US Air Force leaders wary of tanker services offering

Market Watch ^ | June 19, 2006 | Rebecca Christie

[Paul Ross]

Will the Airbus A-380 Debacle Kill the KC-30?

Answer: Yes.

[JOE43270]

I don't want this. I'm an Airman and I don't care where you get the aircraft, I want it to have Active Duty Airmen as Pilot, Co-pilot, Navigator and Boom operator. When the aircraft are on the ground I want them taken care of by Active Duty Airmen of the Air Force Speciality Codes needed to maintain the AIRCRAFT.

[rbg81]

I know, lets outsouce it to the Chinese. I'll bet they'll do it much more cheaply and efficiently than any American ever could. Except in time of war.

[brooklin]

Rent-A-Tanker

[TalonDJ]

What A-380 debacle? It is a little behind schedule but lots of programs get that way. There is not 'debacle' with the 380 and if there was it would not effect the KC-30 bid. KC-30 might be dead meat for other reasons but that one is nonsense.

[operation clinton cleanup]

I don't want this. I'm an Airman and I don't care where you get the aircraft, I want it to have Active Duty Airmen as Pilot, Co-pilot, Navigator and Boom operator. When the aircraft are on the ground I want them taken care of by Active Duty Airmen of the Air Force Speciality Codes needed to maintain the AIRCRAFT.

And Reserves! There may have been hanky panky on the leasing of 767's, but the delay costs have probably ate up any savings on kick-backs that were stopped.

[Paul Ross]

There may have been hanky panky on the leasing of 767's, but the delay costs have probably ate up any savings on kick-backs that were stopped.

More than merely ate them up. Would you believe that the program cost has essentially doubled?

Thanks "Budget-Hawk" John McCain.

You do our nation proud.

NOT!

[Paul Ross]

What A-380 debacle? It is a little behind schedule but lots of programs get that way. There is not 'debacle' with the 380 and if there was it would not effect the KC-30 bid. KC-30 might be dead meat for other reasons but that one is nonsense.

Then you missed the memo:

Thursday, Jun 22, 2006, 10:44 a.m.

Should the A380 be euthanized?

Teal Group analyst Richard Aboulafia -- in a letter to clients view link that's sure to land him on the VIP to the Airbus doghouse at Farnborough, and not the Airbus chalet -- is suggesting that it's time to pull the plug on Team Toulouse's failed experiment with the A380.

Aboulafia argues that the A380 is the flawed result of an even-more-flawed system, built for political, not economic, reasons. Airbus must now make an immediate and "brutally honest" assessment of the program, he writes.

Key Quote: "If there is no hope of quickly turning the A380 into a competitive plane with decent economics and then shifting design and production resources to more important segments, kill it. The write-offs and political shame will be terrible. But national, continental, and corporate pride should have nothing to with what is essentially a business decision. More importantly, the alternative — to keep going and risk losing everything — is worse. There isn’t a lot of time here, and it’s tough to learn from fatal mistakes."

[TalonDJ]

hehehe. So one 'analyst' bad mouths is and it is now a debacle? They have firm orders for 150+ of them (enough to keep them building them for many years). Did anyone bother to tell Airbus? I am sure they will pull the plug now that they already spent 90% of the development costs and are on track to deliver them to airlines later this year. /sarc

[Paul Ross]

They have firm orders for 150+ of them (enough to keep them building them for many years). Did anyone bother to tell Airbus?

Yes....someone did. The airlines. They have LOST 20 "firm" orders now. So that slips from 150 to 130. They needed about 254 orders before the catastrophic design SNAFUs emerged.

Face it, the A-380 is going down the drain. They are not getting new orders. Those are permanently on "on hold" to put it politely. And if the French and German governments intervene with still more-flagrantly non-commercial susbsidies... the U.S. government will object. GATT and the WTO will be left with no choice but to sanction the violatory AirBus subsidizing countries and the Company. With major fines and penalties such as permitting the aggrieved party, the U.S. and Boeing the right to tariff the hell out of all of AirBusted products.

So, it's Clint Eastwood "Dirty Harry Time" with our gun pointed squarely at the AirBusted thieves heads...."Do you feel Lucky, Punk? Well, do you?"

[Paul Ross]

I am sure they will pull the plug now that they already spent 90% of the development costs and are on track to deliver them to airlines later this year. /sarc

I'll "see" your sarcasm, and raise you three /sardonicisms!

