Tanker Travails
March 10th, 2008
Today’s YouTalk covers the recent decision by the US Air Force to select the KC-45A (formerly KC-30) over the KC-767 for the KC-X tanker requirement.
Not surprisingly, this selection has set off a fire storm of controversy in the media and on FleetBuzz.com (click here).
[Registration is free by the way and this thread alone is worth the effort!]
In lieu of this selection, Boeing issued a stern statement this past Friday about serious concerns it has and is likely to protest this win.
It gives me pleasure to introduce FleetBuzz.com member, Aurora, who has today kindly supplied the article.
Thank You.
Tanker Travails
Like most folks on planet Earth, I was stunned by the U.S. Air Force’s selection of the Airbus’ A330 tanker over the home-grown Boeing 767.
As of this writing there are many unknowns concerning the selection and there are allegations in the press already that the Air Force may have “misled” Boeing, speculation of whether or not Boeing will protest, and the debate on whether or not this is in the best interest of the United States, its military, its industry, and its citizens.
I am not going to pretend to have any answers here, but in this editorial I felt it important to summarize the issues to date and where this may be going. I’m going to state my bottom line up front: this is not over—not by a long shot!
Images courtesy of Northrop Grumman, Boeing
Under U.S. law, no military procurement can be considered as final until the annual budget is approved by the U.S. Congress and signed into law by the President. To characterize this process as sometimes controversial and political would be to say water is wet. So what, one might ask; the Air Force made their selection, this deal is done, right? Not so fast.
Within minutes after the Air Force announcement of the winner (which curiously was made on a Friday evening), there were cries of protest from legislators, union officials, and aerospace workers in those states that would be adversely affected. Boeing had previously stated that were it to lose the competition 44,000 jobs would be affected and that they would be out of the tanker business. This carries some serious implications, not only for the affected employees, but for the U.S. aerospace infrastructure. Northrop Grumman is touting the creation of 25000 jobs, but this is still a net loss of 19000 in the estimation of many observers. Further, the wings and most of the fuselage of the KC-30 will actually be manufactured in Europe.
Keep in mind that the United States military relies on their tanker fleet to be able to project air power on a moment’s notice around the globe. It is a vital component in their contingency planning. With this decision, the Air Force seems to be ignoring not only the fact that future parts could be embargoed if one of the European countries disagreed with U.S. foreign policy, but that this decision fails to take into account that EADS is at least 5% owned by Russia—a point made by Senator Patty Murray (D-Wa) recently (unbelievable, isn’t it?).
Last I looked, Russia is a country which is not very friendly to the United States at the moment. Granted the Russians have no say in the management of the company—for now. However, who can guarantee that won’t change? There is significant political risk, which could only be mitigated if Northrop Grumman were to manufacture the aircraft wholly in the United States. That is most unlikely. Air Force and U.S. Department of Defense officials have been quick to point out that these considerations are “not their concern” in so many words or less. In fairness, they are correct; they were limited by law in the scope of their deliberations. Correct or not, this is not sitting well with many members of Congress.
And this is where we pick up the story…. A couple of days after the announcement that Airbus had won the day (despite the efforts of one Air Force general to paint the KC-30 as an “American tanker”), both Democratic contenders for president, Senator Hillary Clinton and Senator Barack Obama, criticized the decision. Senator John McCain, who led the charge to expose the law breaking by a few individuals that “tanked” the original tanker lease deal, was less specific.
Nonetheless, one would have to be living in a dream world not to believe that this issue will not worm its way into the U.S. presidential campaign, either as a stand alone issue, or as a poster child of the evils of outsourcing, jobs transferring overseas, and erosion of the U.S. aerospace infrastructure and defense industry. Grist for the populist mill!
Now critics readily point out the fact that Boeing has outsourced most of its 787 program and they are correct. So what’s the big deal? For starters, the 787 is a commercial program, not a key ingredient of the American power projection equation. True, part of the 767 is manufactured in Japan, but I don’t recollect millions of Japanese taking to the streets to protest U.S. policy, or the Japanese foreign minister overtly working to scuttle U.S. foreign policy. Japan is viewed as a friend by the majority of the U.S. public. France?
Don’t forget either that all members of the U.S. House of Representatives and a third of the U.S. Senate are up for re-election. Which of them wants to be perceived as the champion of job growth in France? Interestingly enough, last Wednesday Northrop-Grumman proudly announced that 2000 jobs were going to transfer from Europe to the U.S. EADS quickly quashed that thought and said no European jobs were being transferred. Hmmm….who’s in control here?
