Search

 

Cablegate: Eads Officals Wary of Tanker Deal Review,

VZCZCXRO3564
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHPOD RUEHYG
DE RUEHMZ #0136/01 0951301
ZNR UUUUU ZZH
P 041301Z APR 08
FM AMCONSUL MUNICH
TO RUEHC/SECSTATE WASHDC PRIORITY 4353
INFO RUCNMEU/EU INTEREST COLLECTIVE PRIORITY
RUCNFRG/FRG COLLECTIVE PRIORITY
RUEHZG/NATO EU COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 03 MUNICH 000136

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EUR EUR/AGS, EUR/ERA, EB/IFD/OMA AND INR/I
PASS TO USTR MOWRY

E.O. 12958: N/A
TAGS: ECON EAIR ETRD PGOV EINV PREL EUN FR GM
SUBJECT: EADS OFFICALS WARY OF TANKER DEAL REVIEW,
DISTRESSED OVER WEAK DOLLAR

REF: MUNICH 94

SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET DISTRIBUTION.

-------
SUMMARY
-------

1. (SBU) In a meeting with ConGen Munich, senior EADS
officials expressed concern about the potential outcome of
Boeing,s protest of the U.S. Air Force aerial refueling
tanker award to the Northrop Grumman-EADS consortium,
particularly given the political dimension the issue has
taken-on in the U.S. The EADS officials dismissed Boeing,s
criticism of the award as "grasping at straws," and said the
main reason Boeing lost was that it had a product gap between
the 767 and 777 aircraft ) a gap EADS, A330-based tanker
was able to fill. The officials said EADS was applying
lessons from Boeing,s difficulties with the 787 program to
its competing Airbus A350 program, which along with the A380
superjumbo and A400M programs, was proceeding according to
schedule. EADS officials, greatest current concern is over
the continued falling dollar, saying that the present
exchange rate has put the company in the "death zone."

-----------------------------
CONCERNED OVER BOEING PROTEST
-----------------------------

2. (SBU) ConGen Munich met March 28 with EADS officials
Wolfgang Wilhelm, Vice President for Aeronautics Strategic
Business Development, and Goesta Klammt, Executive Assistant
for Aerospace to EADS Chairman Ruediger Grube. Our contacts
expressed concern, although not surprise, over the U.S.
General Accountability Office (GAO) review of the contentious
U.S. Air Force KC-45 aerial refueling tanker contract in the
wake of Boeing,s protest of the award of the contract to a
Northrop Grumman-EADS consortium (Reftel). Wilhelm noted he
would not expect a similar contract to go uncontested in
Germany if awarded to a U.S. defense contractor.

3. (SBU) Wilhelm said he had just been in Alabama (where the
EADS tanker is to be built) and had a very positive meeting
with Governor Bob Riley, and hoped the Alabama political
leadership would be able to serve as a counterweight to
Boeing,s vocal supporters in Congress who would like to see
the tanker award retracted. Klammt expressed particular
concern that there might be a blatant political attempt to
overturn the Air Force decision by Congress, or the next
president, even if the GAO found the Air Force had
consistently and appropriately applied USG contracting rules.

---------------------------
&BOEING GRASPING AT STRAWS8
---------------------------

4. (SBU) When asked about the concerns Boeing had raised
over Northrop-EADS, successful tanker bid, Wilhelm said
Boeing was essentially "grasping at straws," by raising
issues such as the current WTO case involving Boeing and
Airbus, EADS' untested alliance with Northrop, and alleged
technical shortcomings of EADS' Airbus A330-derived tanker,
including the unproven design of the refueling boom. Wilhelm
said the reason Northrop-EADS won was that with the A330, it
had a proven aircraft ready to go into production as a
tanker. EADS also had a successful track-record with other
U.S. defense contracts, most notably the Eurocopter LH-72
"Lakota" light helicopter award.

5. (SBU) Furthermore, Wilhelm added, EADS was not as
inexperienced with tankers as Boeing had suggested, as it had
been chosen to provide A330-based tankers to the Australian,
British, Saudi and UAE Air Forces, and similar A310-based
tankers to the Canadian and German Air Forces. Wilhelm was
quick to dismiss the issue of the WTO case, noting that the
U.S. and EU had signed the Agreement on Large Civil Aircraft
in 1992, and the Air Force had itself determined that the WTO
case would not be a factor in selecting the tanker.
Concerning the critical and complicated refueling boom,
Wilhelm noted that EADS had recently tested the boom under
realistic conditions, and it had proven successful.


MUNICH 00000136 002 OF 003


6. (SBU) Wilhelm continued that Boeing lacked an airframe
that provided the versatility of the A330, noting that the
767 Boeing had offered was smaller, lacking the fuel and
cargo capacity the Air Force was looking for. Wilhelm said
the 767 model Boeing had promoted in its bid "didn,t
actually exist," as it would be a composite of several
different versions of the commercial 767 airframe. While
Boeing had complained that it would have offered its 777 had
it known the Air Force wanted a larger plane, Wilhelm pointed
out that the 777 is significantly larger the A330, making it
potentially too large for certain environments the Air Force
operates in. Wilhelm said Boeing could have considered
offering the 787 airframe, however that would not have been a
realistic option considering the current backlog of orders
for the plane.

