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Exclusive Article at Seeking Alpha on EADS Move to Alabama And Spirit Aerosystems

This is an article I wrote for Seeking Alpha discussing the decision by EADS to build a facility in Mobile, AL and its potential affect on Spirit AeroSystems.

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Boeing and DoD Release Latest Estimate for KC-46A First Phase Contract

The Hill is reporting that Boeing (BA) currently estimates the first phase of the KC-46A contract at about $5.2 billion or 6% above the $4.9 billion ceiling price. All of that increase if that is what it turns out to be will be paid for by Boeing. The cost share of the difference between $3.9 billion target price and the $4.9 billion ceiling will be split between the Government and Boeing.

There was some consternation when the reports of Boeing’s efforts costing a great deal more then the $3.6 billion price at which the contract was awarded. This led to charges that Boeing “bought in” the contract by bidding deliberately low so that competitor EADS North America, part of European aerospace giant, EADS (EADS:P), could not win.

As the contract goes forward the total cost will change depending on what challenges the program faces and if it needs more time and investment to develop the variant of the Boeing 767 airliner. It may end up being less then $5.2 billion or even more as the program evolves.

Recent Tanker News Link Round Up

The site has been quiet since the award of the KC-46A contract to Boeing (BA), but here are some links to articles about different aspects of the program and the companies involved in the contest:

Boeing is slowly releasing information about the KC-46A design.

World Trade Organization softens ruling against EADS (EADS:P). Boeing and U.S. still claim victory.

House puts strong cost controls on KC-46A with mandatory reporting requirements for Air Force.

First Australian KC-30 arrives at RAAF base for introduction into service.

EADS NA Will Not Protest

At a press conference earlier today EADS NA (EADS:P) stated that they will not protest the KC-X tanker award to Boeing (BA).

This means that the U.S. Air Force has awarded a new tanker contract successfully and the last decade of fits-and-starts is over. Now the emphasis shifts to Boeing and their efforts to meet the schedule and performance requirements of the program.

Hopefully this means in a few years the KC-46A will be flying over the United States.

Will EADS Protest?

Now that the U.S. Air Force and Defense Department have awarded the KC-X new aerial tanker contract to Boeing (BA) for their KC-46A aircraft the major question is whether the losing EADS NA (EADS:P) bid will protest? In 2008 when the Air Force selected Northrop Grumman (NOC) and EADS Boeing did protest and the choice was overturned leading to this current iteration of the contest. Considering this is the only fixed wing aviation program in the near future or at least until the Next Generation Bomber program emerges it may be hard for EADS not to protest on the chance that they might win or at least there would be another competition.

In their public statement the company is non-committal about the chances of filing a protest with the Government Accountability Office (GAO). They say “EADS North America officials today expressed disappointment and concern over the announcement by the U.S. Air Force that it had selected a high-risk, concept aircraft over the proven, more capable KC-45 for the nation’s next aerial refueling tanker.” but they also say ““Though we had hoped for a different outcome, it’s important to remember that this is one business opportunity among many for EADS in the United States,”. So read into that what you may.

At a minimum the filing of an unsuccessful protest would delay the initiation of the contract for about 100 days making the delivery of any new tankers to the Air Force even later then they will be after an almost ten year process to build a new one.

And the KC-X Winner is Boeing!!

The U.S. Defense Department and Air Force announced that Boeing (BA) has been selected to provide the new KC-X aerial tanker. The design submitted by EADS NA (EADS:P) was not chosen.

The new KC-46A will be based on Boeing’s 767 airliner design.

The Secretary of the Air Force, Mr. Michael Donley, stated that the decision was based on “mission effectiveness in wartime and life cycle costs as embodied in fuel efficiency and military construction costs”. This might be a hint that the larger KC-30 aircraft from EADS might have required more investment in new and bigger facilities then the smaller 767 tanker.

The contract has been very political with states that stand to gain thousands of jobs from the program using their Senators and Representatives to push for the respective bidders.

EADS does have the right to protest the decision as Boeing did in 2008 when the contract was awarded to Northrop Grumman (NOC) and EADS. They will have to wait until their debrief by the Air Force before making any decision about that.

Even an unsuccessful protest may delay the start of the program for several weeks and the Air Force plans on receiving the first 18 aircraft in 2017. The new KC-46A will replace Cold War era KC-135R tankers some of which have been flying for fifty years.

