Wednesday, April 28, 2010

Tanker Wars -

Cool Picture Credit: From EADS North America Website.

The dirt is really flying in the Air Force next generation Tanker competition or KC-X. The plan is to procure 179 modern airframes from which to pass fuel to military aircraft, easier said than done.

Not the physical art of In-Flight refueling, I am talking about that rare science that is the US Military procurement process.

With EADS/Airbus firmly now in the competition the pressure on Boeing to meet all the stated requirements (which are now Pass/Fail as opposed to weighted evaluation) and at a cost that beats the larger EADS proposed aircraft the A330 (KC-45).

Rumor on the street is that EADS/Airbus will bid this program like Lockheed Martin does, Low Ball.

An analysis by the Gehrson Lehman Group explores this rumor and theory. EADS/Airbus has everything to gain by low balling this procurement. By buying in low they deprive a revenue source to their only rival in the military large airframe business. And this would be a long term revenue source if the age of the existing Refueling fleet is any indication.

And remember EADS/Airbus operates basically as a Non-For-Profit corporation and relies heavily on the partner governments for subsidies to launch new airframes, build infrastructure (such as assembly lines, hangers and expand runways at airports for Airbus operations) to balance its books.

Head to head Boeing would easily win and many analysis's agree with this, but don't bet on an even playing ground for this bid.

Consider also the most basic cost driver here, the cost of the basic airframe. In this estimate (by the Lexington Institute) there is a $50 million dollar difference between the Boeing B767 and the Airbus A330. This is more than $9 Billion dollars over the total of 179 planned aircraft buy. How could they possibly consider a loss of this kind? Well, being bailed out by the governments of the consortium that constitutes the Airbus Company is nothing new. It is getting old however.

Simply look at the Airbus military cargo aircraft that has just now started flight testing, the A400M. Building the prototype used up the initial contributions and down payment money from the European countries that have agreed to buy this aircraft (it is bigger than the C-130 but smaller than a C-17). The result, Airbus has requested and received additional monies to continue the program.

But it gets worse: The Pentagon Revolving Door rotates to the EADS/Airbus exit and who got spit out? Retired General Arthur Lichte, former commander of the Air Forces Air Mobility Command. Taking yet another page out of the Lockheed Martin business plan EADS/Airbus has hired someone that can go in and massage those who would be making the decision on which airframe to buy in this competition. But that famous Revolving Door works both ways and Boeing has many a former General in its employ as well. In fact they employ a former AMC Commander also however, this one left the service back in 2001, not LAST YEAR as General Lichte has.

It's all good folks, let's just hope the Country as a whole does not get screwed in this most ugly process.

BT: Jimmy T sends.

1 comment:

Buck said...

It's just too damned bad the guys who will actually OPERATE the tankers don't get a say. I'm thinkin' there wouldn't be much of a contest if the bid evaluation were structured in that manner. Just sayin'.