EADS will likely win tanker, says Boeing consultant
Update, Dec. 9, 5:00 AM PST:
Politico has this profile on Loren Thompson.
Flight Global reports Brazil may select the KC-45 to replace its Boeing KC-137 (KC-135).
Update, 5:00 PM PST: Dominic Gates now has his story on this topic here.
George Talbot of The Mobile Press Register posted this story today in which Loren Thompson, an aerospace defense analyst who has done work for Boeing, says Boeing has concluded EADS is going to win the KC-X tanker competition.
In Talbot’s article, Thompson once again advances the Boeing line about WTO and Airbus’ illegal subsidies as evidence of a USAF “bias toward EADS.”
There is just one problem with this line of allegation with respect to the WTO issue:
US law doesn’t allow the USAF to take the WTO panel finding into account, and Thompson, Boeing and its Congressional supporters know it.
US Rep. Jay Inslee (D-Boeing/WA) introduced an amendment to the Defense budget bill in the House earlier this year that would require the USAF to take the matter into account. This action alone demonstrates Congressional recognition that the Air Force doesn’t have the authority to take the WTO finding into account. US Sen. Patty Murray (D-Boeing/WA), who has made a career out of this issue, has introduced a similar amendment in the Senate. This also validates the USAF position. “Bias” has nothing to do with its rejecting previous calls to not consider this issue. Both amendments, after initially calling on the USAF to only examine the Airbus subsidies (which had to be changed because even the US Trade Representative’s Office said this was illegal), Inslee added language to include all competitors (i.e., Boeing).
We previously wrote that this amendment is totally meaningless anyway, but it’s been approved by the House; it has not come up for a vote in the Senate.
But that’s not all. We said just one problem; actually there are a whole lot more:
- Even if the Inslee amendment was adopted by the Senate and became law, how in the world can you apply it?
- WTO-Airbus is under appeal. What if the WTO board overrules the panel?
- WTO-Boeing is in the early stages. What are the subsidies against Boeing to take into account (as called for in Inslee)? The Interim Report is confidential; we don’t know the number. Will the Draft Report and Final Report be public by the time the USAF issues its contract (at the rate and incompetence of the USAF, we could cynically say yes, but January is supposed to be the date now so the answer is no). How can you apply Inslee when you don’t know one side?
- How do you assess the subsidies? All $5bn against 179 airplanes? $5bn divided by the 1000 delivered and on order and prorate the penalty? $5bn against the 1,000+the unsold airplanes over the next decade (the assumed life of the A330 passenger program) and prorate it? What would these projected sales be? What about the freighter life beyond the passenger life?
- What about the appeals? What if WTO overrules its panel on Airbus and ups or lowers the subsidies calculation, wouldn’t Boeing want higher subsidies to be taken into account? What if the WTO overrules the panel and finds in favor of Boeing on its appeal (USTR, actually) and numbers change? After the USTR appeals the WTO panel finding against Boeing, what then?
The whole WTO issue cannot be calculated, by current law, and from a practical standpoint because it’s far from over–unless a decision is made to suspend competition for the next several years in order to wait for the conclusion of all appeals at WTO.
But, then, the warfighter–who is supposed to be all-important here–has to wait. But, of course, this has never been about the warfighter, it’s always been about Boeing vs. Airbus.
Thompson, Boeing and the Congressional meddlers know all this, of course.
The solution, as we have been advocating for a couple of years, is to double the procurement and split the contract. Politically it is the only choice. But we have also written many times there are good strategic and operational reasons to do so.
We know that Defense Secretary Robert Gates says this will cost the USAF too much money. The interesting thing is that a Rand study, “Project Air Force, Analysis of Alternatives for KC-135 Recapitalization,” issued in August 2006, concluded:
“A fleet of medium to large (300,000 to 1,000,000 pounds maximum gross takeoff weight)
commercial derivatives is the most cost-effective alternative for KC-135 recapitalization.
That is, such a fleet would provide the required refueling capability at the lowest overall cost,
defined as the present value of all future production and operating costs. Fleets consisting of
just one kind of such aircraft or consisting of two kinds of them have comparable cost-effectiveness.” (Emphasis added.)
Interestingly, the AOA also includes this phrase in its conclusions:
…the decision of when to recapitalize should be based onconsiderations other than the present value of life-cycle costs. (Emphasis in original document.)
Life cycle costs, of course, have been a major point of contention. Boeing’s KC-767 will cost less on an operating basis than the larger EADS KC-45, and US Rep. Norm Dicks (D-Boeing/WA) insisted the USAF consider this (and it has). EADS argues that actually delivering the fuel costs less with the KC-45 than with the KC-767.
So we continue to encourage a split buy; replacing the KC-135s at the rate of 15 a year as currently proposed is a ridiculously low number. Strategically there are sound reasons to split the buy. Politically it is the only choice.