Cross posted at KC-X Tanker News.

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And the Winner is Boeing!

The U.S. Defense Department and Air Force announced that Boeing (BA) has been selected to provide the new KC-X aerial tanker. The design submitted by EADS NA (EADS:P) was not chosen.

The new KC-46A will be based on Boeing’s 767 airliner design.

The Secretary of the Air Force, Mr. Michael Donley, stated that the decision was based on “mission effectiveness in wartime and life cycle costs as embodied in fuel efficiency and military construction costs”. This might be a hint that the larger KC-30 aircraft from EADS might have required more investment in new and bigger facilities then the smaller 767 tanker.

The contract has been very political with states that stand to gain thousands of jobs from the program using their Senators and Representatives to push for the respective bidders.

EADS does have the right to protest the decision as Boeing did in 2008 when the contract was awarded to Northrop Grumman (NOC) and EADS. They will have to wait until their debrief by the Air Force before making any decision about that.

Even an unsuccessful protest may delay the start of the program for several weeks and the Air Force plans on receiving the first 18 aircraft in 2017. The new KC-46A will replace Cold War era KC-135R tankers some of which have been flying for fifty years.

Cross posted at Defense Procurement News.

KC-X Soon? Protest Coming

At a recent press availability during the Air Force Association’s winter conference the Secretary of the Air Force indicated that the KC-X new aerial tanker contract will be awarded as early as this week. Earlier rumors had it being done in the next month or so.

Mr. Donley also made it clear that there is a potential for a protest of the award by either Boeing (BA) or EADS NA (EADS:P) if they don’t win and that the Air Force and the Defense Department are prepared to deal with it.

This is the third attempt to award this contract with the last contest won by Northrop Grumman (NOC) and EADS in 2008 overturned on Boeing’s protest. Due to the size, importance and the conflicts between the U.S. contractor and its supporters and the European aerospace giant this may continue to be an messy, extended affair.

For now everyone must wait until the decision is announced which could occur as early as tomorrow after 5:00 Eastern.

Air Force Plans Award Before April 1st

Despite the current issues with defense funding the Defense Department and Air Force reportedly said that they hope to award the KC-X aerial tanker contract within a month. The budget sent forward for 2012 on Monday stated that the planned contract was valued at around $35 billion.

It sounds like that even with the Pentagon acting under a continuing resolution rather then an official budget that at least the winner will be announced. There is some concern that without a 2011 budget resolution from Congress a new contract of this magnitude might not be able to be awarded. This means that the Air Force will have to wait until October 2011 to have initial funding for the purchase of the new tanker.

The KC-X saga is heavy with political overtones as supporters of both Boeing (BA) and EADS (EADS:P) in Congress continue to lobby OSD and threaten problems if their preferred source is not chosen.

The Air Force has been trying since early in this decade to buy a new tanker and this award may be the last step towards doing that. Although the chances of a protest by the loser remain high and the current budget situation between President Obama and Congress may make it difficult to get the funding resolved anytime soon.

Both Companies Submit Final Proposals But Will Continuing Resolution Allow Award?

It has been confirmed that both Boeing (BA) and EADS North America (EADS:P) submitted their final proposals for the KC-X aerial tanker program. The Air Force had asked that they be submitted by today and both companies turned them in early.

One pressing question that remains is if the Department of Defense remains under Continuing Resolution (CR) for the rest of the year rather then Congress passing a proper budget is it possible to award the new contract? It looks like the Republican controlled House is planning on doing CR until the new Fiscal Year (FY) starts in October. There has not yet been any statement from the Government on this question.

One would think that even if the source selection is carried out and a winner chosen with the caveat that the contract award would have to wait until the next FY it might affect the pricing. Having a requirement to guarantee the pricing for several months has not been identified yet and it would have some effect on each company’s bids.

As everything with this program nothing is easy and it seems this third attempt may be even more complex and controversial than the first two.

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.

House Votes to Require Pentagon to Consider “Unfair Competitive Advantage”

The House of Representatives winding down the lame duck session voted today to pass legislation forcing the Pentagon to take into consideration in source selection whether one of the bidders has an unfair competitive advantage. While not naming any names the law is oriented towards EADS (EADS:P) bid for the new KC-X aerial tanker program. The law has little chance of being considered in the Senate anytime in the next few days.

