<< Previous   of   Next >> Photo courtesy The Boeing Co.  (click to enlarge) Aerospace industry analysts predict the Boeing Co. may be closer this year to winning a long-contested multibillion-dollar military contract to build dozens of KC-7X7 refueling tankers for the U.S. Air Force, either the KC-777 (left) or the smaller KC-767 (right).

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CONTACT SCBJ Kurt Batdorf, Editor kbatdorf@scbj.com

Boeing may be closer to landing the long delayed multibillion-dollar aerial tanker contract for U.S.

By John Wolcott
SCBJ Editor

Three long-time aerospace industry analysts, attending the Ninth Annual Pacific Northwest Aerospace Alliance at the Lynnwood Convention Center in February, were unanimous in predicting the Boeing Co.’s Everett plant would be producing the nation’s first new refueling tanker in more than 50 years.

Boeing tracker and analyst Richard Aboulafia of The Teal Group said the recent death of Rep. John Murtha, D-Pa., opens the door to the likely move of Washington State Rep. Norm Dicks to succeed Murtha as chairman of the House of Representatives’ defense appropriations subcommittee.

Dicks, a strong Boeing supporter, has long favored awarding the contract to Boeing rather than to a competing team headed by a European contractor, EADS.

Aboulafia, Scott Hamilton of Leeham Co. in Issaquah and Michel Merluzeau, managing partner with G2 Solutions, believe Boeing will win the competition for the initial $35 billion tanker contract. Several hundred aging KC-135s, built by Boeing beginning in the mid-1950s, need to be replaced, ultimately requiring decades of production of modern new tankers to serve global military needs.

Competition for the tanker contract has been fierce in recent years between Boeing and Europe’s EADS, builders of Airbus airliners, and their American partner, Northrop-Grumman. Both sides have complained the other competitor has gotten preferential treatment from the U.S. Defense Department as they fought for the huge contract.

Now, it appears that the newest USAF competition, released Feb. 24, has only minimal changes that may lead to EADS withdrawing from the competition, a move the European company already has been talking about for weeks.

In the last round, EADS’ entry was based on the much larger Airbus 330 but Boeing claimed the specifications in the contract favored EADS after the military told Boeing they were looking for a smaller tanker, most likely based on the company’s 767 airliner.

Without the contract, Boeing would be shutting down the 767 line in the Everett plant within the next one to two years. Winning the contract would mean thousands of jobs over several decades to supply the new tankers. Because of the controversies over the bidding, the Air Force is about to go to bid again with specifications that some say will now favor the Boeing 767. This time, Boeing also is prepared to offer the larger 777, an aircraft which is closer to the size of the Airbus 330.

Air Force officials said in early February that they expect to release the specifications for the contract competition by late February or early March. It will be the government’s third attempt to choose a contractor to move ahead with production of the tankers.

Aboulafia, the keynote speaker for the two-day conference, also said rising airliner sales and weak air travel statistics are creating a cloudy picture of the industry’s future this year.
Global air traffic reached lower levels in 2009, yet aircraft deliveries for both Boeing and Airbus were strong, delivering planes in record numbers.

At the same time, more aircraft are being mothballed, including some of the popular Boeing 737 models, with the intent of replacing them with more fuel efficient aircraft. Since that strategy involved the help of government financing, Aboulafia called it an even larger “cash for clunkers” type of program than the one for cars.

He also was surprised by the high delivery rate for single-aisle airliners by both Boeing and Airbus in 2009 at the same time that airlines were retiring so many planes, a move that could possibly result in surplus rosters of aircraft if air travelers don’t return to the skies in the numbers hoped for in 2010 and beyond.

Normally, he said, with airlines cutting air fleet capacities and air travel levels still relatively low, the need for more airliner production should be shrinking. Also, record airliner deliveries are eroding the values of aircraft already in service. Statistically, he said, there are no indications the industry has clear skies ahead and predicted neither of the two major airliner manufacturers should expect strong sales this year.

At the end of 2009, Boeing and Airbus had nearly the same order book values, $257.9 billion for Boeing and $257.5 billion for Airbus. The strength for Boeing’s business this year, he said, will come from the first deliveries of the 787, and soon for the 747-8 Freighter, which had its initial test flight in mid-February.

Clearly, a green light for Boeing on the multibillion-dollar tanker contract would mean a major boost iin 767 or 777 production at the Everett plant, he said.