Archive for March, 2010

President Obama Calls For “Free and Fair” Tanker Contest

At a joint press conference with France’s President Sarkorzy President Obama said that he expected the KC-X contest to be a “free and fair” one. This of course assumes that another company besides Boeing (BA) bids on the program.

France has spoken out strongly about concerns the current RFP was written in such a way that only Boeing could win it. Northrop Grumman (NOC) decided not to submit a bid this time around due to these kind of issues. EADS (EADS:P) who had planned on partnering with Northrop is currently considering submitting a separate bid. Sarkozy has expressed his support of EADS and supposedly discussed the issue with Obama today. Obama also stressed that the DoD makes the final decision and he has no role in any of this.

The political fallout if Boeing doesn’t win will be significant this time around — even for Obama.

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U.S. Trade Representative Frustrated With Protests

The U.S. Trade Representative, Ron Kirk, recently addressed European journalists. He expressed concerns that because there were really only two main rivals for this contract that they would automatically complain and protest an award to the other. He hoped that in the future the two companies, Boeing (BA) and EADS (EADS:P), would show “maturity and discipline”.

Unfortunately if EADS does submit a bid and Boeing wins there will most likely be a protest filed. The same if the other happens. Right now there is no guarantee that EADS will bid but reports are that they are considering it and requested more time from the Defense Department. There are only two real competitors for this contract. If the Pentagon wants competition they will need them to bid.

As in 2008 the loser will probably protest. There is always a chance that they will win and at least get a re-hearing. Worst case could be a fourth attempt at buying this critical aircraft. Mr. Kirk may want a situation with no protests but he most likely won’t get it.

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Differing Views On The WTO Rulings Effect

The Secretary of Defense, Robert Gates, testified today to Congress that he felt the leaked World Trade Organization (WTO) ruling on the legality of loans and subsidies to EADS by European nations would not have an effect on the KC-X contest. Of course supporters of Boeing will draw a different conclusion saying the ruling means an unfair advantage for EADS that will affect the pricing of the contract proposal.

Of course right now EADS has not committed to making a bid although there are rumors that the Pentagon would consider a delay of up to ninety days to allow the company to put together a proposal either as the prime or with another partner. If EADS does ultimately end up bidding the WTO ruling will certainly play a role in the politics of the issue if not the actual source selection and contract process.

The Lexington Institute published an op-ed today by Loren B. Thompson that made clear in hid interpretation the launch assist loans clearly were illegal. The A330, he wrote, “was developed using practices that would be prohibited today”.

This could mean that the EADS proposal when it is submitted could be adjusted to reflect the financial advantage received by such aid. This would significantly shift the price difference between EADS, Boeing and any other bidder.

If EADS does bid on the contract the WTO dispute will play a role, that is guaranteed.

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Reports of Other Bidders for KC-X Emerge?

Over the weekend it was reported that the Russian state owned aircraft company, United Aircraft, might be interested in bidding on the KC-X proposal. With Northrop now planning on not participating with EADS only Boeing was left as a confirmed bidder. Russia was about the only other country that had the capability to submit a proposal as they have already made tankers for themselves, India and other users. The thought though of Il-76 based tankers fueling F-22 is sort of hard to imagine. Documents provided to the Seattle Times show that United Aircraft would team with a World Aviation Maintenance to form a new company to bid. The proposal would be based on the Il-96 airliner rather then the older transport tanker already in service.

At the same time there are reports that EADS may submit a bid with themselves as the prime. Earlier this month the company said that it was not confident of being able to do this. EADS-North America could certainly be used as a prime contractor. The time needed for the company to prepare a proposal of this magnitude is why there is talk of extending the deadline three months.

It would be good for the U.S. Defense Department and Air Force to have some form of competition in the latest attempt to award this contract. Whether the Russian or EADS based bids would be viable is another matter. It is going to be difficult though to award what amounts to a sole-source contract with the mood in Congress of many Northrop and EADS supporters.

