From the Flight Archive: “The cost of broken promises”

TheCostofBrokenPromises.jpgSEATTLE — Had everything gone to plan, the first 747-8 freighter would be entering service right about now.

In the brief period since Friday’s unprecedented decision by Cargolux to “reject” by the first two 747-8 freighters, much has been written (and speculated) about why the negotiations between the European cargo carrier and Boeing fell apart at the last moment. The weight and performance of the aircraft, and the role of Cargolux 35% stakeholder Qatar Airways, appear to be at the heart of the negotiations
For a launch customer hours before first delivery, yes, such a dispute has no precedent. Though major changes in orders due to performance targets have great precedent. As the foundation of the business case for launching (as an aircraft maker) and purchasing (as a customer) a new commercial transport, performance targets are at the heart of any decision.
Just over two decades ago, in July 1991, Singapore Airlines cancelled its $3 billion order for 20 McDonnell Douglas MD-11s after its Pratt & Whitney 4460-powered aircraft were found to not be able to perform its Singapore to Paris route without a 11,000lb (5t) payload restriction. That route, and the airline’s rigorous planning rules, was the basis for the purchase. After planned improvements to the engines and even a proposed center fuel tank and wingspan increase, Singapore, fed up with P&W and McDonnell Douglas, nixed its order outright and defected to Airbus. The move launched the CFM56-powered A340-300.
Although SIA says the cancellation was simply due to the MD-11′s inability to meet payload/range targets for specific missions such as Singapore- Paris, it appears that the airline was determined to teach both Douglas and P&W a lesson for months of confusion over the actual performance that the aircraft would deliver.

Douglas introduced the drag reductions out of frustration at the failure of both engine companies to meet their performance guarantees. Although both suppliers announced engine improvements quickly, the long lead-times involved meant that significant reductions in fuel- burn would not be available until at least the end of 1992, with P&W’s four-stage product improvement programme (PIP) not due to be completed until late 1994.

Working in Boeing’s favor is its 100% marketshare in the jumbo freighter carrier market. That position was cemented after UPS and FedEx walked away from the A380F when the A380-800 delays prompted the freighter variant’s shelving by Airbus. Cargolux has no alternative in the category, but as we saw with Singapore in 1991, history has shown us frustrated customers have a way of launching new aircraft.

8 Responses to From the Flight Archive: “The cost of broken promises”

  1. anonymous September 19, 2011 at 3:22 pm #

    it is most likely not the performance of the aircraft. It should be more to do wit the new management in Cargolux.
    First thing they do after building an aircraft is to weigh it. If there are any weight issues, they would already know that long time back.
    Engines SFCs are tested in the test bed in GE itself. Again Cargolux should have known the performance of the aircraft.
    If the performance does not meet the customer requirements, The issue would have come up long time back.
    If i am the airline, i would never come to a point to fly the last customer flight and reject the aircraft. I am sure neither Cargolux too.
    I read a lot of things in the cargolux website about the new changes of CEO and CFO due to Qatar taking over 35% of the cargolux share. It is more to do with the new management. They are just trying to squeeze something from Boeing. Some extra money.
    Moreover In MD-11, the engine is not ready, Performance is not known. Here is it not.

  2. Vincent September 19, 2011 at 3:54 pm #

    This is interesting because of timing. In today’s data driven world, the customer is aware of weekly and potentially daily test results, so any issue and work around are known early. Cargolux had to have known. The challenge options, eat it, make the concessions, or go to court. Either case puts Boeing in a bad light with this and other customers. Internally if Mo had a work around for this, and his management wanted a faster solution, shame on Boeing. Then pay up and shut up. If on the other hand he failed to address this issue, then there is at least one feather in the shame cap of the 747-8 program. No matter how you evaluate it, Boeing has to burden the pain of another let down to customer expectations. U turn Al is a totally different issue, one which there is little solution. His plan is to find any upper hand, play it until the airframers stop coming to his door. And, maybe Boeing walked on the 787 and so he came to Cargolux chasing for a new game of chicken.He bought into the game and now thinks he has a pretty hand. If that’s the case, play it out Boeing. You have to stand your ground somewhere, so why not do it with U turn Al. If not, all customers will play the same hand. U turn is trying to establish a presidence. Not good.

  3. Sam September 19, 2011 at 4:00 pm #

    Actually, in all fairness, some signs report to Cargolux’s 748Fs being as little as only 6% more efficient than their current 744Fs. If that is the case, they are well within their rights to pursue a renegotiation, with or without the Qatar boss at the helm.

  4. Paulo M September 19, 2011 at 4:22 pm #

    But, some are saying that Cargolux is/was aware of the performance shortfall and would have gone with the aircraft under renegotiated terms. And they couldn’t agree with Boeing those new terms in light of the delay and performance shortfall. I agree with Anonymous.

    Unfortunately for Boeing, this is a case in point with regards Piepenbrock’s Integral-Modular (Red-Blue) Theory — highlights, in this case, breakdown in customer relations, not too dissimilar from relations with some suppliers, and with unions. Should they go a bit further looks like it is entirely complicated by the Qatar presence at Cargolux.

  5. sdfgsadg September 19, 2011 at 4:27 pm #

    @Sam, how did you come up with the number 6%?
    Noone knows the real fuel burn improvement except boeing, GE and Cargolux and may be some close quarters.

  6. Paulo M September 19, 2011 at 4:52 pm #

    Perhaps the biggest part of that link, THE COST OF BROKEN PROMISES is that it was pretty much the event that sealed the fate for McDonnell Douglas and Pratt & Whitney, and to some extent Airbus. Pratt & Whitney are now pinning their future on the Geared Turbofan, and that holds some promise for them.

  7. Cedaraglen September 20, 2011 at 2:58 am #

    Good post and insight. I enjoyed reading the 20 year-old article about SIA and the MD-11. Although the airplane survived, loss of SIA’s larger order was the beginning of the end for an otherwise beautiful, heavy-lifting bird.
    As for Cargolux v. Boeing, I have not yet read any reliable details about their dispute. It may be a compicated issue of weight v. performance, but it could be as simple as using the wrong type of lambskin on the captain’s seat. I’d sure like to know what the bitch-fest is REALLY about. As you note, t he 747-8F is the only game in town for *new* freight birds. Seriously, what are the issues, serious enough to cause two, last-minute delivery refusals? Whatever it is, the issue cannot be something that Cargolux discovered, 72 hours before delivery. Where are the details? -C.

  8. Uwe September 20, 2011 at 4:35 am #

    interesting comments.

    So Boeing having their customers over a barrel is OK
    while the reverse isn’t all that great.

    So capitalism is only OK if you sit on the juicy side ?