This is fallout from the World Trade Organization (WTO) ruling earlier this year that EADS had received illegal subsidies from European nations. This was mainly in the form of “launch aid” loans that would only be paid back if the aircraft were profitable but also included tax breaks and infrastructure funding. The Pentagon has made clear that U.S. procurement law and regulation do not allow these types of rulings to be a factor so Boeing (BA) supporters in the House and Senate have been making efforts to change the law so that EADS will not have a “competitive advantage”.

The WTO has also made a ruling against the European counter claim against Boeing that it had received some aid from the U.S. government.

The KC-X is in this situation as there are currently only two Western companies that are able to build this aircraft. In order to gain any competition with a goal of cost savings Boeing and EADS must be considered. A wild card attempt by U.S. Aerospace teamed with Ukrainian manufacturer Antonov was not considered.

If you think Congress is upset about EADS think about how they would react to an Antonov win no matter how cost effective or capable it would have been.

Until the Air Force makes its source selection decision known this kind of fighting will continue. Protests by the loser are also to be expected as the KC-X saga enters its tenth year.

Loren Thompson Predicts EADS Win

The well known aerospace analyst writes that based on discussions he has had it looks good for EADS North America to win the current KC-X new aerial tanker competition. He believes that the information accidentally shared by the U.S. Air Force with EADS and its U.S. competitor, Boeing (BA), indicate that the analysis by the source selection board favors EADS A330 MTT based bid.

EADS did win the contest two years ago teamed with Northrop Grumman (NOC) only to have it overturned on protest by Boeing. The Government Accountability Office (GAO) ruled that the Air Force had not applied its own criteria properly in evaluating those bids.

This time around EADS bid by itself and proposed basically the same aircraft. Boeing bid a modified version of their 767 tanker incorporating parts of the new 787 cockpit and other improvements.

Last month the Air Force had to admit it sent information to the two bidders about the others after mixing up the CD’s with data.

In Thompson’s analysis the data showed the Air Force favoring the EADS aircraft. Of course Boeing will have a chance to protest if they really do lose this contract.

In another piece of this very complicated puzzle this latest development may have serious affects on the latest attempt to replace the KC-135 Cold War era tankers.

Air Force Confirms Slip While Their Error Roils Contest

24 November – Update: The Air Force reportedly reassigned the two persons involved in sending the information to the wrong bidders. They still claim that the error will not affect the contest. EADS has said on record that haven’t ruled out a protest based on this incident.

The Air Force in a recent announcement confirmed that the source selection for the KC-X new aerial tanker won’t be completed until second quarter of Fiscal Year 2011. This was part of a much more important admission by the military that they had accidentally sent evaluation information on Boeing (BA) and EADS (EADS:P) bids to the wrong teams. Boeing got EADS and vice versa.

The computer data files sent to the contractors included pricing data for the two bids. The effect of this error on the whole contest is yet undetermined and the Air Force seems to be trying to push through with the hope that the leak is minimal. Without the companies coming forward to admit to looking at the data there is no way of knowing how much effect this will have on the proposals.

Certainly this adds yet another twist to the ongoing saga that is the KC-X competition and will certainly play a role if there is a protest by the losing bidder.

Is KC-X It For Tanker Acquisitions?

This past week a study was released prepared by analyst Rebecca Grant on the KC-X program as a whole. Grant is the head of the think tank IRIS.

The report may be found here.

Grant believes that due to budgetary constraints the KC-X buy will be the only new tanker purchased and that the Air Force’s follow on KC-Y and KC-Z increments won’t happen.

She also believes that the use of the aircraft to support operations in the Pacific will be paramount over other planned missions. This drives her to conclude that large fuel capacity and range will be two of the capabilities driving the Air Force’s source selection decision.

Those two factors favor the larger EADS (EADS:P) A330 based system over Boeing’s (BA) 767 tanker aircraft.

If the second and third increments of aircraft are not purchased it would be a blow to both aerospace companies as the Air Force has said that they might be new competitions rather then just buys of the KC-X winner which makes sense as ultimately the Air Force does need to buy a replacement for the KC-10.

Ms. Grant’s thoughts have caused a great deal of thought and comment as the military nears its decision on which aircraft to buy.

