Daily G2 Solutions analysts news review now available at:  http://g2globalsolutions.com/review/

 

June 2008

Now what?

GAO has spoken, but we are still no closer to a final resolution of what is best described now as the tanker soap opera. 

While we felt the Boeing protest had indeed several merits on the technicalities, we still believe a lengthy recompete is unnecessary and might actually lead to further legal complications that would further delay the delivery of these critical aircraft to USAF.

If there is indeed to be a recompete, KC-30 remains the more capable aircraft when compared with KC-767.  However, some have hinted that Boeing would now offer the 777, which could be a very attractive option to the customer, albeit perhaps too much aircraft for the mission as currently defined by USAF. (Perhaps a reason or two why 777 was not offered in the first place).  Let’s not forget that the issue at stake here is goes beyond the lucrative tanker contract and is actually an extension of the Boeing-Airbus turf battle.

Some will now argue, and perhaps we share most of their feelings, that Boeing won a political battle while not proposing a product to the customer that could equal A330 mission performance... When one examines the GAO decision, it remains clear to us that our evaluation of the contest in December 2007 was indeed close, let’s look at the five criteria as presented by USAF:

Mission capability:  This is the key criterion and USAF was reportedly not entirely clear with this metric.  If USAF decides to rewrite those metrics, it might lead to more confusion and feed future protests.  However, it also is clear that the customer perception of mission capabilities was perhaps altered for the better during the competition.  While USAF might need to tweak this to reflect lessons learned, how it will proceed with the evaluation will remove any doubts as to which company has the better product.

Our view:

• December:  KC-30 Wins

• Now: KC-30 wins the recompete

Proposal Risk.  USAF found that the two proposals had a similar level of risk.  Risk can be based on technical approach, estimated cost, teaming arrangements and all factors that can intervene in the overall risk perception.

Our view: 

• December: KC-767 Wins

• Now: KC-767 wins the recompete

Past performance: Boeing lost to the Northrop Grumman-EADS team. The simplistic argument that Boeing has built the majority of the current tanker fleet cannot be entirely used as a past MOP. It appears that GAO had no significant issues with how the Air Force applied this criterion.

Our view: 

• December: Northrop Grumman slightly ahead

• Now: Northrop Grumman wins the recompete

Cost/price: This is apparently where USAF made several mistakes with cost estimates and life cycle costs.  A recompete will be instrumental in devising better cost measurements and strategies.  This is Boeing’s Achilles heel in spite of public proclamations on A330’s increased fuel consumption over the life of the weapons system.

Our view: 

• December: Northrop Grumman wins

• Now: Northrop Grumman wins the recompete

Integrated Fleet Air Refueling Assessment:  Boeing will say that this was applied unrealistically.  However, USAF scenario modeling will remain classified for obvious reasons and GAO is unlikely to have shed valuable insight.  Even if IFARA modeling was partially flawed, USAF’s response to GAO on the issue in May was perfectly reasonable, and while numbers can be manipulated in favor of either platform, realistic scenarios will be crucial, as they will demonstrate that tanker ops in the pacific will require a longer range, heavier aircraft such as KC-30 or KC-777.

Our view: 

• December:  Boeing Wins 

• Now: Tie   

What can USAF do now? Ignore GAO?  This perhaps would set a dangerous precedent going against the best interest of future procurement processes.  Split the award between the two bidders?  This option might eventually materialize. While involving significant added costs, a split buy may have proven a way to avoid all this government waste in the first place (see our January entry on the topic).

The Boeing camp has won a significant battle, as we had mentioned earlier in March, Boeing’s reasonable points have proven valid to GAO, but again, those are technicalities with the procurement process, nothing to do really with which aircraft is better suited for the mission.  USAF needs to move quickly with a recompete and provide all resources necessary to announce a final selection by end of 2008.  Neither Boeing nor Northrop Grumman should continue to receive funding until a final decision has been made.

 

 

 

USAF B-2 Mishap Report and Accident Video

 

Summary of Report from ACC

 

May 2008

 

USS Truman Temporary Residents

US Navy Video

 

 

A350 overweight, so what?

There is something fundamentally wrong at times with some elements of the media. A recent story in the German press claims that the A350 is about eight tons over initial weight targets.  While this come as no real surprise to us, it however is not the weight problem that really is interesting, but the increasing voracity of the media to jump on any story for the sake of a story.  News travel very fast in the internet age, and what was previously considered anecdotal is now positioned as news with little to no analysis or research behind it.  As for A350, now 6-7 years from her entry in service, it is somewhat expected that initial designs would come higher than planned.  If the aircraft is indeed suffering from weight issues, Airbus will now work with suppliers to find ways to meet more aggressive weight targets while making the necessary improvement with the aircraft carbon fiber fuselage barrel design. With oil hopefully at half its current price around 2015, aircraft weight might not be as critical as it is now... Time to take a longer term perspective, not just with 350, but also with C-Series, MRJ and the rest...

 

A reminder of what lies ahead for Airbus, Bombardier and Boeing...