--------------------------------------------
"BOEING HAS A GREAT COMMUNICATIONS STRATEGY"
--------------------------------------------

7. (SBU) Saying Boeing has "a great communications strategy"
that has not been matched by its performance of late, Wilhelm
noted that Boeing has experienced significant difficulties
and delays with several projects, from the delivery of
767-based tankers to Italy and Japan, to well-publicized
delays with the 787 Dreamliner program. Wilhelm said
EADS/Airbus was learning from Boeing,s difficulties
resulting from its reliance on a worldwide network of
"just-in-time" suppliers of major subassemblies for the 787
) lessons EADS intends to apply to the production of its
Airbus A350 competitor to the 787.

8. (SBU) Wilhelm said that despite these problems, Boeing
had somehow been spared the level of negative publicity that
EADS faced due to the delays of its A380 superjumbo, and A350
programs. Wilhelm said the A380 was proving a tremendous
success, and that initial customer Singapore Airlines was
very satisfied with the aircraft it had taken delivery of.
EADS/Airbus is on track to deliver 13 A380s in 2008. Wilhelm
said the A350 design had been "frozen," and the project would
now proceed to the pre-production phase -- 2013 remains the
target for the first A350 delivery. Asked about the status
of EADS' A400M military transport, Wilhelm said EADS expected
the aircraft,s initial flight this year, with the first
delivery in 2010.

--------------------------------------------
WEAK DOLLAR HAS PUT EADS IN THE "DEATH ZONE"
--------------------------------------------

9. (SBU) Wilhelm reiterated his previous comment to us that
EADS intends to also build A330-based freighter aircraft at
the Mobile, Alabama plant being built for the final assembly
of the Air Force tankers. He notably left open the
possibility that additional EADS/Airbus aircraft may also be
built in Alabama in the future. One reason for shifting
production to the U.S would be to help offset the negative
impact the weak dollar has had on EADS' bottom line. Echoing
comments made earlier by Airbus CEO Tom Enders, Wilhelm said
the weak dollar was having a devastating impact on EADS, and
had put the company in the "death zone," as most of EADS,
costs are in euros, but all commercial aircraft are priced in
dollars.

10. (SBU) Every 10 cent decline in the dollar costs EADS one
billion euros. Furthermore, EADS' restructuring plan
implemented last year was based on an exchange rate of USD
1.35 to the euro. EADS had attempted to mitigate the falling
dollar with currency hedging contracts, but they will run-out
this year, leaving the company in a very vulnerable position.
Klammt said he wondered if a continued weak dollar might
ultimately lead to the euro supplanting the dollar as the
currency of choice for pricing aircraft and commodities such
as petroleum.

--------------------------------------------
"EADS WANTS TO BUILD THE NEXT AIR FORCE ONE"
--------------------------------------------

11. (SBU) Despite concerns about Boeing's protest of the
tanker award, Wilhelm was optimistic that EADS would continue
to make further inroads into the U.S. defense market,

MUNICH 00000136 003 OF 003


acknowledging that European governments would not prove to be
a reliable source of increased defense spending in the
future. Wilhelm suggested, perhaps only half-jokingly, that
in the wake of the tanker deal and the selection of a
European design from AgustaWestland for the next Marine One
presidential helicopter, EADS would work to win the contract
for the next Air Force One, offering its A380 superjumbo as a
replacement for the current Boeing 747s.

-------
COMMENT
-------

12. (SBU) Wilhelm,s remarks, even if tongue-in-cheek, about
building the next Air Force One demonstrate a self-confidence
on the part of EADS we haven,t seen during the past several
years, given the stream of bad news from the A380 and A350
programs. Still, it was evident EADS was not counting on
walking away with the tanker award just yet, given the
political maneuvering in the U.S. If there is one thing that
worries EADS executives more than losing the tanker deal
(which Wilhelm acknowledged they didn,t really expect to win
in the first place), it,s the falling dollar. While "death
zone" may be a little dramatic, EADS will indeed face a
financial crisis following the expiration of currency hedges
this year if the dollar remains at its current level against
the euro. Given this stark reality, and no indication that
commercial aircraft will be priced in euros in the near
future, EADS, only viable solution will be to shift some
production to lower-cost dollar-zone locations such as
Alabama.

13. (U) This report has been coordinated with Embassy Berlin.

14. (U) Previous reporting from Munich is available on our
SIPRNET website at www.state.sgov.gov/p/eur/munich/ .
NELSON

© Scoop Media

 
 
 
 
 
World Headlines

 

Werewolf: Gordon Campbell On North Korea, Neo-Nazism, And Milo

With a bit of luck the planet won’t be devastated by nuclear war in the next few days. US President Donald Trump will have begun to fixate on some other way to gratify his self-esteem – maybe by invading Venezuela or starting a war with Iran. More>>

Victory Declared: New Stabilisation Funding From NZ As Mosul Is Retaken

New Zealand has congratulated the Iraqi government on the successful liberation of Mosul from ISIS after a long and hard-fought campaign. More>>

Gordon Campbell: On The Current US Moves Against North Korea

If Martians visited early last week, they’d probably be scratching their heads as to why North Korea was being treated as a potential trigger for global conflict... More>>

ALSO:

Gordon Campbell: On The Lessons From Corbyn’s Campaign

Leaving partisan politics aside – and ignoring Jeremy Corbyn’s sensational election campaign for a moment – it has to be said that Britain is now really up shit creek... More>>

ALSO:

Another US Court: Fourth Circuit Rules Muslim Ban Discriminatory

ACLU: Step by step, point by point, the court laid out what has been clear from the start: The president promised to ban Muslims from the United States, and his executive orders are an attempt to do just that. More>>

ALSO: