7), or to "a foreign worker." (post 16) or a "foreign worker is someone in France, Italy, wherever" post 18)? As I pointed out before your tantrum, US and foreign workers in the US pay US taxes (shooting down your original point); now your are trying to say that your US based employee is working in Europe - to avoid admitted you didn't know what you were talking about originally.
I can keep up with your moving targets; can you?