GAO Denies U.S Aerospace’s Protest

The third bidder for the KC-X tanker contract, U.S. Aerospace (USAE) and its Ukrainian partner Antonov, had their protest denied yesterday by the Government Accountability Office (GAO).

The company had filed the protest because the Air Force had said their proposal was delivered past the deadline for submission. U.S. Aerospace claimed that their courier was deliberately delayed and should have been allowed to make the delivery on time.

This decision leaves only the Boeing (BA) and EADS (EADS:P) bids as being considered for the contract. The Air Force had previously said that a decision would be announced around the middle of November but there have been reports that this might slip.

A330 Tanker Reportedly Receives Military Certification

The EADS (EADS:P) subsidiary Airbus built tanker reportedly received its military certification from Spain’s military certification authority, INTA. While the European Aviation Safety Agency (EASA) does certify civil aircraft for many different nations it does not military systems. EADS needed a military certification authority to do that and used Spains.

The A330 MRTT is being built for Australia and the United Kingdom to perform aerial refueling missions. It has also been proposed by EADS for the U.S. Air Force’s KC-X contract as well as some Middle Eastern customers.

Military certification is a step forward in the process of the aircraft being accepted for use by its customers. The program has seen some delays but is moving forward into service with Australia and then Great Britain.

WTO Reported As Ruling Against Boeing in Subsidy Case

A few months ago the World Trade Organization (WTO) ruled that EADS (EADS:P) had received illegal subsidies from various European governments in the form of launch aid loans and tax breaks. The decision was quickly seized upon by Boeing (BA) supporters who want the Department of Defense and the U.S. Air Force to take the advantage these subsidies gave EADS into account in their source selection for the KC-X aerial tanker.

At the same time the WTO was considering a complaint by European governments that Boeing’s (BA) many years of contracts from the American government also aided them in developing their products and reducing their costs. The results of that case were leaked today and they indicate that the WTO will provide some criticism of the U.S. support.

This then was quoted by EADS’ American allies to reiterate the need for these not to be considered in the decision of who will win the contract to build over $35 billion of new tankers.

Because the rulings will not be exactly even and cancel each other out the argument will still go on even as the WTO leaves the issue. Unfortunately the decline of the world’s industrial base to where there are only two Western companies able to build this type of aircraft have led to this situation.

There is no easy resolution to the problem and no decision by the U.S.A.F. that will placate everybody. Once again the chance of a protest seems to be a given.

Air Force Preparing for Slip to KC-X Award?

September 8, 2010 by · Comment
Filed under: Boeing, EADS, GAO, KC-X, KC-X Tanker News, Syndicated Industry News 

There are now reports that the U.S. Air Force may slip the announcement of a winner of the KC-X contract until the end of the year. The last planned date was the middle of November. This was a slight slip as the original goal was to have work start on that date.

Now it could be as late as just before Christmas that an award will be made. There are potential concerns with the results of the mid-term elections in early November that may have to be reflected on when coming to a decision on whether to award to Boeing (BA) or EADS (EADS:P). No matter what the program may see further delay if the loser protests the decision.

The Government Accountability Office (GAO) is also addressing two protests by the U.S. Aerospace (USAE) and Antonov team over the failure of the Air Force to accept their proposal claiming it was delivered five minutes too late. There is a chance that any upholding of the protests would cause further delays to the source selection and award.

The KC-X is now on its third iteration over the the last nine years and continues to look as if a new tanker won’t be purchased anytime soon.

Telephonics to supply the Mexican Navy with its APS-143C(V)3 radar for the CN-235 aircraft

August 3, 2010 by · Comment
Filed under: Syndicated Industry News 

FARMINGDALE, N.Y.–(BUSINESS WIRE)–Telephonics Corporation, a wholly owned subsidiary of Griffon Corporation (NYSE:GFF), announced today that its Radar Systems Division received a contract from EADS Airbus Military (formerly CASA) valued at over $2M to supply APS-143C(V)3 radar systems for installation on the CN-235 aircraft in use by the Mexican Navy. The potential to fulfill the Mexican Navy’s maritime requirements is an additional 6 of these radar systems. The APS-143C(V)3, Telephonics’ high



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Alabama Remains Supportive of EADS North America

Governor Bob Riley (R-AL) made a speech yesterday to the Economic Development Association of Alabama at which he discussed upcoming industries moving to Alabama. He stressed his administration’s continuing efforts to move large manufacturing facilities to the state. Riley will leave office this year due to term limits.

