Posted on 06/22/2006 3:59:20 PM PDT by Paul Ross
US Air Force leaders wary of tanker services offering
Omega Air Inc., a private company owned by Irish investors, has offered the Air Force up to 60 modified DC-10s on an hourly basis. Its services will compete against new tankers offered by Boeing Co. (BA) and a team of Northrop Grumman Corp. (NOC) and the European Aeronautic Defence and Space Co. (5730.FR), primary parent of Airbus.
The Air Force hopes to pick a winner next year. But the competition has already begun, with an Air Force request for information that specifically asked about service contracts as well as new planes. Officials say the Omega bid adds a welcome dimension to the heavily scrutinized contest, but it also raises a host of new questions.
Air Force Secretary Michael Wynne and Chief of Staff Gen. Michael Moseley say the service will listen to all comers. In interviews last week, however, both officials were skeptical about any solution that didn't involve outright purchases of new aircraft.
"Under normal circumstances, we see a lot of the things that Omega wants to do as the best training we can give to our tanker pilots," Wynne said. "To take away that opportunity and believe that without training they can just go do a different mission in an operational theater, it stretches me a little bit."
The Air Force also needs to be careful about its long-term obligations, Wynne said. Since commercial airlines don't use refuelers, the Air Force might become the sole customer supporting Omega's payroll.
"We would be the primary market for a company if it got set up like that, which would give us a little bit more responsibility than we probably want to take on," Wynne said.
Omega says it would sell tanking services to the Air Force on an hourly basis, with all aircraft and personnel costs built in. An Omega spokesman said the company plans to hire former Air Force pilots and other ex-military personnel to operate its tankers.
Such personnel might be readily available, since commercial airliners have been cutting back on staff. The Air Force also is cutting personnel, in a bid to free up more money for new weapons systems like the replacement tanker.
But Omega still would need to negotiate a long-term relationship with the Air Force that is compatible with the federal budget process. The company understands its contract would be subject to annual appropriations, but it would need some kind of assurance of a longer-term relationship, the Omega spokesman said.
If such a relationship develops, Omega may have its work cut out for it. It needs to be competitive or cheaper than the Air Force while juggling a host of overhead costs, said Gen. Moseley, who led air combat operations in Iraq and Afghanistan from 2001 to 2004 and who took over the Air Force's top job last year.
In the Air Force, "all the fuel costs and all the personnel costs are rolled into an existing platform. The fuel costs X amount per pound delivered to the F-16. In this contracting world, the fuel delivered to the F-16 has to be the same," Moseley said.
"I'm interested to see how those folks that would bring that to the table pay for the O&M and the personnel and the operations of that airplane," Moseley said, using the Pentagon abbreviation for the operations and maintenance budget.
Omega may not be the only bidder offering services or used planes to the Air Force. Boeing was coy about proposals other than its new 767-based tanker, but the company says it answered "all sections" of the request for information.
"It's our understanding that Part B involved more than just service providers. It also asked competitors to discuss capabilities for modification and upgrades to the existing KC-135 fleet," Boeing said in a statement, when asked about its strategy. Boeing made the Eisenhower-era KC-135, a cousin of the 707 passenger plane.
The Air Force expects to issue a draft request for proposal in September, with a final request for bids early next year. If funding for the new tanker stays on track, the Air Force seeks to award a contract by August 2007.
Wynne said the Air Force will be looking first and foremost for a new tanker, even as it considers the cargo, medical evacuation and business characteristics of each of the contenders. As the contest moves forward, the Air Force wants to avoid a repeat of the controversy that sank a previous, $23 billion plan to lease and buy 100 Boeing tankers.
"By and large, what we're looking for is primarily tanking," Wynne said. "I'm not sure how much we would pay for the multimission capability as opposed to just getting our tanker fleet refreshed."
That focus on fuel could give Boeing the final edge, because its 767 is smaller than the A330 or the DC-10, said Lexington Institute defense analyst Loren Thompson. He said the Air Force doesn't regularly face long distances that would favor a bigger tanker plane, but the Pentagon often contends with limited runway space.
"A key challenge the Air Force faces in buying a next-generation tanker is finding a plane that will not crowd airfields so much that they can't put enough tankers where they need them," Thompson said.
Answer: Yes.
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.
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.
Rent-A-Tanker
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.
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.
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!
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."
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?"
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
I taught classes for the pilots for a few years. Most of them have quite a number of combat-associated experience.
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.
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.
LOL!
If Boeing hadn't started playing fast and loose with the law, this wouldn't even be an issue.
So, let me understand this:
You think that companies that violate the law should be rewarded for doing so?
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