 

It will take some time for the Chinese aerospace industry to get up to par with western standards and manufacturing efficiencies and procedures.  However, G2 Solutions' experience with China leads us to suggest that the ramp up will accelerate, and that it will much faster than what some might have suggested in previous years.  While we are not talking of dog years,  we would not be surprised if China makes an attempt to develop that 150-200 pax aircraft by the end of next decade to propose a solution, albeit inferior to Airbus and Boeing's new narrowbodies.  Even if by that time China is not able to compete on the same levels in terms of evolutionary technologies and especially will lag behind in terms customer support and service, price positioning will allow them to take some minimal market share away from Toulouse and Seattle in what we believe will initially be "political" purchases.  With the Chinese government able to exert political and financial pressures on potential buying countries, the Chinese domestic market alone will support product growth, with the real threat materializing between 2025 and 2030.  By that time, Alabama will look like a real nice place to live and work...

 

April 2008

Guessing Game...

With all the talk about Airbus and the GTF option for the 320 upgrade, here is a slide we put together early last fall to discuss some of the options available to the two major aircraft OEMs.  Some of the terminology might have changed since, but it clearly highlights, in our opinion, that Airbus might have the upper hand as far as the timing of upgraded/new products.  However, as we all know, what looks good and promising now might be an altogether different story in five years time.  With an economic slowdown clearly affecting the market, Boeing might be able to delay the 737RS enough  to match the new Airbus narrowbody innovations.

 

 

 

Northrop Grumman awarded BAMS contract  

DoD Announcement:     

The Department of the Navy announced today that the Northrop Grumman Corp. has been awarded the system development and Demonstration (SDD) contract for the Broad Area Maritime Surveillance Unmanned Aircraft System (BAMS UAS).   The BAMS UAS contract award is the culmination of a year-long source selection process since the Navy received industry proposals in May 2007. The $1.16 billion cost-plus-award-fee contract is to develop a persistent maritime intelligence, surveillance and reconnaissance (ISR) data collection and dissemination capability that fulfills the maritime war fighter's requirement for continuous battle-space awareness.  The BAMS UAS will be developed using Northrop Grumman's RQ-4N platform.  "This announcement represents the Navy's largest investment in unmanned aircraft systems to date.  The extraordinary efforts leading to this announcement have helped the BAMS UAS program begin to develop a persistent ISR capability never before available to the fleet," said Capt. Bob Dishman, program manager for the BAMS UAS program. "This is a significant milestone for the BAMS UAS program, concluding a deliberate and meticulous source selection process that adhered to stringent Federal Acquisition Regulation and Naval Air System Command source selection processes and documentation requirements."  The BAMS UAS is an integral part of the maritime patrol and reconnaissance Force. As an adjunct to the P-8A Multi-Mission Maritime Aircraft, the BAMS UAS will provide persistent maritime and littoral intelligence, surveillance and reconnaissance to joint forces and fleet commanders worldwide. This capability will enhance battle-space awareness, improve force projection capabilities and protect and defend the fleet and the nation.

The Last of the Bandits

Today will mark the end of major era of military aviation history.  F-117A will officially be retired at ceremonies at Holloman AFB and Palmdale, CA.  The four ship flight will then head north to their original base on the Tonopah test range, in the North West corner of the Nellis Range.  There, they will stored in the original hangars that were built in 1982 to house the first operational 117 squadron.  With the entry in service of F-22A and other exotic new manned or unmanned platforms, the days of the Nighthawk were indeed numbered.  Here are some of the individuals who had a significant role in the emergence of the first operational stealth aircraft in the world:

- Ben Rich, Lockheed Aircraft
- Denys Overholser, Lockheed Aircraft
- Dr William J. Perry,  Former DoD Engineering Chief and later Secretary of Defense
- Senator Samuel Nunn, Jr.,  Chairman of the Senate Armed Services Committee

and many more...

 

 

Two KC-10s, the Moon and a PDLCT

This is not the title of a new Chronicle but rather an interesting airborne combination courtesy of NATO air forces joining in the skies over central Asia.  The Mirage 2000D crew has got some interesting creative flair...Almost looks like those two USAF KC-10s are on their way to the moon.

 

 

It's a long Road...

There’s no question the elusive first Rafale export sale is getting closer and closer but the buyer seems to be changing every six months.  Morocco collapsed last year, Libya emerged as the next likely buyer shortly thereafter, but since then things have gone very quiet.  Russia has reportedly offered a deal to Libya for a squadron of Su-35 including a full weapons package. This could be an advantage since France has apparently not included MICA in the pending Rafale transaction.   Recent information circulating in the French media is now suggesting that the UAE is at an advanced stage of negotiation with Dassault for the procurement of 20-30 Rafales to replace or complement its fleet of remaining Mirage 2000s (upgrades near completion) and 2000-9s (Bader 21 agreement). The deal could also involve the transfer of the 2000s to a potential buyer with India reportedly expressing strong interest.  It however remains unclear as to which aircraft will be sold.  Transferring the 2000-9s to India would be a strong signal that Delhi is leaning Rafale for the MRCA tender and is using the -9s as a bridge to Rafale since both aircraft share common modular avionics and some other systems, including part of the weapon system.  To date India has only expressed interest in upgrading its 2000s to the -5 standard; procuring -9s would lead to a hybrid fleet of 2000s, however a switch to -9s could perhaps be on the table (the 2000-9 is a suped up -5, the type difference is not a stumbling block).    It is also not clear if the UAE AF would decide to keep some of the newer -9s and sell the remaining aircraft to India.  Judging by the recent announcement that France will have a permanent base in the UAE soon, this bit of news seems rather logical and perhaps represents the strongest Rafale lead since…ever.  With the rumored announcement of a Greek AF buy for a squadron of Rafale reportedly imminent, this could be the year Rafale makes it to the big league.

