Para.9.4.   -  External Market Forecasts

Despite the FY2006 Annual Report (p14) referring to MAC reliance on multiple external market forecasts a solitary market forecast provided via Magellan sources was included in the PwC A340 report – from Forecast International (FI) Exhibit 8.4.  This is referred to in an email exchange between PwC and Mssrs Furbay/Neill on 22 March 2007 when they responded at Q4 “We are unaware of other sources beyond Forecast International and access by account and password has been given to PwC. …”.
Mr Neill-RAN-knew that was untrue as more third party forecasts were available in his reference to Teal Group etc. in his cross-examination evidence in paragraph 9.6.  As you will read also at paragraph 9.6 I also referred PwC to Richard Aboulafia and the Teal Group A340 forecasts in my taped interview. 
In fact at least seven third party market forecasts were regularly available for the A340-500/600.
In March /April 2007, in common with all the other market analysts and forecasters, FI  had successfully identified the four drivers for substantial reductions in market volumes in its written Forecast Rationale (3616) using their language

  1.    “The planned A350-900 and -1000 will offer competition to the 777” (A350XWB launched –      Airbus Press Release and Brian Little WS para 205 and RAN – MAC Q2.2006 webcast – 15 Aug.2006

  2.    “The Possibility exists that the company will build a “cleaned up” A340 …. but during 2006 company officials showed  little enthusiasm for committing resources to such a move”(A340 “Enhanced-3456” terminated – Brian Little Witness Statement para 204  and  Flight Nov 2005 and Flight 1 Aug 2006)

  3.    “Emirates Airline was a major proponent of an upgraded A340. The company already operates 16 A340s and had ordered another 18, with 10 options for delivery in 2009-2010. But the company cancelled the order in the last quarter of 2006.   We think this move is significant and that other carriers will be equally unwilling to wait for Airbus to clarify its intentions towards the A340(A340 “Enhanced” abandoned / Emirates order for 18 cancelled–BL W/S205 and Flight 1 Aug.2006)

  4.    “The company began 2007 with a firm order backlog of 43 aircraft, and market demand for the A340 is relatively weak. Put bluntly, the A340 has been taking a beating from the 777, and Airbus has not yet offered carriers compelling new reasons to select its four engine aircraft over Boeing’s design. Industry feedback indicates that the 777 offers lower operating costs and better overall economics”   (Current A340 Sales campaigns & order –BL WS 201 and Flight 4272/4 & RAN – MAC Q2.06 webcast)

These four decisions were restated in the Forecast Rationale April 2009 FI report – which now forecast a total aircraft build of 133, finally joining the market consensus of the others.. It adds in 2009 (5)that the Virgin Atlantic outstanding order for six a/c for delivery in 2013/14 is all but certain to be cancelled.”

However, FI inexplicably failed in April 2007 to follow their written “Forecast Rationale” market analysis language through in to their annual numerical 10 year forecast when they only reduced production forecast numbers by 70 to 213 aircraft.  This was still some 78 aircraft:312 engine exhaust units  greater than  the “135 a/c market consensus“ of  the six others. I am reliably informed by FI that in the April 2007 report Bill Dane (who had recently been diagnosed with terminal cancer) “elected to keep production in the early part of the period at the level he did for only reasons he can answer. Additionally FI are not privy to Airbus internal documents – if our forecast exceeded the actual numbers produced , it is because Bill Dane believed –for reasons only he could explain that they would “. From what I can determine their FI processes do  not  consider  existing fleets and future airline sales and campaigns for long haul routes, from a “top/down and bottom/up science”,(such as those by Ed Greenslet at Airline Monitor) for those existing/potential new customers of A340 aircraft. As a former Forecast Intl.employee Mr Bobbi was able to confirm to the UK court that this was not part of the FI process and often it was just a “guesstimate” by the FI analyst.

These four market drivers would undoubtedly lead to a wind down in the A340 programme whilst the FI HIGH CONFIDENCE short-term 3 year numerical forecast was for 41 aircraft deliveries for 2007 – 2009.   This 41 aircraft (was almost 30% HIGHER than the planned Airbus delivery plan for 2007 -2009 (doc 3600 = 32 a/c) provided to the Airbus supply base. Furthermore the Airbus planned production rate of approximately ten aircraft per year was obviously documented (doc 3600) and known to Mr Neill, Mr Butyniec (as per their oral evidence in paragraph 5), Mr Dekker, MAC/MALUK, E&Y and PwC.