The key point in all of this is that this deal is not yet “a deal”—not even remotely.
Already congressional hearings have been held and Congressman John Murtha, the powerful chairman of the House Appropriations Committee, reminded Air Force officials that Congress could kill the KC-30 by not appropriating money for it and that there were political considerations in all of this. Even more ominously, polls are indicating that Senator Clinton and Senator Obama are both running ahead of Senator McCain in the presidential race. Many pundits expect both Democratic senators to pound home populist themes as they campaign in Pennsylvania in the coming weeks. This tanker selection is a heaven sent opportunity for both, and not quite so heaven sent for the candidate who set events in motion that resulted in the tanker deal being re-bid. How will Senator McCain respond? So where is this going? I think the safe answer is that in the short run: nowhere.
There is still the issue of whether or not Boeing will protest the award. Remember, there are no style points awarded if they don’t, just as there are no points for second place in this competition.
Another way of looking at it is that the “half life” of the Pentagon’s “goodwill” is about 5 minutes; after that its “what-have-you-done-for-me-lately?”
From where I sit, there is no downside to Boeing protesting, just as there was none for Lockheed Martin or Sikorsky on the CSAR-X award.
They have nothing to lose by protesting.
Even if Boeing does not protest (and, again, I can see no reason why they shouldn’t; I suspect the other side would have already filed had this gone against them), I expect this controversy to continue to roil and become an issue in the American Presidential and Congressional election campaigns.
Northrop Grumman, EADS, and the U.S. Defense Department will likely want to bring this deal to closure as soon as possible. However, there are many, many members of the U.S. Congress who will do their level best to ensure that does not occur. Every now and then, Congress gets a golden opportunity to remind Americans that their government still works—for them! Even if the Air Force maintains that employment, U.S. content, outsourcing, and preservation of the defense infrastructure are not their worry, it is clearly in the domain of Congress to deal with these issues–and Congress seems to be stepping up to the plate.
The dust likely won’t settle until after the next Administration takes charge in January 2009. By then, quite a lot will have happened. But in the final analysis, I predict it won’t be about pallets carried, MTOW, ramp footprints, etc. Perhaps in the end “best value” won’t be just what the Air Force thinks is “best value” for the buck, but “best value” for the our aerospace industry, our aerospace workers, and our military. After all, I have never heard it said, nor seen in print, that the KC-767 was in any way inadequate, only that is was smaller.
Was the Air Force beguiled by the big-ness of it all?
But I do want to congratulate the Air Force for one thing; they managed to unite members of both parties on an issue in a way not seen in years. Score one for real bi-partisanship.
Aim High!
Sphere: Related ContentEntry Filed under: Airbus, Airbus A330, Boeing, Boeing 767, EADS, KC-30, KC-45A, KC-767, Northrop Grumman
12 Comments Add your own
1. Chris Cook | March 10th, 2008 at 7:51 am
Great analysis, Aurora! Very interesting reading indeed. Thanks for the article. It’s certainly thought provoking. The KC-767 was the most ideal KC-135 replacement, and it met all of the requirements as a replacement for the 135.
2. Mike | March 10th, 2008 at 8:47 am
Pretty scary isolationist, protectionist, undemocratic, anti-free market and frankly dumb thinking going on here. First, how many US aircraft do/will the Europeans who will make parts of this plane operate - F4s, F16s, F18s, C130s, JSFs, C17s? More than 180 for sure. So are people in France or the UK worried that Uncle Sam will pull the plug on their toys if their foreign policy dares to differ from the US? No, they are grown up boys and girls. So what’s the problem going the other way? Second, the Northrop-Grumman aircraft was the better aircraft, end of story. Third, a Russian comapny may have a 5% interest in Airbus. So what? How much American capital does China own? How much American “hardware” is made in China now? Way more than 5% is the answer. Finally. Japan is a friend but France isn’t? So Japan’s been a member of NATO for 60 years? Japanese military took part in the 1990 Gulf War? The reality is that since World War 2 (when Japan was not friendly) Japan has had a deliberately pacifist, isolationist foreign policy. France has been a key member of the Western alliance. The fact that France, like a lot of the rest of the world, finds GWB’s foreign policy as repugnat as it is stupid doesn’t make France not a friend of America. SOmetimes friends have to tell friends when they’re doing stupid things.
3. keesje | March 10th, 2008 at 9:03 am
“Boeing, the heavy favorite to win the contract, having built earlier tankers, promised a new boom but did not build a prototype. One analyst who followed the contest said that Chicago-based Boeing seemed arrogant and offered a plan that Air Force officials thought would deliver only 19 tankers by 2013 compared with 49 by the Airbus team.
