EADS In Tatters As GAO Sides With Boeing
June 19th, 2008
The month of June has been one that EADS will be hoping ends quickly.
Starting with the arrest of Noel Forgeard, former co-CEO, the stock being branded a “liability” by Joe Campbell and then just this week the arrest of another executive, the news that the US GAO had sided with Boeing in its protest of the KC-X tanker award will have left the European aerospace company reeling.
You can read the GAO press release by clicking right here.
From the very outset of the annoucement back in February 2008, Boeing’s view and position surrounding the protest had such conviction that today’s ruling will only come as a shock to EADS and its partner on the KC-45A tanker (based on the Airbus A330), Northrop Grumman.
Image courtesy of Boeing
The belief that the US Air Force selection would be overruled was evident in the way Boeing methodically laid out its protest in regular updates in its dedicated blog, Tanker Facts, found here.
“Our review of the record led us to conclude that the Air Force had made a number of significant errors that could have affected the outcome of what was a close competition between Boeing and Northrop Grumman. We therefore sustained Boeing’s protest,” said the GAO’s Michael R. Golden.
Senator Patty Murray was equally forceful in her support of both the GAO ruling and that of Boeing: (Courtesy of Seattle-PI)
“The GAO did not, and could not, consider the key policy issues this contract raises – such as illegal subsidies, real-world operating costs, economic impacts, and the importance of maintaining our most critical advantage: innovation through American defense-oriented research and development.
“It is Congress’ job to determine whether major defense purchases meet the needs of our warfighter and deserve taxpayer funding. The Pentagon must both justify its decision and address the flawed process that led to today’s ruling.
“We need answers before handing billions of American defense dollars to a subsidized, foreign company focused on dismantling the American aerospace industry.“
One thing is certain, the decision to overturn the initial award has likely destroyed whatever chances EADS had of using the pretentious cover of the KC-45A to shift production of its popular Airbus A330 jet to the USA and avoid the pitfalls of the currency woes that have wreaked havoc with its pricing and profitability.
In doing so, Airbus will not be able to shift any European work outside of the EU without infuriating staff, voters and a variety of EU governments that had recently been asked to stump up yet more subsidies for the A350XWB. With the WTO also due to rule on the transatlantic row over subsidies, the GAO’s decision is one in a long line of injuries that EADS will have to suffer.
While it derives almost 80% of its business via its Airbus unit, any tanker loss is not as bad as it may seem and EADS will manage to cope without penetrating the US military market for now.
The reality is that EADS has very little, if any credibility left to contest the award again - and even if it does, there is a slim-to-none chance that it would even win second time around. And while all this happens, the US Air Force is the one party that suffers most.
In searching for a tanker and choosing so poorly, it has only itself to blame while it waits for an outcome.
Sphere: Related ContentEntry Filed under: Aeroplane, Aerospace, Air Transport, Air Travel, Airbus, Airbus A330, Airlines, Airplane, Airplane Order, Airplanes, Airport, Airports, Aviation, Boeing, Boeing 767, Boeing 777, Boeing Orders, Congress, EADS, GAO, KC-30, KC-45A, KC-767, Northrop Grumman, Randy Tinseth, Tanker, US Air Force
8 Comments Add your own
1. Jacobin777 | June 19th, 2008 at 7:24 am
If the GAO report mentioned some minour faults, it wouldn’t have been a problem. However, the GAO report was nothing short of scathing…even many analysts were surprised as to how much the GAO “ripped” on the RFP….
I say Airbus really needs to focus on the A350XWB. It better be a great plane because this tanker win/loss will mean nothing in comparison.
2. Aurora | June 19th, 2008 at 10:43 am
I believe that you are correct when you say the revenue impact on EADS will be minimal and that the real impact is that it removes the political cover for them to move a production facility to the “dollar zone”. After farming out A320 work to China, I suspect the Euro politicians and unions will tolerate no more of this for the near term. That aside, there is nothing to stop them from going ahead on their own euro and continuing with the facility in Alabama, unless the Russians or UAE jump in and protest. They are part owners of EADS after all.