                    Photo:  Dassault Aviation

GAO Report:  Defense Acquisitions: Assessments of Selected Weapon Programs

From GAO :

This report is GAO's sixth annual assessment of selected weapon programs. Since 2000, the Department of Defense (DOD) has roughly doubled its planned investment in new systems from $790 billion to $1.6 trillion in 2007, but acquisition outcomes in terms of cost and schedule have not improved. Total acquisition costs for major defense programs in the fiscal year 2007 portfolio have increased 26 percent from first estimates, compared with 6 percent in 2000. Programs have also often failed to deliver capabilities when promised. DOD's acquisition outcomes appear increasingly suboptimal, a condition that needs to be corrected given the pressures faced by the department from other military and major nondiscretionary government demands. This report provides congressional and DOD decision makers with an independent, knowledge-based assessment of defense programs, identifying potential risks when a program's projected attainment of knowledge diverges from best practices. The programs assessed--most of which are considered major acquisitions by DOD--were selected using several factors: high dollar value, acquisition stage, and congressional interest. This report also highlights overall trends in DOD acquisition outcomes and issues raised by the cumulative experience of individual programs. GAO updates this report annually under the Comptroller General's authority to conduct evaluations on his own initiative.

The report can be accessed here

 

 

A few interesting articles have caught our attention lately.  The first one, published in Airline Business is a remarkably rational piece from Doug Parr, Greenpeace's chief scientist.  His point about biofuels cannot be contradicted; it's a fact, they will do more harm than good.   The environmental zealots mafia litigation lobby now needs to come up with practical solutions besides "airplanes are bad", and moderate their (ideological not factual) view that global warming climate change is primarily due to business and commercial aviation growth.  The solution lays with scientific research, and from our point of view, it begins with more aggressive MPG for every car in the Western World,  a minimum of 35-40 MPG by 2015 seems reasonable enough.

Then there is this article in Human Events which raises a very troubling point if indeed correct.  If, as suggested by the article, the Integrated Fleet Air Refueling Assessment (IFARA) model is partially flawed, this might have helped KC-30 and penalized KC-767. We do not have the details and the AF most likely has a reasonable explanation, but this could have some traction, though probably not enough to reopen the competition.

General Chuck Horner (USAF Ret) often brings clarity to complex situations. He proves it again with this (refreshing) piece for NR Online.  We do not entirely agree with him about France's intentions vis a vis the CFM-56 engines. Commercial considerations and the fact that a good chunk of the A320s flying in the world since 1988 use that engine are the key reasons for France's "good behavior".  Add to this the fact that the entire KC-135FR fleet in service with the French Air Force also uses the above mentioned engine.  The list could go on and on.

The article can be found here

This week's edition of the Thud Factor is available here

 

Inside look into a RTO sequence (courtesy of a patient Airbus flight test aircrew)

 

 

March 2008

This week's edition of the Thud Factor is available here

Veritas Liberabit Vos

Graham Warwick of Flight International recently listed this "bipartisan" blog about the tanker program. This site does little in terms of new and/or pertinent information.  Still, we would "recommend" it as a read for those interested in trying to understand how some on the Hill and K Street are trying to influence or interpret Boeing's protest. 

http://tankerblog.blogspot.com/

 

The Center for a New American Security (CNAS) and Foreign Policy Magazine Health and Future of the U.S. Military Survey Results

Very interesting & revealing read (click on image to be redirected to Foreign Policy's website)

It’s getting crowded at the top

Gulftsream’s G650 announcement introduces yet another airframe at the top end of the business aviation market. The range is an impressive 7,000 NM at .85 Mach and 5,000-NM at 0.9 Mach.  This all looks very good but speed costs money, and the DOC/hour of  the G650  is likely to be around the $3,500 mark (perhaps more).    Competition with the Global Express will be interesting, but might come down to a matter of personal requirements, not necessarily comparative aircraft performances. One of the most notable pieces of news coming out of this announcement has to do with the selection of Thales for the design of the Fly By Wire system,  perhaps Bombardier will read the signs here.  Now Gulfstream can also work on their website loading speed too…

Of Politicians, Tricycles and Professionals…

As the tanker saga continues we are tempted to drop the topic from this blog altogether. However, comments we hear in the “news” media and from Capitol Hill might give Jay Leno and Jimmy Kimmel some interesting competition.  In all seriousness, the storm is gathering strength and the aftermath of the competition is seemingly losing all elements of logical thinking. It is regrettable that the Boeing protest is driven mostly by complaints related to technicalities in the USAF selection processes. It looks increasingly like this is being managed by a group of lawyers  advising BA that the only way to overturn the NGC win is to show how USAF made mistakes in changing requirements during the competition.  We are in no position to judge if Boeing’s strategy has legal merit (we think it regrettably might).  