He is hoping that EADS North America will win the KC-X contract before he does go as one of the key industrial developments for the state. Now Riley is always going to be positive about this effort right up to the time a winner is announced but it does illustrate how well EADS has built relations with leadership in Southern states that have benefited from their investment.

Riley has seen some successes with the building of a Hyundai assembly plant in the state and the ongoing construction of a steel mill by ThyssenKrupp which will open in the near future.

Can U.S. Aerospace and Antonov Win?

The KC-X new aerial tanker program Request for Proposals (RFP) attracted a third bid this time around. U.S. Aerospace submitted one based on the Ukrainian made Antonov transport. The question that immediately comes to mind is can this team win, or will it be Boeing (BA) or EADS (EADS:P)?

Realistically the chances of this bid being selected are low. The companies had asked for a sixty day extension to work on their proposal. The Air Force already slipping the contract deadline one month to accommodate EADS refused the further two month slip. This would have pushed award into 2011 with the current planned date of mid-November this year already late enough. The U.S. has been trying to get a replacement tanker for the aging KC-135 since 2001.

U.S. Aerospace and its partner obviously felt their proposal could be improved with the extra two months but did go ahead an turn one in that they feel meets all of the Air Force requirements. At the same time in a recent filing with the Securities and Exchange Commission (SEC) U.S. Aerospace makes clear that the Air Force could easily reject them.

The company writes “For any or all of these reasons, the Air Force may not select our bid, may disqualify our bid, or may refuse to consider it on the merits, or at all,” based on myriad factors. These include not meeting requirements, not having qualified sub-contractors, not having necessary facilities or capabilities and even missing the deadline. They didn’t do that turning one in on time.

Of course all of this could be standard “Forward Looking Statements” meant to make clear to anyone investing in their stock that they are being conservative in their estimates. The stock was trading at 18 cents at the close on Friday.

Certainly they have offered a cost effective approach. The Air Force must consider if it meets their requirements and they have the ability to produce the systems to the necessary schedule. Certainly stranger things have happened in defense contracting.

Boeing and Antonov Follow EADS and Submit KC-X Proposals

Boeing (BA) submitted their proposal for the KC-X aerial tanker program a day after rival EADS (EADS:P) did. Today was the day it was formally due, EADS coming in a little early. The Boeing proposal stresses their cost and size benefits over competing EADS with their larger A330 based aircraft. Boeing is basing their bid on a modified 767 airliner with advanced avionics from the yet to enter service 787.

Also U.S. Aerospace and Antonov submitted their competing proposal after losing a bid to delay things sixty days. There total cost is under thirty billion for a contract the Air Force has estimated at $37.5 billion based on an aircraft cost of only $150 million each.

The Air Force plan is to award the contract in four months. The three bids may make the competition’s source selection last longer and may also raise the chance of a protest.

If the U.S. Aerospace / Antonov team wins it might get very interesting.

EADS North America Turns in Proposal Today

EADS North America, the American subsidiary of EADS (EADS:P), turned in their proposal for the KC-X aerial tanker today to the U.S. Air Force. This represents their second attempt to win the program and the Air Force’s third try.

EADS North America will base their program on a modified Airbus A330 transport aircraft. As with the previous attempt in 2008 they will assemble the aircraft at a facility in Mobile, AL. Then they will receive the necessary modifications to meet the U.S. requirements. Airbus will also assemble all of their A330 transports at this new facility if EADS does win the contract when it is awarded in November.

Boeing (BA) will also turn in their proposal by tomorrow. A third contended, U.S. Aerospace, has committed to submit a proposal by Friday if the Air Force does not grant their extension request.

Antonov Team Request Delay in Proposal Deadline

As reported last week U.S. Aerospace and Antonov intend to submit a proposal to the Air Force for the KC-X aerial tanker. Because the actual proposals are due this week supposedly the new team will ask for a sixty day delay to accommodate them. The deadline has already been moved once from June to July to allow EADS (EADS:P) and its team to bid.

The current schedule is for a contract award in November and this new extension would probably push that into 2011 due to the time it will take to evaluate a third bid. U.S. Aerospace did say that they will submit this week if no extension is granted.

A third proposal will make the contest more interesting especially as the Antonov will be very price competitive.

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