“The Boeing team was not responsive and often was not even polite,” said Loren Thompson, a defense analyst at the Lexington Institute in Arlington, Va., based on conversations he said he had with defense officials. “Somehow that all eluded senior management,” Thompson said. “They were not even aware there was a problem.”
”
http://seattlepi.nwsource.com/business/354376_boeing10.html
Same as on internet forums. Everyone was presented the requirements, knew the tankers specs and could see the writing on the wall,
http://i15.photobucket.com/albums/a357/thezeke/tanker/6ffc2ef6.png
http://blog.al.com/pr/2007/07/KC-30_spider_chart.jpg
.. but refused to see & thought it would be fixed somehow again. It didn’t.
Check the news, my impression is the tide is turning. First everyone was astonished but now more and more sees what really happenened, sees through the cheap nationalistic arguments Boeing & its politicians use. Understanding grows & more and more people agree with the pilots and professionals of the United States Air Force.
Boeing is probably thinking about a glorious exit.
4. keesje | March 10th, 2008 at 1:42 pm
Northrop Grumman Responds to Inaccurate Comments Concerning the U.S. Air Force KC-45A Award Decision
LOS ANGELES - March 5, 2008 - When the process to replace America’s aging fleet of KC-135 aerial refueling tankers began in 2005, the U.S. Air Force made clear that it wanted a full and fair competition. Northrop Grumman Corporation (NYSE:NOC) entered the competition with the understanding that if its proposal provided the best value to the warfighter and the American taxpayer, it could win the contract.
Since the Air Force’s decision to award Northrop Grumman the KC-45A contract was announced, numerous erroneous comments have been repeated in the media and in Congress. In response, the company wants to make the following points clear:
http://www.irconnect.com/noc/press/pages/news_releases.html?d=137644
5. Sal | March 10th, 2008 at 3:58 pm
From Mike - “Pretty scary isolationist, protectionist, undemocratic, anti-free market and frankly dumb thinking going on here”
To the contrary, this is democracy in action and it can be unnerving if you have such an issue with far reaching implications. And this is market forces at work, which by the way, the NG/EADS apologists first raised as an issue when they threatened when threatened they Air Force to pull out of the bidding, remember?
Amazing how events have reversed so many points of view, mine included.
And since when is so called “jingoism” a bad thing?
Oh, only when we’re talking about European versus U.S. interests. I get it…
I’m afraid it’s a feeling held by the vast majority of Americans. If and that’s a big if, Boeing can prduce enough evidence that their proposal met the STATED RFP, and was disadvantaged by the Air Force’s “mission creep” mentality, then the GAO will uphold any protest filed. And the reason is simple… The RFP didn’t specify it.
Keesje - “Check the news, my impression is the tide is turning. First everyone was astonished but now more and more sees what really happenened, sees through the cheap nationalistic arguments Boeing & its politicians use. Understanding grows & more and more people agree with the pilots and professionals of the United States Air Force.”
Speaking as a Reserve officer in the Air Force, Keesje’s opinion is not wildly held by Air Force rank in file. To the contrary, many of the KC-135 pilots and crew members work for airlines that fly 767s. Not too many A330s in U.S. domestic service. My impression from talking to many of my colleagues is that this decision does NOT have popular support from existing tanker crews. On the other hand, they do want to get the new tankers in service.
“Boeing is probably thinking about a glorious exit.”
You wish. As Aurora has stated, this thing is far from a done deal. Our concern is it’s political implications which might turn out to be the worst result out of this whole controversy.
In conclusion, I do believe we’ll see KC-30s in Air Force livery, and we should. It’s a fine aircraft and being much more balanced then may of my colleagues here on the ‘Buzz are, I have always thought BOTH the KC-30 and KC-767 would make superb tankers.
But here’s the reality, especially for those who blindly support the KC-30… Boeing IS going to walk away with something. And even stranger a possibility. NG may be forced to BUILD the entire aircraft, not just “60%”.
Stay tuned…
6. Aerospace Enthus | March 10th, 2008 at 10:45 pm
I am neither a Boeing employee nor a shareholder, and careless about politics. I’m an independent and always vote for Republicans but my trust was violated. There were a several other deals were reversed and gave to Europe and this tanker deal is a final straw for me. Please tell me when was the last time that the US defense company won any big contract or any thing that was similar.
I don’t know what the tanker’s outcome gonna be but I do know this, Republicans are not on my list in November.
