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<< Previous   of   Next >> Michael O'Leary / The Herald  (click to enlarge) Winning the Air Force tanker contract would be a significant boost for the Everett area, as the plane is one of four the plant produces. (click to enlarge) The first KC-767, made for the Italian air force, roll into hangar in Everett in 2005. (click to enlarge) (click to enlarge)   ADVERTISEMENT   Related Stories • Tanker decision could come today -- or not 2/29/08   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Monday, February 18, 2008 Analysts give edge to Boeing's tanker The Air Force's awarding of $40 billion contract will likely come down to experience, jobs, efficiency and politics. By Michelle Dunlop Herald Writer EVERETT -- With the winner of a coveted U.S. Air Force tanker contract expected to be announced soon, the major competitors are trumpeting the cost savings, fuel-efficiency and economic impact of their products. But the Boeing Co. and its Everett-assembled KC-767 tanker still seem to be the analysts' favorite for the $40 billion deal. The Air Force could award the contract to replace its aging KC-135 Stratotankers with 179 aerial refueling tankers as early as the end of this month. "I've always thought it was Boeing's to lose," says Scott Hamilton, a local analyst with Leeham Co. During an aerospace conference last week in Lynnwood, the Teal Group's Richard Aboulafia agreed. Aboulafia gives Boeing's tanker rival, the consortium of Northrop Grumman and EADS, no more than a 15 percent chance of being named the sole winner of the KC-X contract. He says there's a 15 percent to 30 percent probability that the Air Force will split the contract, giving a portion of tanker work not only to Boeing but also to Northrop-EADS. Air Force officials have suggested that splitting the contract could be cost prohibitive. Experience Although Boeing is the favorite for the tanker deal, Aboulafia said, the company hasn't "done themselves any favors with the management of the existing KC-767." Boeing has described itself as the experienced tanker competitor but has fumbled on international tanker contracts. Late last week, Boeing announced that the Federal Aviation Administration gave the final approval needed on its 767-based tanker for Japan. The company should be able to deliver the first of four KC-767 tankers to Japan by the end of the quarter -- that's more than a year off the Japan KC-767's original schedule. Boeing is more than two years behind on Italy's tankers. Northrop-EADS have been successful in picking up tanker contracts from Saudi Arabia, Australia and the U.K. The duo is making progress on its tanker. Efficiency As recently as last week, the competitors continued to press the economics of their respective tankers. Northrop Grumman said Thursday that compared to Boeing's KC-767, its KC-30 tanker, based on Airbus' A330 passenger jet, could save the Air Force more than $55 billion over 40 years based on the company's assessment. "Our analyses clearly demonstrate that the more capable KC-30 would provide the Air Force and American taxpayers significant savings in the areas of refueling, airlift operations and support costs, and C-17 fleet life savings compared to the KC-767AT," said Paul Meyer, Northrop Grumman vice president and general manager of the KC-30 Tanker program. In the Northrop analysis, the newer KC-30 can meet the Air Force's requirements while flying 20 percent fewer hours than a KC-767. This results in a $452 million annual operation and support savings, Northrop said. By flying fewer hours, Northrop says its KC-30 also helps reduce costs for the Air Force's C-17s. The Air Force, Northrop says, could employ the KC-30's cargo capabilities to reduce the use of the overworked C-17s. The company estimates this would provide an additional $437 million in annual savings. Northrop's analysis comes one month after Boeing released a report comparing the fuel efficiency of the commercial 767 and A330 jets. The study conducted by an independent aviation research company, and funded by Boeing, suggests that the 767 burns approximately 24 percent less fuel than does the A330. The 767's fuel efficiency, compared to its rival's, would save the Air Force $14.6 billion in fuel costs, Boeing said. "Senior Air Force leaders have said that when a barrel of oil increases by $10, it costs them about $600 million a year," said Mark McGraw, vice president of Boeing Tanker Programs. "So it is critical, especially with rising fuel prices, that the Air Force's next refueling tanker meet or exceed their requirements and be as efficient as possible." Analysts including Hamilton believe the Air Force is somewhat split between those who want a larger, more cargo-oriented aircraft such as the KC-30 and those who want a smaller jet, such as the KC-767, geared more toward tanker missions. Jobs Hoping the sound of American jobs might sway the Air Force, if not at least politicians, both Northrop and Boeing have highlighted the number of U.S.-based jobs and the economic impact their tankers would provide. Northrop-EADS says its KC-30 would create 25,000 jobs in this country, including 5,000 positions in Alabama, where the tanker would be assembled. The duo claim the KC-30 would create 1,000 or more jobs in the states of Arizona, Florida and Ohio. Boeing asserts its KC-767 tanker will support 44,000 jobs across the country. That includes roughly 9,000 jobs in Washington state, where Boeing's tanker would be assembled. Boeing says the states of Texas and Illinois would benefit from an estimated 3,000 direct and indirect jobs from the KC-767. Politics On top of all the arguments outlined, the Air Force faces perhaps its most controversial dilemma. Although Northrop is based in Los Angeles, its tanker is designed using European jetmaker Airbus' A330, prompting discussion of whether the KC-30 will be American made. The A330 also is named in an ongoing trade dispute between the United States and the European Union and the respective commercial planemakers. Analyst Aboulafia points out that the commercial A330 contains U.S.-built parts and the 767 uses Japanese components. Over the past several months, members of Congress, which will sign off on tanker funding, have argued one side or the other of the foreign-made debate. Sen. Patty Murray, D-Wash., has said it "would be a mistake to buy from a foreign company," while Rep. Jo Bonner, R-Ala., said "any attempt to make this a battle between the U.S. and Europe ... is self-serving and disingenuous." Aboulafia says the Air Force will have a "fair amount of discretion" on the issue. Reporter Michelle Dunlop: 425-339-3454 or mdunlop@heraldnet.com. Her aerospace blog can be found at www.heraldnet.com.

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