EADS is not out of the woods by any stretch–yet. There’s the WTO ruling expected soon.
As for the tanker “deal”, it’s effectively dead. Already influential members of the U.S. Congress are clamoring for a rebid. Two of those voices belong to Senators Obama and McCain. The USAF will be forced to start over.
I suspect the next Request For Proposals will read significantly different from the last one and will be broadened in scope to include things like employment, infrastructure impact, foreign influence, etc.–all those things which should properly be considered in taxpayer funded procurements.
3. Chris Wallace | June 19th, 2008 at 1:19 pm
The GAO is a pretty impartial group, so that they ruled so strongly does indeed pretty much force the USAF to rebid.
The USAF has continually stated that they want the NG/EADS KC-30A so I wonder if Boeing will move to the 767-300 frame for the re-bid to increase the payload. Or perhaps they will dust off the 767-400ERX plans to get the payload even higher.
That the Democrats will almost assuredly increase their strength in Congress, even if McCain does win the Presidency it is likely that Congress is going to be more inclined to order the “home team” which favors Boeing’s chances.
4. Mark Dowling | June 19th, 2008 at 3:09 pm
The A330 was not being shifted to the US - the A330F was. Not the same thing, and the Airbus unions weren’t happy that even that much was going.
5. BOEING777 | June 19th, 2008 at 3:48 pm
Semantics: the fact remains that A330 production, whether pax or freighter was planned to be moved out of France with a view to making space for the A350.
An A330F line can just as easily accomodate the A330-200, upon which its based.
6. 787fan | June 19th, 2008 at 6:21 pm
I’ve been waiting for YOUR article. I knew it would be the best and most informative. And it was worth waitng for. THANK YOU…
As fas the Tanker Deal….
I personally crewed a KC-135 in the 70’s and they are the best built Aircraft in the World, thats why they are still flying today. 50 years..!!! And I won’t mention the Boeing B-52…and the best is yet to come…787…Blended Wing Body..BTW..ONLY Boeing has developed the future. Can you say “Unattended Inflight Refueling”…
**If it’s not Boeing, I’m not going….
The Air Force tried it’s best to disregard the facts and get the Airbus. They apparently don’t care if American jobs go to AIRBUS..
How can anyone stand-by and let them ship parts to the US and then assemble them here on our turf…That is still a European Aircraft.
**Thank you GAO for support of American Jobs and
American Aerospace. There is still none better than a Boeing..
**Go Boeing..Go America….Go Home Airbus..
7. 787fan | June 21st, 2008 at 10:01 pm
On March 28, 2002, the US Air Force selected Boeing’s KC-767 stating they “have clearly demonstrated that only the Boeing Corp. can currently meet the requirements”.[2]
The USAF was listed as giving four main reasons for this selection of the KC-767 over Airbus’s KC-330 (aircraft’s name at the time).[2]
“”The KC-330 increase in size does not bring with it a commensurate increase in available air refueling offload,…” (USAF quote)
The KC-330 “..presents a higher-risk technical approach and a less preferred financial arrangement.” (USAF quote)
” the size difference of the EADS-proposed KC-330 results in an 81 percent larger ground footprint compared to the KC-135E it would replace, whereas the Boeing 767 is only 29 percent larger.” (USAF quote)
The KC-330 requires “..greater infrastructure investment and dramatically limits the aircraft’s ability to operate effectively in worldwide deployment.” (Summary of Quote by MAT magazine)
So doesn’t the selection of the KC-45 somehow STINK…like someone put pressure on the Air Force..
Like John McCaine-who has former EADS Lobbyist on this Staff..>>>
8. Doug McVitie | June 23rd, 2008 at 7:29 am
What is the opposite of the Midas touch and will EADS put this new technology on the A350, if it ever builds it?
They’ve certainly got enough to spare…
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