June 2006 Letter :

Dear Fellow Stunned Observers,

Mapping failure in our industry is easy. Aircraft fail due to technical reasons or market reasons or both. Technical failures include the A-12 and the Comet 1 jetliner. Market failures include the 717, F-20, and Concorde. Finding combinations of both types of failure is rare. Most of these get quashed before they leave the drawing board—like Sonic Cruiser. You need to search history for aircraft that represented both types of failure, like the Spruce Goose.

I’ve always thought the A380 would be a market failure. But we might be witnessing an unusual dual market and technical failure.

What’s bizarre about the recent Airbus A380 announcement is its excuse. “Some wires are tough to install. So production will be cut by 70% next year, and the delays will continue after that.” Damn that Radio Shack. This is the dumbest effort to deflect blame for the disaster (okay, second dumbest; first prize goes to Noël Forgeard’s pinning the blame on Gustave Humbert: “Mon Dieu! Leave the company in this German’s hands for a few months and this happens!”). What to make of all this?

First, no, it’s not just the wiring harnesses. Something looks wrong here. Most likely, they are finishing planes already in production, but making design tweaks for future aircraft, trying to get the weight down and improve performance. The initial planes will likely be overweight.

Second, there’s the market’s comment on this aircraft’s technical appeal. Aircraft delays happen all the time. But if a new plane came with a compelling case, people would wait for it. When people back out, or talk about backing out, that speaks to a serious ambivalence about the plane’s performance. ILFC’s Steve Udvar-Hazy knows more about airline economics and residual values than anyone; if he cancels that’s a serious warning.

I’ll put on my analyst hat and offer some free advice. Airbus and its stakeholders should do a brutally honest assessment of the A380. First, look carefully at the customer contract terms and pricing. Can it ever make money? Can the performance be improved? What will the penalty payments look like for missed performance promises and for late delivery? If the next few weeks see more than one or two customers cancel, that’s a good indicator that this plane will just suck cash.

Next, assess company resources. How quickly can money and engineers be shifted from the A380 to the A370? The A380 (along with the 747-8) is chasing 5-10% of the market by value; that middle market widebody segment is 50%. And, if they’re late with the A370, they run the risk of losing the narrowbody franchise, the other 40-45% of the market, to a Boeing 737 replacement. The situation was bad enough before the new delays. The new schedule implies an ongoing ulcer that distracts from the other 90-95% of the market.

In the interests of fairness, here’s some free (and obvious) advice to Boeing: as soon as the 787 is out the door, launch the 797 narrowbody. Do to the A320 what the 777 and 787 are doing to the A330/340.

To sum, if there is no hope of quickly turning the A380 into a competitive plane with decent economics and then shifting design and production resources to more important segments, kill it. The write-offs and political shame will be terrible. But national, continental, and corporate pride should have nothing to with what is essentially a business decision. More importantly, the alternative—to keep going and risk losing everything—is worse. There isn’t a lot of time here, and it’s tough to learn from fatal mistakes.

The A380 problems are much bigger than a big plane. France, Europe, heck, everywhere, needs to look at this experience and learn from it. Many governments monkey around with their nations’ industries. Many allow strategic planning and forecasting to be corrupted by politics. Many fill top industry leadership jobs with incompetent party hacks. All of this is really bad. Period. Separation of government and economy (i.e. capitalism) is a great idea. It means the damage government can do is restricted to the public sector. It’s not just in Europe; clueless officials everywhere spent tens of millions in taxpayer cash on airport upgrades, just to accommodate a marginal requirement.

But old habits die hard. As the A380 news broke, French President Jacques Chirac said he had “total confidence” in the A380 (shades of G.W. Bush and FEMA director Michael Brown; “You’re doing a heckuva job, Forgie…”). Much worse than that, the debate now concerns the French Government taking a much bigger role in EADS/Airbus ownership and management. This would not go over well with the Germans. It would very definitely not go over well with the US Congress, obliterating chances of a tanker contract. It wouldn’t go over well with any capital provider or investor or global markets either.

Sure, major changes are needed at EADS France; but it needs less government control, not more (best recommendation I’ve heard: bring back Jean Pierson, last seen fishing in a boat off Corsica). And in the weirdest twist yet, France’s Socialist party is criticizing the government’s Airbus policy. Of course, we don’t know what they want. It isn’t likely that fans of free enterprise will be in the awkward position of rooting for the Socialists. It’s more likely that the Socialists will use the crisis as a talking point on the evils of a market economy.

I have no idea what will happen in France, but I have a bad feeling about it. It would take years to undo re-nationalization and de-globalization. If the big government crowd succeeds, the petty tyrants in charge of the French economy will one day suffer a “Ceausescu moment”: the sudden realization that the crowd in the square is yelling, not cheering.