What is conspicuously absent from the whole debate, and especially from the media comes down to this simple question:  What is the best aircraft for the warfighter to execute this strategic, long-term mission (and give US forces an advantage when our Beijing friends get their own tricycles over to Taiwan)?  We have not heard a single lawmaker ask the best for the warfighter question during subcommittee hearings; Sue Payton was only there to face the so predictable ire of congressmen “angry” from WA and KS (thou shalt rename temporarily nameless here).  The way Ms. Payton handled some of our elected representatives’ questions (correction: posturing) deserves the Nobel Peace Prize or its US equivalent since the previously nameless would probably complain that the Nobel Prize is a threat to national security due to its high foreign content and should be presented in the 6th district of the great State of Washington. 

Our sarcasm is noticeable because the protest’s banner holders have  contributed to Boeing’s (reasonable) questions causing the argument to lose any logical sense and defensibility. Weak arguments, short-term political needs and emotional temper tantrums are a common thread.  Boeing’s case, and we believe that some of the points raised by Mark McGraw have merits, now needs to be handled by professionals that can re-ignite a rational and defendable case for the 767.   Who better but USAF to do this?  They (and Boeing) need to tell the non-Boeing crowd to tone down, as the rhetoric will get them nowhere.  Similarly, Northrop Grumman needs to keep a lid on  dubious claims suddenly doubling the number of incidental jobs created by KC-45A; the tit–for-tat is frankly getting a little old.    The best of the media reporting about the KC-45 aftermath can be found here, here and here.  Those are the professionals that deserve some attention.

What we find interesting is that Boeing is seriously pointing to the many risks with the production model (multiple sites, multiple partners) that NGC is planning for KC-45A.  When one looks at the many problems encountered by an even more decentralized program like 787, one may wonder why Boeing chooses this line of criticism.   It is regrettable that  criticism toward KC-30  often omits the name Northrop Grumman  from (surprisingly) inferior selective reporting such as CNN’s Lou Dobbs.   Northrop Grumman is one heck of a great American organization and how they managed to trump the equally great American Boeing Company speaks volumes about the strength of their tanker strategy.  Case closed.

ISTAT and the unanswered questions

John Leahy is a brave man.  He has, for better or worse, become the official voice of Airbus for many years and thus has earned, deservedly at times ("The 7E7 is not a threat"), but not most of the time, his fair share of criticism.  Most recently, he has been right on the money when he indicated that about 27% of recent commercial orders are “on shaky grounds”.  We said 25% last summer, but again, that was before the credit bubble of August.  However, it is reasonable to question his recent point as reported by Flight here “People are "smoking something" if they say we really need to come up with a new narrowbody sooner than now being projected”.  Is there any truth behind his statements or does this need to be filed into the Leahyism section?

2017 is a long time; airlines such as Air France and a few others would have ideally liked a new generation narrowbody aircraft by 2012.  Airbus suggestions that they might have to wait until 2017 earliest is indicative of two things:  either Airbus is ready to introduce a 320NG that can serve as a bridge to the new narrowbody or Toulouse is now engaged in not so subtle disinformation warfare. 

As far as engine technology is concerned, GTF is likely to remain the best choice; we believe that propfans have too many risks (speed, certification…) and unknowns associated with airline operations that basically outweigh the benefits.  We feel Boeing will launch its replacement narrowbody aircraft first as the 737NG will not be easily upgradeable, unlike the A320, and thus has entered its downward product cycle.  737 will have to go by 2014.  Competition will intensify for Toulouse and Everett and it will come from Montreal and may be from San Jose (and partner(s)?) if rumors are indeed correct.

A Desjardins Securities analyst recently hinted at a 150 pax C-Series, and we believe this is a likely development for the yet to be officially launched new Bombardier aircraft.  The C-Series has a serious window of opportunity that may extend from 2014 to 2017 if Airbus and Boeing decide to postpone their new narrowbody introduction to market.  What is the opportunity for a 130-155 pax C-Series?   If Bombardier hits its market window it will be in direct competition for an addressable market estimated at 3,500+ aircraft…

Now if you wonder why we keep mentioning tricycles, see the first cartoon below.

Friday 4 PM humor (follow hyperlinks below by clicking on image)

(click here to view)

J.D. Crowe Mobile Register Mar 12, 2008 EditorialCartoonists.com

 

 
      Click here to view
       Eric Devericks
       Seattle Times
       March 13, 2008
         

The February 29 Earthquake

The dust has settled; is this the end of the beginning or the beginning of the end?  Familiar words indeed, yet we cannot be but surprised at the immensely logical decision our Department of Defense announced yesterday Feb. 29.  The Northrop Grumman team win is a slap in the face to conformism, petty protectionism, pork and short-term business considerations. With the benefits of hindsight, most of the signs were already there. 

