Archive for January, 2011

WTO Report States Boeing Received Illegal Aid Effect on KC-X Undetermined

In the latest round of the back-and-forth at the World Trade Organization (WTO) between the United States and the European Union (EU) over airline development and sales the report on Boeing (BA) was leaked to the press and found that the Chicago based company received illegal subsidies from the U.S. Government and four states. In September this finding was also leaked as a preliminary to the completion of the final report.

Earlier last year the WTO had ruled in favor of the U.S. in their complaint about launch aid for EADS’ (EADS:P) Airbus products. Since that time there have been those in Congress trying to rewrite acquisition law and regulations so that the illegal aid to EADS would be taken into account in the upcoming KC-X new aerial tanker decision on which Boeing and EADS submitted bids for the initial $39 billion contract.

The findings by the WTO that both sides provided illegal aid that caused unfair competition to the other should lead to negotiations to settle the matter. The normal WTO punishment of having the losing company pay back the economic affect on the other will probably not happen due to the large amounts involved.

The two decisions may aid the Pentagon in deciding the KC-X contract as it possibly removes the issue from the competition and might limit some chances for a protest by the loser. The Pentagon has made clear for months that it cannot take into account the WTO rulings in their source selection and evaluation hence the attempts by Boeing’s supporters in the legislative branch to change the rules.

Now with both bidders confirmed to have benefited from illegal subsidies of some sort it hopefully will remove the issue and allow a competition based on merits and meeting the requirements as defined by the Air Force and Defense Department.

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EADS Bids A330MRTT for Indian Contract

The Indian military as part of its ongoing efforts to upgrade the overall technology of their equipment has tendered a contract for new aerial tankers. Currently they use a version of the Russian Ilyushin (IL)-78 tanker developed several years ago and in service with the Russian military. Reportedly Airbus, and EADS (EADS:P) company, and Ilyushin will submit bids for this contract.

Last year Airbus had submitted a proposal to sell the A330MRTT tanker to India but the contract award was canceled by the Finance Ministry as being too expensive. This contest is a result of that decision.

The A330MRTT is undergoing certification testing for Australia as well as being built for the United Kingdom and the U.A.E. and Saudi Arabia. It is also going to be EADS North America’s submission for the KC-X tanker contract for the U.S. Air Force.

Of note the existing IL-78 tankers have been supporting the flight demonstrations for India’s MMRCA new fighter contract. This means they have required the contestants to be modified to work with the IL-78. Competitors include the F/A-18, Rafael, SAAB Gripen, MiG and Eurofighter. This demonstrates that the IL-78 may be able to fuel a fleet of modern Western aircraft.

If Airbus does win the Indian competition it is only for a few aircraft but it will aid them in getting their production processes in place to get ready for the much larger KC-X contract. The more of the model of the aircraft flying as well will help them with the overall cost of the aircraft and program. Just as the more 767 tankers Boeing (BA) sells to other countries the better for them.

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Rumors Percolate of a February Award for KC-X

There are starting to be media reports that indicate the U.S. Air Force will announce the winner of the KC-X aerial tanker contract in February of this year. The decision had been planned before the end of 2010 but due to delays in reviewing the proposals and the inadvertent slip up of sending the competition’s information to the two bidders it has now moved to 2011.

In a recent presenstion the Secretary of the Air Force, Michael Donley, said that Senate hearings into the information mess may be limited due to the current source selection process. To some this indicates the Air Force does not want the hearing near the decision announcement. The award and potential protest would also constrain what information could be given to the Senate and discussed at the hearing.

Sean O’Keefe, EADS North America’s CEO, also recently said that he expects the award soon. He believes best and final offers will be submitted before January 31st and then the Air Force decision in February.

This will be the third attempt to buy a replacement for the KC-135 aircraft since 2001. The Air Force, Boeing (BA) and EADS (EADS:P) all hope that it will be the last and final try.

There is a good chance no matter who wins the award that there will be a protest. The 35 billion plus contract for these aircraft is the biggest military aviation contract right now. It is critical to both companies aircraft production plans and would give them a significant advantage in future tanker competitions world wide.

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