An Aerospace enthusiast
7. Bob | March 11th, 2008 at 6:58 pm
Stop whining! Guaranteeing a Boeing win will only allow them to overcharge and rip off the taxpayer, and they have plenty of history that shows where their priorities lie. If all of you are so concerned with US employment then stop buying all that Chinese stuff at Walmart. In fact turn over your keyboard, where is it made?
As for France withholding parts, that is ridiculous, and so would be Italy withholding parts for the 767. Russia make 5% of the A330, news to me but who cares if true. I doubt it’s anything that couldn’t be made elsewhere if the need arose. I’m sure if you look hard enough the 767 has a few % built outside the US or EU.
How much money will now be wasted (ie given to Boo-hooing for spares and maintenance) flying the out of date KC135s until this appeal is heard.
8. J. James | March 12th, 2008 at 3:38 am
If only some people knew; remember the USAF only requested about 1 tanker a month which is why Boeing stated about 19 a year. Airbus touted 49 a year however the Airforce could only afford about 19 a year and Boeing was willing to comply. If the Airforce wanted, Boeing could pump out a 767 every 3 days or about 120 but we all know the USAF doesn’t have that in its budget for the year. As for errogance? - ah pompus!! Errogance is not standing with your ally in Iraq, trading military for oil with the Iraqis, and taking all you can and giving nothing back. They shaft Microsoft with a 1.5B fine and the Airfarce attempts to reward them. And now what about the cost of doing business with them? The dollar is almost worthless against the Euro which means their plane will cost a bunch more. And now NG comes up with new figures showing up to 49000 jobs instead of 25000 - just who’s the idiot doing the math in that company. Who can have an estimate that far off and still be employed? Do you want this kind of wild changes handling your countries defense? I think not. Buy Boeing and keep on going.
9. keesje | March 12th, 2008 at 10:08 am
Sal: “Boeing IS going to walk away with something.”
If that is true, what could it be? More C-17’s? last week the USAF reconfirmed for some reason they don’t need more..
10. Sal | March 12th, 2008 at 1:25 pm
Keesje, here we go again - Lessons in American democracy 101…
The Air Force generals were TOLD to say that by their civilian bosses. What you didn’t mention was when pressed by the Senate Armed Services Committee if the PERSONALLY wanted more F-22s, C-17s those same generals said, Yes, we do need them.
Please stop twisting the facts to fit your one sided, always anti-Boeing agenda.
After hearing Boeing’s points in the GAO protest, I’m even more convinced that they will get at least part of the KC-X contract. The Air Force NEVER required a MRTT in the RFP. Boeings offering beat requirements by at least 20% - much more in three catagories. But Air Force officals said that anything over 20% would not give the competitors any “extra credit”, although they seemed to do so with the KC-30.
Contrary to what these “analysts” are say that NG will most likely keep the KC-X award (Remember, these are the same analysts that predicted Boeing would win this by a landslide) I’m convinced that the KC-X will either be split or, worst case, rebid.
I can be fair about this issue… The KC-30 will be a superb aircraft… So will the KC-767. And there is an excellent chance that they’ll be sharing tarmac space together.
Yes Keesje, I stand by what I said. Boeing will get something out of it, and if you don’t think so, then you don’t understand the political, industrial and economic ramifications of this issue, by most Americans.
11. Jeff | March 12th, 2008 at 2:28 pm
I know this is not a popular view, but I think it would be the best thing for Boeing to let this go. This project has been a long and expensive distraction for Boeing at a time when they do not have the resources to spare.
My understanding is that the tanker contract is for only two planes per month which would put the 767 line at a whopping 5 per month until the commercial orders are finished in a couple of years. I’m sure that Boeing can put that space at Everett to use building more 787’s or 777NG’s.
This also shuts down Airbus’s argument at the WTO. I will gladly give up the KC767 program for an end to government subsidies to Airbus.
12. Dougloid | March 14th, 2008 at 7:55 pm
I may have said this somewhere before but if the morons over at the Department of Commerce (those are those ‘tough Federal regulators’ you keep hearing about) hadn’t allowed the ‘acquisition’ of Douglas (really dismemberment of the only credible competitor they had) go through, then we wouldn’t be having this conversation.
Had Airbus decided to invest in Douglas they would have had a turnkey plant with some of the best aerospace workers in the world there.
Even the airforce doesn’t like monopolies. so, having strangled the competition the government now has to reinvent it with government contracts in an effort to build obsolete commercial airliners without windows and big gas tanks.
What a screwy world we live in.
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