In 2004, I spoke at a conference in Los Angeles, and made the so predictable call that Boeing would win the tanker program and anybody even thinking  EADS had a shot was out of his/her mind. I even offered to pay for dinner at one of the most expensive Georgetown restaurants if it did happen.  A couple of years later, my offer was off the table and so was my thinking that Boeing could engage cruise control and win KC-X.  The EADS team, and its new partner Northrop Grumman, had just put one very strong offer on the table and my conversation(s) with the crew at the Alabama economic development office impressed me in terms of the KC-30 team’s vision and motivation.  To the end I would have favored a split award; it appeared to be the most logical decision from the end user standpoint, although it probably would have been cost-prohibitive to develop two types concurrently.

We have expressed our view in this blog that a KC-X win for EADS-Northrop, whether a split or sole source, would have tremendous consequences for the US based aerospace industry.  For the first time in decades, our country would witness an expansion of its large airframe production facility footprint as a result of the KC-30 team win. The opportunities created by this win are many and could eventually have positive consequences for Boeing and its customers. A shake up at Boeing is likely, now the game is afoot, and Northrop Grumman plans as an EADS gateway into the US market will grow. With A330F coming to Mobile, we expect the partnership to work on future programs, including the new A320RS and perhaps pitching the A400M to the US military sometime in the middle of the next decade. Boeing now needs to reexamine its internal decision making processes and understand that old strategies no longer works in this global market driven by the ever-changing concept of “best value”.

Boeing’s loss is regrettable, because of its impact on the Everett, BFI and Wichita workforces in particular (although the job losses figures used by opponents to the NGC-EADS team are grossly exaggerated).  KC-767, although not as capable in many areas as KC-30, is still a product that could have served USAF very well.  Information will slowly emerge, but we believe that classified scenario modeling showed USAF that KC-30 was better suited for future engagements and added much-needed airlift strategic capabilities.  That alone was probably the deciding factor in the selection of the KC-30.  The information and measurement criteria were reserved to USAF and the bidding teams and thus will remain classified for years.  Economic considerations, price and other elements were important but did not appear to have been the primary deciding factors.

Was price a deciding factor?  Of course, but Boeing should have been able to easily match any EADS offer in that regard. If not the case, then this was a serious mistake. Steve Trimble gives us a pretty good idea of price and its impact in the DEW line. 

KC-30 is a like the Big One in California.  It is not a matter of if the quake will happen but when. Well, it happened on February 29, and it signals a departure in DoD thinking where best value has triumphed over pork and the business-as-usual mentality.  The strategic implication for the occidental aerospace industry is also clear.  Note my use of the word occidental.  I, for one, believe strongly that a rapprochement between the European and US aerospace industries is not only desirable but also required to counter emerging Asian capabilities and support both continents defense budgets.  To rethink our agreements and bury our differences will be necessary if our common industries are to remain competitive through 2020 and beyond.  Failure to partner and engage in joint programs will only leave our industries vulnerable, reduce innovation capabilities, affect NATO’s ability to operate and adversely impact our ability to remain globally competitive.  Let me be very clear, the Airbus vs. Boeing battle is nothing compared with what our aerospace industries will face from China and others in the future.

For the Boeing worker on the floor in Everett, this prose may be interpreted with pessimism and categorized as a complete misunderstanding of the realities faced by American workers today.  The sentiment of abandonment and betrayal are probably very real and completely understandable.  However, for future generations of Aerospace workers in America and Europe, this deal signals that our government customers are now prepared to address and intervene directly to put an end to our industrial base rate of departure. 

Boeing cannot reasonably argue that KC-767 was the all American solution (75%+ US content).  KC-30 perhaps has a lower US content (60%+) but the loss is bitter because it comes so close after years of tension with France and Germany in particular.  Regardless, American companies are going to benefit tremendously from this deal, from engines to avionics to maintenance, so the argument that America lost and France won is “null and void”.  

Perhaps Boeing failed to take risks.  This is where Northrop Grumman CEO Ron Sugar needs to be commended for taking the initiative to go after this deal with a solution many ridiculed at the time.  Going with a mostly Franco-German product for DoD on the back end of one of the most serious diplomatic crisis in US-EU relations was a risky gamble that paid off.

Did Boeing also fail to measure the impact of the KC-30 in the mind of the customer?  I think USAF came to KC-30 with little or no knowledge of the aircraft and its capabilities, and as the competition progressed it became clear that KC-30 better suited the mission.  This also was our perception at G2 Solutions.  The more we looked into the value propositions of both teams, the more value we began to see emerging from the KC-30 product. 

Now what can Boeing do?  Should they protest or will they be forced into protesting by the usual, yet logical, political pressure of a few?  If Boeing is to protest, they must not do so because they know they might be able to reverse DoD’s decision with support from the Hill.  Boeing should now think hard about whether or not it can change DoD’s mind based on the KC-767’s merits.  In our opinion, KC-30 has won once, and would win again in a recompete scenario.  Boeing was reluctant to throw 777 into the KC-X fight and this might have been why they lost.  The footprint and other “best fit” arguments have been tossed back at Boeing with the KC-X decision and USAF’s underlying message to Everett has been that institutional inertia and risk aversion lead to failure. Boeing’s decision to continue selling a 767 airframe solution perhaps better suited to U.S. allies than its own DoD is in short a colossal failure of vision. Such shortsightedness is not limited to Boeing, but to all, including we who had predicted Boeing would win outright or at least garner (in G2’s case), a portion of KC-X.

Loosing KC-X is a bitter pill to swallow for Boeing and for Washington State; despite the monumental denial of cash, its impact on Boeing's Everett operation should be minimal in the short term.  This is certainly not the gloom and doom that many in the industry or in the sensationalist politico-media complex have incorrectly described.  Boeing, as an aerospace organization, is doing very well for the foreseeable future and with 787 issues being resolved rigorously, the KC-X loss will motivate and help the company refocus and develop stronger competitive offerings in the future.

mmerluzeau@g2globalsolutions.com

 

The Thud Factor: Keeping Track of US DoD Spending

February 2008


Week Ending 2-29-2008



Tanker Award Announcement Tomorrow,Thursday, Friday at 1700 Eastern


Northrop Grumman awarded KC-45A contract

Full Pentagon Press Conference
Transcript



Boeing Protest unlikely to overturn decision. 

Boeing statement:

We were just informed that our KC-767 Advanced Tanker proposal was not selected in the KC-135 Replacement Program known as KC-X. Obviously we are very disappointed with this outcome. We believe that we offered the Air Force the best value and lowest risk tanker for its mission. Our next step is to request and receive a debrief from the Air Force. Once we have reviewed the details behind the award, we will make a decision concerning our possible options, keeping in mind at all times the impact to the warfighter and our nation.
The Boeing Company would like to thank the many people who helped us in this campaign. We have received tremendous support from our suppliers, elected federal/state/local leaders, unions, community groups, and the 160,738 men and women who work for Boeing.

Northrop Statement:

February 29, 2008—Northrop Grumman announced today that it has been selected by the U.S. Air Force to provide the KC-45A aerial refueling tanker for the KC-135 tanker replacement program. The Air Force’s KC-45A is based on the highly-successful A330 commercial airframe, produced by EADS.

DoD Announcement

Boeing remains favorite to win KC-X, but split award would signal new strategic DoD vision for US based aerospace industry


 
   Credit:  Boeing/EADS

Week Ending 2-22-2008


B-2 lost on take off at Andersen AFB, Guam


Pacific News Center


US AIR FORCE PHOTO



The 12th B-2  "Spirit of Kansas" was lost on take off from Andersen early Saturday morning.  Both pilots ejected shortly after the aircraft became airborne. The aircraft had entered service in February 1995 with the 509th Bomber Wing based in Whiteman AFB, MO.






Two aircraft concepts that make sense.





Business Aviation:  Temporary Surge



Quick Thoughts:

- Cessna remains the undisputed market leader
- Bombardier's growth rate is well below par, reflecting aging of its product line
- Gulfstream, Embraer and Dassault expanded output between 15 to 33 percent
 





Bear Sighting in the Pacific


Photos: US Navy
CVN-68 visited by Bear Couple

Tanker Award:  Only a matter of Politics?

The date draws near; we should know, hopefully this month, who between Northrop Grumman and Boeing will win the lucrative contract to provide the US military with a much-needed nextgen tanker aircraft.  This has been a long road, particularly for the customer, and let us hope  the award to either team marks the beginning of a change of tone within the defense contractor community, and will not lead to a protest.  For some reasons, we doubt it. 

Recently G2 Solutions was contacted by Bloomberg to discuss the tanker award and take part in their analyst survey.  The article can be found here. Although not statistically relevant, this survey highlights some clearly consensual facts about this competition:
- It is Boeing's to lose
- A protest is likely
- The tanker award will mark the beginning of "a real political struggle"

Our position has been clear from the beginning; although we see significant merits to awarding part of this contract to the EADS-Northrop team, it remains clear to us that Boeing is the Air Force favorite and a large cross-party majority of Congress. Northrop Grumman and EADS' strategies have been very shrewd, and the last minute (and predictable) announcement by Tom Enders last month could still resonate positively with those who will ultimately sign the checks. 

And why not?  The EADS offer is full of merits, from job creation, to addition of production capabilities within the US, to expanding partnerships between the European and US aerospace industries and ultimately, delivering a strong product to the customer.
Boeing has been in the driver’s seat for most of the competition so far, and has been clearly steering the program towards KC-767 although it hinted that 777 was on the card at one point.  However, we have been sensing some anxiety with Boeing’s recent moves (Northrop-EADS have also made a lot of noise about KC-30’s “best-value”), but this recent declaration in the media from Boeing's tanker spokesman is odd (as reported by Scott Hamilton on his website www.leeham.net) and claims that Boeing would be out of the tanker business for the next 20-40 years if Northrop-EADS wins KC-X.  While remotely possible, this statement is a bit over the top in our opinion.  Boeing has indeed shown some signs of nervousness about KC-X in 2008.  First, it was an unconvincing and largely irrelevant fuel consumption survey posted on Boeing's tanker website on January 14th, then the gloom and doom comment from their spokesman, what’s next?
Yes, we like the 767; it’s an altogether great aircraft, and is the logical choice for the USAF. However, the KC-30 is quite the KC-767 on steroids and can deliver where 767 might come short.  The strong reliance of the USAF on KC-10s for operations in the Middle East helps illustrate the significant role played by such large tanker assets.  Although we do not think the Air Force ought to buy 179 of them, a fleet of 50-70 KC-30 would significantly help USAF operate globally quite efficiently.  Both projects also carry a fairly close level of risks; both are hybrids and relatively untested concepts.

