Cobham – Onwards and Upwards
It is really pleasing to learn this morning that Cobham and Boeing have now settled a damaging dispute in respect of complex technical issues that have delayed the KC-46 tanker programme. The agreement will see Cobham taking a £160 million charge in its FY18 accounts that are due to be released on March 7th.
The agreement, which settles all disputed matters to the date of the agreement (18th February 2019) and settles all Boeing’s damages assertions, will see Cobham paying £86 million to Boeing in consideration of the settlement and booking a further £74 million in relation to additional costs. However, Cobham will offset £37 million that is related to hose and drogue invoicing payment of which had been withheld by Boeing, meaning that the balancing payment to Boeing will be £49 million.
Cobham said the “complex” wing aerial refuelling pods, or WARP, qualification programme [US Federal Aviation Administration (FAA) certification process] is still in early stages. To the best of my knowledge the KC-46A tanker refuelling aircraft is the first ever US military aircraft capability required to be certified by the CAA. In reality the certification process requires that that every single component part produced within the supply chain needs to be certified by the FAA process in respect of how it was manufactured and where those parts are coming from. Cobham has said that it now expects to certification for its part to be complete during the middle of 2020.
Cobham has also told investors that the stringent term of the original KC-46 contract remain in place and that while the complex wing aerial refuelling pods (WARP) qualification programme remains in its early stages, it is now anticipated to complete around the middle of 2020, with associated flight test expected to commence in the first half of 2019. The rebased schedule has led to a reassessment of the aggregate risks including supply chain, resource and concurrency ahead of final WARP certification and production and that the agreed schedule is dependent on certain key third party approvals. The new scheduling arrangement has led to an additional £74 million costs charge being taken on top of the £40 million charge that was announced last July.
The agreement signed by Boeing and Cobham will allow both companies to move on, work together and rebuild relationships. Much delayed by a seeming multitude of different issues over the years, the Boeing KC-46 tanker programme remains a key part of USAF requirement. For Cobham it marks removal of a weight off its shoulders and clearer visibility ahead.
Honda Closure of Swindon – No Real Surprise
Yes, Brexit uncertainty plus genuine fear of the implications of a possible no-deal Brexit has soured industrial minds and thinking and no more or less so than at Japanese carmaker Honda.
But let us not forget that the Honda’s original investment in the UK had been the result of a partnership venture forged in 1980 between the Japanese carmaker and the then struggling British carmaker British Leyland and which was at that time headed by the remarkable Sir Michael Edwardes.
The first Honda designed model to come out of that joint venture emerged one year later in 1981, initially in the form of the small family Rover 400 series car and later, the Rover 45. Both cars were modelled on Honda vehicles and with engines ‘built’ at the Swindon site.
Back then Mrs. Thatcher was Prime Minister and her word was her bond. The collaboration between British Leyland and Honda [the latter having acquired a large site at South Marston in 1985 and which opened as an assembly plant in 1989] continued until 1994 when a shocked Honda learned that what by then had morphed into Rover Group was to be sold to BMW.
By that time Honda owned 20% of Rover Cars and Rover itself owned 20% of Honda UK Manufacturing. Some might well be tempted to see the announcement of Honda pulling out of Swindon as an interesting payback for how they were treated back in 1994 when, seemingly without previous discussion, Rover was sold to BMW!
Honda continued to invest at Swindon and the site was much extended over the years but just perhaps closure writing has been on the wall for some time now as the company has been hard hit by a combination of falling sales of cars assembled on the site and also of the diesel engines built there too.
But even it Brexit woes, falling sales of cars and diesel engines assembled on the site played a part in the announcement yesterday I am bound to wonder how much of the decision lies with the other announcement this week – the one that told us that Japan and the EU have signed a trade deal that will eventually lead to cars made in Japan being sold in Europe all but free of any tariff!
CHW (London – 19th February 2019)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785