Archive for the ‘Eurofighter’ Category

Quietly, the Eurofighter project seems to be running into trouble. First of all, Dassault got the Indian contract and the Indians claim that Rafale is dramatically cheaper. Further, they weren’t impressed by the amount of stuff that is planned to come in future upgrades, whose delivery is still not certain. These upgrades are becoming a problem, as the UK, Germany, and Italy aren’t in agreement about their schedule or about which ones they want. Also, a Swiss evaluation report was leaked that is extremely damning towards the Gripen and somewhat less so to Eurofighter.

This is going to have big consequences for European military-industrial politics. So is the latest wobble on F-35.

This LA Times story about the Boeing 787 Dreamliner (so called because it’s still a dream – let’s get the last drop from that joke before it goes into service) and the role of outsourcing is fascinating. It is partly built on a paper by a senior Boeing engineer which makes among other things, this point:

Among the least profitable jobs in aircraft manufacturing, he pointed out, is final assembly — the job Boeing proposed to retain. But its subcontractors would benefit from free technical assistance from Boeing if they ran into problems, and would hang on to the highly profitable business of producing spare parts over the decades-long life of the aircraft. Their work would be almost risk-free, Hart-Smith observed, because if they ran into really insuperable problems they would simply be bought out by Boeing.

Even in its own financial terms, the whole thing didn’t make sense, because the job of welding together the subassemblies and hooking up the wires doesn’t account for much of the profit involved. Further, the supposedly high-margin intellectual-property element of the business – the research, development, and design of the plane – is only a profit centre after it’s been built. Until they’re done, it requires enormous amounts of investment to get right. The outsourcers were expecting the lowest-margin element of the company, assembly, to carry the costs of developing new products. Whether they were funded with equity or with debt, this implies that the systems integrator model, for aircraft at least, fundamentally restricts innovation.

This is one of the points I’d like to bring out here. Hart-Smith’s paper – you can read it here – is much stronger on this than the LA Times was willing to be. It’s a fascinating document in other ways, too. For a start, the depth of outsourcing Boeing tried to achieve with the 787 is incompatible with many of the best practices used in other industries. Because the technical interfaces invariably become organisational and economic ones, it’s hard to guarantee that modules from company X will fit with the ones from Y, and if they don’t, the adjustment mechanism is a lawsuit at the financial level, but at the technical level, it’s rework. The dodgy superblock has to be re-worked to get it right, and this tends to land up with the manufacturer. Not only does this defeat the point of outsourcing in the first place, it obviates the huge importance of avoiding expensive rework.

Further, when anything goes wrong, the cost migrates remorselessly to the centre. The whole idea of systems integration and outsourcing is that the original manufacturer is just a collection of contracts, the only location where all the contracts overlap. Theoretically, as near to everything as possible has been defined contractually and outsourced, except for a final slice of the job that belongs to the original manufacturer. This represents, by definition, all the stuff that couldn’t be identified clearly enough to write a contract for it, or that was thought too risky/too profitable (depends on which end you look at it) for anyone to take the contract on. If this was finance, rather than industry, it would be the equity tranche. One of the main reasons why you can’t contract for something, of course, is that you don’t know it’s going to happen. So the integrator essentially ends up holding all the uncertainty, in so far as they can’t push it off onto the customer or the taxpayer.

This also reminded me a little of Red Plenty – one of the problems is precisely that it’s impossible to ensure that all the participants’ constraints are mutually compatible. There are serious Pareto issues. There may be something like an economic law that implies that, given that there are some irreducible uncertainties in each contractual relationship, which can be likened to unallocated costs, they flow downhill towards the party with the least clearly defined role. You could call it Harrowell’s U-Bend. (Of course, in the macroeconomy, the party with the least well defined role is government – who you gonna call?)

Anyway, Hart-Smith’s piece deserves a place in the canon of what could be termed Sarcastic Economics.

I suspect that the problems he identifies have wider consequences in the economy. Given that it’s always easier to produce more or less of a given good than it is to produce something different, the degree to which it’s possible to reallocate capital has a big impact on how quickly it’s possible to recover from a negative shock, and how bad the transition process is. I would go so far as to argue that it’s most difficult to react to an economic shock by changing products, it’s next most difficult to react by producing more (you could be at a local maximum and need to invest more capital, for example), and it’s easiest to react by producing less, and that therefore there’s a structural bias towards deflationary adjustment.

Hart-Smith’s critique holds that the whole project of retaining product development, R&D, and commercial functions like sales in the company core, and contracting everything else out actually weakens precisely those functions. Rather than being able to develop new products quickly by calling on outside resources, the outside resources suck up the available capital needed to develop new products. And the U-bend effect drags the costs of inevitable friction towards them. Does this actually reduce the economy’s ability to reallocate capital at the macrolevel? Does it strengthen the deflationary forces in capitalism?

Interestingly, there’s also a presentation from Airbus knocking about which gives their views on the Dreamliner fiasco. Tellingly, they seem to think that it was Boeing’s wish to deskill its workforce as far as possible that underlies a lot of it. Which is ironic, coming from an enormous aerospace company. There’s also a fascinating diagram showing that no major assembly in the 787 touches one made by the same company or even the same Boeing division – exactly what current theories of the firm would predict, but then, if it worked we wouldn’t be reading this.