The battle for cash is really at the heart of the matter.  With ever increasing R&D costs, Boeing has been spending considerable sums to keep NGC/EADS away from its turf and prevent a win that might positively impact Airbus’ ability to finance its nextgen A350 and A320 replacement narrowbody aircraft as well as its A400M military transport aircraft.  The same goes for EADS by the way, Boeing has been spending large amounts of cash defending Fort-Tanker and a loss would mean less cash available for R&D and other programs such as KC-Y. This is one of the last DoD mega contracts to be awarded for a while, and one which will shape our aerospace landscape and its ability to commercially compete with Asia in the future.

Then come politics and the ugliness of it all;  the current administration has awarded several major and highly visible contracts to European based manufacturers:  the presidential helicopter to Agusta Westland (together with LMT) and the C-27J to Alenia (together with LMT and L-3), and the UH-72 award to American Eurocopter.  Those contracts were primarily awarded to countries that initially supported the administration's policy in Iraq, and especially not to States leaning on the other side of the political fence. There are those who predict a fight on the Hill against "rewarding" a Franco-German company.  While  still a possible outcome, this does not resonate as strongly as it could have four or five years ago. What ultimately will win votes are jobs. With a US economy now clearly entering a  recession, a split award might be exactly what both sides of the aisle need to show they are doing something about helping the economy recover.  Losing fifty tankers to NGC-EADS will barely affect Boeing's commercial aircraft record production over the next five years but will have an overall positive impact on US exports once 330F enters production.
There might be more to this, although not discussed at length in the US media, transatlantic relations are possibly on the verge of another downturn following years of moderate improvements.  The NATO crisis over Afghanistan is soon to enter a new phase and a very public resumption of transatlantic disagreements over military operations could provide some added traction and arguments for those pushing for the “perceived” all American solution.  Regardless  the outcome, EADS-Northrop Grumman has already won a significant battle.  The partnership has demonstrated it can provide a competitive solution to the government, that it can become a near US-based partner and that transatlantic cooperation is viable and desirable in the long run.

FY09 Budget Figures Available from DoD

Major Weapon Systems
RDT&E
Air Force Specific
Navy Specific

January 2008

Tour the A380 Flightdeck

This remarkable 360 Panorama is available here or by clicking on the picture below. 




Lockheed Martin in trouble with Morocco?

It would appear that the F-16 sale to Morocco is far from certain.  After literally being handed the deal by the dysfunctional Dassault-French Government team, Lockheed Martin is now reportedly experiencing difficulties with the  24 F-16s financing.  Paris' Les Echos has reported that the $2.4 billion  financing required by Morocco is not coming together as planned.  The subprime crisis was a factor back in the summer of 2007, and it would appear that it has become an even bigger issue now from a banking standpoint.  This does not mean that the F-16 is out (yet). It however could signify some serious problems ahead which may lead Morocco to reconsider the offer, and either revert to its original choice with Rafale (France was able to put financing for 18 aircraft, but too late) or postpone this purchase altogether.  With the Algerian AF modernizing and the Libyans also looking at Rafale and Sukhoi, Morocco's Mirage F-1s and Northrop F-5s would suffer greatly in any BVR engagements against the Algerian SU-30s.  Morocco badly needs to upgrade and taking a smaller number of Rafales or F-16s might be next on the agenda.



Mr. Enders Goes to Mobile or is Airbus heading for Alabama?

EADS has scheduled an early press conference for Monday morning 9am Eastern time.  Tom Enders will be there accompanied with some heavy hitters including Ralph Crosby, Governor Jim Riley (R) and Senator Jeff Sessions (R).   Based on Dr Enders previous comments late last year, it is reasonable to assume that EADS might announce that they have opted to move forward with the production of the A-330F in Mobile which would provide EADS with a production/assembly operation inside the dollar zone.  KC-45 is also on the table and no doubt that any decision by EADS to move forward with the 330F might have some influence on the soon to come USAF decision

The Year of Living Dangerously

Not exactly what most of us would like to hear as 2008 begins its takeoff roll. 2007 was a milestone year for commercial aviation, it likely will not be followed by a repeat in 2008. With the US economy now feeling the pain of the credit crisis, high energy costs and a weakened dollar the domino effect we had feared would ensue is beginning to show signs of strength in other areas. 

With the European and some Asian economies also exposed to a US downturn, 2008 likely will be a year of economic correction; this is our best case scenario. Both Boeing and Airbus had incredible years, orders have surged to never seen levels with more than 1400 aircraft orders for Boeing alone, Airbus has yet to release its final number but it looks like it very well might exceed Boeing’s.  Can this be repeated in 2008?  Doubtful, this is possibly as good as it might be for at least five years, the market will enter a period of relative contraction for now. Business aviation also had a milestone year, VLJs are now in full-rate production and services.  However, serious questions remain as to the short term survival of some programs including the often troubled Eclipse 500A.  The recent termination of the ATG Javelin program did not come as a surprise to G2 Solutions, as the aircraft served the interest of too narrow a market segment and had serious teething problems.  Without question VLJ numbers will continue to grow, however we would expect one or two additional programs not to make it past 2008.

Consolidation in the US airlines industry will likely materialize as well.  A rapprochement Delta/United or Delta/Northwest has long been rumored.  It is also possible that one or two airlines might go belly up due to a likely contraction of passenger traffic in North America. Air France’s turnaround initiated in the late 1990s is about to mirror French President Sarkozy’s new Italian romance.  The Alitalia takeover will undoubtedly be a boost for the AF/KLM group’s main hubs in Paris and Amsterdam which will benefit from the increased intra-European traffic towards Malpensa, Linate and Venice. Some Italian resistance is to be expected, in particular with regard to international service to MPX.  Business travelers in particular will logically be annoyed at being forced to add a stop to their travel.

On the military side we might see the end or a new beginning of the tanker saga.  Hopefully the Air Force will decide in favor of both manufacturers as both aircraft can serve the US military well. The USAF crisis will likely intensify, with aging F-15s being grounded due to structural fatigue.  G2 Solutions understands that Canadian C/F-18s have been flying CAP missions usually flown by USAF F-15s out of Elmendorf AFB. As unfortunate as F-15 structural fatigue problems are for the current force, it might be fortuitous for the F-35 and F-22 programs. Suffice to say that pork will have a taste of F-22 and F-35 in 2008, might as well pile on as much as possible in this final stretch for the Lone Star State.  Navy also faces some tough questions ahead with several programs likely to face either delays or cuts, P-8 and BAMS come to mind.  Delays or cancellations in either of these programs will increase the scrutiny on P-3 availability rates.  The Navy is doing everything in its power to keep these aircraft flying, but the size and scope of P-3 airframe corrosion seems only to worsen over time.
Despite claims to the contrary, this will have a negative effect on P-3 deployability and capability.

On the international scene, this will be the make-or-break year for Rafale.  If the Libyan order materializes as expected this could be a major boost for the aircraft in markets such as India, Korea, Japan and especially Switzerland. Combined with a reshuffling at SOFREMA, France might get it right. The aircraft still needs critical planned improvements in the areas of radar and engines to be exported successfully. The big question in 08 will also be the future of international F-35. With 2007’s technical delays, some might reevaluate the program with a more critical eye, especially the UK, Netherlands and Denmark. There are still signs of discord about technology transfers with the US. The challenge of configuring a baseline aircraft to STOVL, conventional and carrier operations should not be underestimated as F-35 development grinds on.  DoD and international service-specific airframe numbers will continue to flux throughout 2008; it’s best to write those order numbers in pencil. G2 Solutions would be very surprised if those international partners back out of the F-35 program at this point, as offsets and partner industrial base considerations quickly move into the political and economic realms.
Will Bombardier (ever)  launch the C-Series? Please see us later about this one.

2007 also witnessed China's remarkable entry in the (major) commercial aircraft market with the roll out of its 717, sorry, ARJ.  More will follow and it is possible that we will see a 170-220 passenger aircraft manufactured in the PRC by the end of next decade.   China can build aircraft, perhaps with the support of foreign companies initially as it was the case for the J-10 and J-11 combat aircraft, but the country will transition to more indigenous designs next decade leading it to become a force to reckon with by 2025.

Embraer will continue to be one of the companies to get it right in 2008; we have yet to see the San Jose side miscalculate.  Its E-Jets series has been very successful and the Phenom programs appear to be well on track.  With the 320/737 replacement programs entering a critical year, it is possible that we will witness Embraer being courted by either Airbus or Boeing to support this gargantuan program.

2008 will also shake things up politically, elections in the US and transition of government in Russia will all have strong impacts on aerospace markets.  The US appears to be leaning away from the War on Terror as a political center of gravity, which might have a significant impact on the DoD crowd residing in the city surrounded by reality.  2008 will also be a dangerous year and it will happen in the Middle East. Iran still fails to reassure with regards to its nuclear intentions.  The US National Intelligence Estimate has been felt like a shockwave and Israel is feeling increasingly vulnerable.  Syria and Hezbollah might be looking for ways to retaliate and Iraq, while slowly improving, might get thrown into turmoil if Turkey decides to act decisively against Kurdish separatists.  A regional satellite, Pakistan, might also completely collapse into civil war this year, which would certainly have strong consequences for its Indian neighbor.  Global warming and those carbon offsets look really like non issues when one examines the potential global ramifications of crisis in that region.  We will expand more, January 31st to be precise for the annual forecast webinar, see us on the Aviation Today website.