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Boeing Can’t Be Seen As Taking Advantage Of Being Sole Bidder

Now, that Boeing is the only bidder on the KC-X, the Seattle Times notes that Boeing now has to make sure that it is not seen as taking advantage of being the sole bidder:

Northrop Grumman walked away from the $40 billion Air Force refueling-tanker competition Monday, drawing a widely criticized and nearly decadelong procurement process close to an outright Boeing victory.

With the likely prospect of air tankers rolling out of Everett until around 2027 at least, the outcome could secure as many as 2,000 direct jobs in Everett and an additional 6,000 statewide at suppliers and others, according to previous Boeing estimates.

Yet Northrop’s withdrawal leaves Boeing with a pricing dilemma as it prepares a final bid. The Pentagon, embarrassed by the lack of competition, now will be under extra scrutiny over what it pays for its tankers.

On one hand, because the contract is a fixed price — meaning the winner must swallow the loss if program costs escalate beyond the price it bids — Boeing typically would be expected to aim high, especially with no competition.

At the same time, Boeing will want to avoid the appearance that it is taking advantage of Northrop’s withdrawal to jack up the price.

“This competition was supposed to be a model for future procurement,” said Issaquah-based aviation analyst Scott Hamilton of Leeham.net. “It’s clear the Department of Defense fell short again in running a procurement process that works.”

The contract is to supply the Air Force with 179 tankers used to refuel fighter, transport and bomber aircraft en route to their targets.

Northrop had teamed with EADS, parent of European planemaker Airbus, to offer a tanker based on the Airbus A330.

In 2008, the Defense Department cited a rough contract value of $35 billion, or about $196 million per airplane, plus an extra $5 billion in operational support and other costs.

Certainly, the rivalry in the previous round of the tanker competition between the Boeing 767 and the A330 drastically reduced the cost to the taxpayer.

Read the entire article at the Seattle Times.

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Backers of Two Tanker Contracts Want To Stay Anonymous

The Wichita Eagle reports that the a group backing building both the Boeing and EADs tankers, doesn’t want to reveal its backers:

The investors backing a campaign asking the government to split its contract for aerial refueling tankers between Boeing and Northrop Grumman want to remain anonymous for now. The campaign is called Build Them Both.

“We are funded by a group of investors who have asked to remain nameless at this time,” said the effort’s campaign manager, Carrie Giddens.

The group is not union sponsored and does not have ties to either Northrop or Boeing, Giddens said in an e-mail exchange. However, “we have sought out funding from both companies, their suppliers and unions who would be impacted by building them both.”

The requests went out in the past two weeks.

On Monday, Giddens called Northrop’s decision to pull out of the bidding process “bad news for American workers, our men and women in uniform, and for the taxpayer.”

With only one company seeking a contract, 50,000 jobs that would have been created won’t be, Giddens said in the statement. “Without an ongoing competition there is no way to control costs, to the detriment of our military and taxpayer.”

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Now Reports That EADS May Bid After All

There is a rumor that the Pentagon may delay the deadline for submission of a proposal for the KC-X to accommodate either a solo bid or another partnership. This contradicts what was reported yesterday that EADS-NA CEO Sean O’Keefe said the company wouldn’t bid without Northrop Grumman (NOC). It will be seriously difficult for the company to bid by itself. It would need to find another U.S. company to work with.

This might be second thoughts by DoD as they realize how difficult doing a single bid contract award will be. This is not a sole source contract but right now it would only receive one qualified offer.

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Wall Street Journal Says Trans Atlantic Defense Deal Falters

The Wall Street Journal has weighed on the KC-X Tanker bid process, in an article entitled “Trans Atlantic Defense Deal Falters.” The article notes:

The decision by Northrop Grumman Corp. and its European partner this week to drop out of a $40 billion competition to build aerial-refueling tankers for the Air Force is the latest example of how trans-Atlantic defense ventures have faltered.

Many observers view the size of the tanker deal, and the prominent role played by Northrop partner European Aeronautic Defence & Space Co., as the most significant instance of how trans-Atlantic partnerships can get tripped up.

Noorthrop billboard in Alabama in 2008 advertised a future tanker plant, but the company quit the project.