Assembly work was found to be completed incorrectly only after assemblies reached the FAL. Root causes are: Oversight not adequate for the high level of outsourcing in assembly and integration, Qualification of low-wage, trained-on-the-job workers that had no previous aerospace experience

I wonder what the accident rate was like. A question to the reader: 1) How would you apply this framework to the cost overruns on UK defence projects? 2) Does any of this remind you of rail privatisation?

OK, so yer lie detector. It’s been something of a blogosphere hit. And in the comments, we have Nigel, who appears to know something about acoustic signal processing – in the sense of “makes speech recognition systems for Eurofighters”.

It seems that rather than being a signal at a frequency between 8 and 12Hz, the signal you’re interested in is a signal, of that frequency, modulated onto the main signal. So in fact, you could theoretically detect it through a telephone call. I was wrong.

However, that isn’t what Nemesysco’s patent claims, and they vigorously deny that what they are doing is voice stress analysis. It’s not the pitch of any such signal that is discussed in the patent, either; it’s the change in the numbers of thorns and plateaus.

Our acoustic expert says that this could be a way of measuring the signals required for classical VSA, just not a very good one; and anyway, he argues that VSA itself is useless, even if it was VSA they were promising to conduct. And, of course, they deny that this is their methodology. Further, VSA gives only one measurement, one of vaguely-defined stress – not the nine or so Nemesysco claim to get out of this.

Meanwhile, someone who makes the same spelling mistakes as Amir Liberman does showed up in comments to claim there was more, secret technology involved that they hadn’t actually patented. Interestingly, he showed up from the same network as Nemesysco’s Web site. The same network was also the source of a Wikipedia article which got deleted for advertising, in which Nemesysco claimed that their method uses 129 different measurements and isn’t anything like VSA. No, sir. And there weren’t 129 different metrics in their patent…

So Mike Turner, CEO of BAE SYSTEMS, and friends are moaning about being investigated by the Serious Fraud Office over the Al-Yamamah kickbacks. They are claiming that thousands of jobs are at stake if the Saudis pull out of their order for Eurofighters, and therefore the government ought to quietly call off the SFO and give them a free pass. God knows I’ve been critical enough of BAE before, but this is mendacious.

Right. BAE will not build any more Eurofighters as a result of the Saudi deal. The planes for Saudi are the ones the RAF decided it didn’t need, Tranche 2 of the original order. They could flog them elsewhere. Much of the cost is already paid, largely from the public purse.

But the Al-Yamamah contracts – the guns-for-oil deals – are more complicated than that. Al-Yamamah 1 and 2 included, essentially, a turnkey air force. Not only would BAE deliver fighters, and bombers, it would provide training aircraft. Not only that, it would provide flying instructors to teach Saudi pilots to fly them. Not only that, but some of the work would be done in Saudi Arabia, and the necessary technical experts would be supplied. Not only that, but Saudi maintenance personnel would be trained.

Another detail of the contracts is that they were signed between the governments of the UK and KSA, with BAE being a mere contractor to the MOD. Now, one trick in this is that if the civilian flying instructors – grizzled veterans in reality – employed by BAE quit, the UK must fill the gap with RAF officers on secondment, at the public charge. Presumably similar arrangements apply for other trades.

Since 2003, many of the instructors – not men who are easily scared – quit and left the Magic Kingdom, for fear of…you can guess. They were replaced. Please, King Abdullah, don’t throw me into that not-training-your-air-force-at-my-expense patch.

Well, those of you who are taking part in today’s protest against the Serious and Organised Crime & Police Act, aka the Brian Haw Act, may get to meet…me, as I’m quite likely to come over to the camp at Runnymede from the TYR operations centre in fabulous Egham. Beware.

200 years ago this week, Isambard Kingdom Brunel was born. This week, this blog’s favourite pig-incompetent, corrupt arms manufacturer BAE Systems decided to sell its 20% share of Airbus Industrie, including the Filton plant and design centre just three miles or so from Brunel’s Clifton suspension bridge. BAE is apparently trying to make “bolt-on acquisitions” (read=pissant deals that don’t change anything but do use up capital that could otherwise be squandered on innovation) in the US, perhaps including Level 3…no, not the big internet backbone operator, the firm that makes airport X-ray machines. After all, the US Department of Homeland Security is certain to keep spending at its current clip, right?

The real agenda, though, is pretty clear. Throughout first Dick Evans’ tenure and now Mike Turner’s, BAE has been frantically liquidating everything it designed indigenously. Regional jets? Shut down, just before Canadair and Embraer made a killing out of the RJ boom. Bizjets? Sold to Raytheon, just before they started going like hot cakes. Concorde? Stop. I’m feeling so snarky today I nearly convinced myself it made money! But the principle holds. Get rid of all that stuff so we can sell the firm to Boeing or Lockheed Martin, and then we’ll have monster share options just like Dennis Kozlowski!

Just sack a few more engineers, and we’ll make it to “Giant ice sculpture of Michelangelo’s David pissing vodka” status…