Airbus has its own designs on tanker

  • By Bryan Corliss / Herald Columnist
  • Tuesday, October 19, 2004 9:00pm
  • Local News

It’s interesting to come back after a couple of days off and sort through all the stuff that floated into my computer while I was gone.

Airbus, for instance, reiterated that it is willing to open a final-assembly plant in the United States, if that’s what it takes to land an aerial refueling tanker contract with the U.S. Air Force.

Reuters said Airbus parent company EADS “expects to win at least part” of the next tanker contract and could end up investing as much as $600 million – and hiring 1,000 people – in a plant to do the work in this country.

This is a serious long-term threat to Boeing’s lock on the international tanker market.

There’s a strong sense around Everett that the Air Force would never buy hardware from France, especially when we’ve got a local company that can provide a high-quality product.

“There is no way in hell we the people will let that happen,” a reader e-mailed me after my last tanker column.

But take a look at the flip side.

Airbus builds planes cheaper, and would probably be willing to give away its A330 tankers if that’s what it takes to win an Air Force contract. EADS says it will partner with an American defense contractor – perhaps Lockheed Martin of Texas, since that state has a big congressional delegation. It would no doubt set up a big factory in a state with a lot of clout in Congress.

And EADS will buy lots of U.S. components for the plane, while making lots of noise about the 767 parts Boeing buys from Japan.

That will give its lobbyists a lot of ammunition to throw at Congress, and at some point some senator somewhere will stand up to argue that buying tankers from Airbus would be good U.S. public policy because it would create American jobs and save American taxpayers dollars.

At the very least, this argument will force Boeing to cut the Air Force an even better deal to win tanker sales. At worst, Boeing and Airbus would end up splitting the market for the 400 or more tankers the United States plans to buy over the next decade or so, and Airbus would have an edge on sales in the rest of the world.

My best guess: Boeing will get the contract for the first 100 U.S. tankers early in 2005, but the remaining 300 will stay in play. (And you can take this insight and $1.50 to your neighborhood Starbucks for a paper cup full of the coffee of the day.)

Then again, Airbus had better sell some A330s as tankers, because as a commercial jet, it’s toast.

Here’s the gist of another piece of interesting information that arrived while I was gone.

Analysts at Credit Suisse First Boston crunched the numbers and determined that airlines that fly the 7E7 will save 3 percent to 5 percent on operating costs, while increasing their revenues from hauling cargo by 50 percent.

That’s enough to turn an airline around. If the entire U.S. airline industry were to realize such benefits, it mean $1 billion in new revenue and $2.5 billion to $4 billion in savings for an industry that will finish this year $4.7 billion in the hole, analysts said.

Airbus is talking about countering the Dreamliner with an improved A330, which it could bring to market relatively quickly and cheaply.

But it’s so easy to get financing for new jets today, and the 7E7 looks like such a good plane, that the price of an upgraded A330 would probably have to be significantly below that of the 7E7 in order to compete, the analysts said.

Given that, “a mere upgrade of the A330 most likely won’t be compelling,” they said. To stay in the game, Airbus would have to go back to the drawing board and build an all-new jet for the midsized market.

Meanwhile, the analysts said they expect more 7E7 orders, plus orders for other Boeing jets.

Reporter Bryan Corliss: 425-339-3454 or corliss@heraldnet.com.

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