“There’s no doubt that this outcome will reinforce the long-held understanding in Europe that the U.S. defense market is highly protected,” said Alex Nicholl, a specialist on European defense companies at the London-based International Institute for Strategic Studies.

“This is not the first time that the rules of a U.S. competition have been rewritten to suit the American competitor. No doubt it won’t be the last.”

Read the entire article at theJournal.

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EADS-NA Says Not Comfortable Priming KC-X Contract

Aviation Week is reporting that EADS-North America felt it needed an partner on the KC-X contract as it was not comfortable being the prime for such a large effort. While EADS has experienced some decent growth in the U.S. it still has a fairly lean organization.

The company was confident that they could provide to Northrop the basic airframes on cost and schedule. Northrop would have then been responsible for the necessary military modifications. EADS would have had to find a partner in General Dynamics, Raytheon or Lockheed Martin. There would be few large contractors available in the U.S. with the past experience to support a contract of this size.

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Spirit AeroSystems Named to Boeing Tanker Supplier Team — Press Release

Spirit AeroSystems Named to Boeing Tanker Supplier Team

WICHITA, Kan., March 11 /PRNewswire-FirstCall/ — Spirit AeroSystems Holdings, Inc. (NYSE:SPR) has been named to the Boeing (NYSE:BA) NewGen Tanker Supplier Team. Boeing, Spirit’s largest customer, is bidding on the KC-X program, the U.S. Air Force’s next line of tanker aircraft.

Upon a contract award from the United States government to Boeing, Spirit will build the Boeing tanker’s forward fuselage section in Wichita, Kan. After completion, Spirit will ship the hardware to Boeing’s Everett, Wash., facility for final assembly.

“We’re honored to continue to build quality airplane assemblies for Boeing, and ultimately, for the United States Air Force,” said Richard “Buck” Buchanan, Spirit senior vice president and chief operations officer. “Spirit is proud to be part of the integrated Tanker Team, and is poised and ready to deliver world-class components to our customer.”

Sen. Sam Brownback, R-Kan., said, “I am pleased that the men and women of Spirit AeroSystems will play such a significant role on the NewGen Tanker. The Boeing/Spirit Team has a strong track record of delivering superior value to their customers and I know they will continue this success in building the world’s finest tanker for the United States Air Force.”

U.S. Congressman Todd Tiahrt, R-Goddard., said, “The highly-skilled workers and engineers at Spirit AeroSystems are among the best in the world and will play an integral role in building the next generation of tankers. We are moving toward a tanker contract that will stimulate the aviation industry in Kansas and lead to even more high-quality, high-paying jobs. Spirit workers will provide nothing but the best components for the KC-767, and that is important for our military men and women to successfully carry out their missions.”

On March 4, Boeing announced it would offer the Boeing NewGen Tanker, an airplane based off of the 767 platform, in the competition to supply the U.S. Air Force with a multi-mission aerial refueling aircraft that will meet all the warfighter’s mission requirements for the next several decades.

Boeing will respond to the Air Force’s KC-X Request for Proposal by May 10, and the Air Force is expected to announce its decision later this year.

The contract will be for 179 new KC-X aerial refueling tankers.

On the web: http://www.spiritaero.com/

About Spirit AeroSystems, Inc.

Based in Wichita, Kan., Spirit AeroSystems is the world’s largest independent supplier of commercial airplane assemblies and components. In addition to its Kansas facility, Spirit has locations in Tulsa and McAlester, Okla.; Prestwick, Scotland; Samlesbury, England; Kuala Lumpur, Malaysia; and is developing new manufacturing facilities in Kinston, N.C.; and Saint-Nazaire, France. In the U.S., Spirit’s core products include fuselages, pylons, nacelles and wing components. Additionally, Spirit provides aftermarket customer support services, including spare parts, maintenance/repair/overhaul, and fleet support services in North America, Europe and Asia. Spirit Europe produces wing components for a host of customers, including Airbus.

Source: Spirit AeroSystems Holdings, Inc.

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