Another lesson. The A380 illustrates why risk is spread through outsourcing. For all the talk, the only parts of the A380 that were globalized were the systems (some, thankfully, were off-the-shelf). The airframe itself is basically 100% European. This means an unpleasant level of exposure for Airbus companies, including BAE Systems, which is now trying to extricate itself from Airbus, rather like a fox from a cruel fur hunter’s trap. Contrast this with Boeing’s approach. If the 787 test fuselages start fizzing like Alka Seltzer, Boeing’s total exposure is relatively light. Much of the damage would be spread to Japan, Italy, and Vought. Of course, the European taxpayer politely provides Airbus with some insulation, much as Japanese and Italian taxpayers help insulate Boeing.

I’ll close this note with a defense of Airbus. Despite the industrial malpractice that has brought Airbus to this point, the market doesn’t want a monopoly. Customers will encourage anything Airbus does to reinvent its product line. That’s another reason to think about canceling the A380 and moving on. If Airbus admits defeat with this fratricidal behemoth and turns everything to the A370 and then the A320-X, airlines and lessors might step up to the plate and do what they certainly won’t do with the A380: order planes.

We’ve updated the A380 report this month, along with the Trainer overview, A400M, PC-9/T-6, Tornado, ALH, LCA, and the ATR family. See you at Farnborough.

Yours, ‘Til the Flying Asylum Opens for Business,

Richard Aboulafia

 

[Military family member]

But they haven't been active duty for sometime now. Grissom Air Force Base in Peru, Indiana used to be the home of a refueling wing. There are still refuelers there singet he base closed, but now they are flown by air national guard members.

I taught classes for the pilots for a few years. Most of them have quite a number of combat-associated experience.

[Military family member]

What does this story have to do with the airbus?

[Paul Ross]

What does this story have to do with the airbus?

The story mentions that EADs is now unlikely to prevail with its bid due to the financial follies of the company. And not just the corporate executive's misdeeds. But the company fundamentals.

EADs owns Airbus, and it was going to use an AirBus airframe to bid for the new tanker contract against the last remaining U.S. aerospace integrated manufacturer capable of bidding on the project...Boeing. Airbus is on the financial rocks, absent a huge infusion of free cash by France and Germany...a flaming GATT/WTO violation ...then there would ne no AirBus to make their planes for the EADs bid. And EADS will be drained of all cash to make such a bid. The Irish bidder is a last-second diversion. Their use of 20-year old DC-10s might be considered as a supplemental alternative. Personally, I kind of like the idea of a fleet of 60 additional KC-10s being available. They would be a lot more capable than the 757 derivatives in capacity, range and speed. But they should be crewed and maintained by the USAF, and Reserves.

[CholeraJoe]

I want it to have Active Duty Airmen as Pilot, Co-pilot, Navigator and Boom operator.

Navigator!? You're living in the past, Airman. The 3 most insignificant things about a flying mission are the altitude above you, the distance behind you and the navigator.

I flew in helicopters most of my career in the USAF. We didn't need no stinking navigators.

[Paul Ross]

We didn't need no stinking navigators.

LOL!

[TalonDJ]

Yeah that is all nice but since I work for a supplier of key parts for the A-380 I trust the grape vine at my company more than some random analyst. There is not anything solid in post. They are a little over weight? Hah! Every new aircraft development I have ever heard of had weight issues. Delays because of some wiring is just what it says, some delays. Not the end of the world. His comparison to planes that were either never built, never flew, never sold, or were never intended to fly in an great numbers is wildly inaccurate. I agree the 380 market might never be as big as they hoped. But that hardly makes it an abject failure. Comparing it to the concord blows any credibility this guy has as an commercial aerospace analyst. The similarity is superficial had does not touch the market share. They have over 150 orders even after those lost sales. Anyone who things the A-380 will dry up and die is not looking pasted the coast of the Atlantic and does not know squat about the Asian airline markets. Considering the practices of communist China I find the idea that France and Germany might get in trouble with the WTO for Airbus' financing just silly. At most they will get a symbolic slap on the wrist. I don't care for their financial actions but that does not bind me to market realities. Tariffing Airbus products? Ha! Like that many are even sold in the US.
The A380 is not a big money maker. If you know the economics of airframe sales you would know it was never meant to be.

[BeHoldAPaleHorse]

If Boeing hadn't started playing fast and loose with the law, this wouldn't even be an issue.

[BeHoldAPaleHorse]

So, let me understand this:

You think that companies that violate the law should be rewarded for doing so?