Additionally and centrally PwC, as recorded at PwC para 8.3, were aware from my briefings/documents and filed Grounds of Complaint within the UK court process (PD23) that even the July 2006 Airbus internal sales/program  scenarios of a further 60 (total build  155 aircraft) and 100 aircraft (total build 195 a/c) - which naturally tend to be higher/optimistic, as they are the manufacturers -  exceeded by some 15 –  50%  the remaining total aircraft build forecast of 117 made by Forecast Intl.in March 2007.

In conclusion the Forecast International numerical market forecast was therefore fundamentally impaired by reference to their and everyone else’s market analysis, as well as unbelievably, in a precedent for any third party forecaster, exceeding both the manufacturer’s  own production plans for the immediate future from 2007 – 2009 by +9 aircraft (almost 30%) whilst over the 10 year period from 2007 – 2016 FI were +20 to 60  aircraft  (15 % – 50% higher than Airbus’ own views – WS 205/2605). 

As a significant number of people commented to us, even a cursory glance at the MAC FY2007 EAC /budget for 10 aircraft / 40 units, as compared to their 1 March 2007 representation of 20 aircraft / 78 units and the Forecast International forecasts would create some basic questioning by anyone of the market /production number submissions.

For its largest NRC project it is simply NOT credible that Magellan Senior management did not consider ALL the inputs (a) Airbus programmes (b) external market reports, (c) aerospace publications information and (d) their communications network they had on A340 from mid 2006 to early 2007. At its most simplistic a Representation document  that MAC would manufacture the equivalent of 62 aircraft (on 1 March 2007) and 41 aircraft (14 March 2007)  for the period  2007  to 2009,  when they were all aware of a rate of about 10 a/c per year in the Airbus programme for 32 aircraft (3600)  is simply absurd.

Although the MAC FY2006 Annual Report stated at P.14 its reliance on those customer delivery projections  as part of MAC’s assessment of the number of units to be used in NRC recovery, I believe PwC deliberately excluded/ignored those Airbus A340 customer projections and their implications in their Report.  It is also a matter of record that PwC presented no other external market forecasts despite that specific reliance in the FY2006 MAC Annual Report and standard industry practice.

Q9.4A:   Can PwC credibly persuade anyone that their decision to consciously select project volume information from a single external market forecast, from the seven + available , for inclusion in their report    ( which also exceeded the manufacturer’s Airbus own plans at para 9.3) was merely a series of oversights/incompetences (by PwC the No.1 global auditor) in the light of commonsense/industry practice and as stated in the MAC FY2006 Annual Report reliance statement on customer delivery projections as well as external market forecasts??

Their decision to set aside other external market forecasts, data from publications and the ever-evolving volume representations from MAC would suggest otherwise. As a matter of record we don’t believe it was a “thorough and exhaustive” analysis /independent report – it was the diametric opposite and all the evidence points to “Forensic deceit”.

In fact only in July 2009 did we learn from Mr Neill’s oral evidence that  PwC requested a scenario from MAC in mid March 2007 which was identical to this six other external concensus forecast of a production build of 135 A340-500/600  a/c ( I expected circa 150 a/c in Feb –doc1437 and then August/Sept 2006 whilst by Feb/March 2007 this would have fallen to approx 135 a/c).Then Mr Neill (CEO) of Magellan now created a story to “cover” this  asserting in his email doc 3597/3598 to PwC - just hours before the FY2006 financial statements were released to the TSE on 30 March 2007 - that replacement spares would be required “as the useful life of the exhaust system was approx 35,000 hours {To provide a margin of safety John Furbay’s analysis used 40000 hrs as the useful life}. This analysis shows that the likely spares requirement in the period 2007 to 2021 was in excess of 800 units” (doc 3605H – 886+ units). This “likely” replacement spares subject continues at para. 9.9,  concluding with Aircelle’s feedback “hoax”. NONE of these documents were disclosed by PwC who instead chose to independently calculate the false “1572” Spares units at para 9.2.  These only became available after Mr Neill’s evidence in July 2009.

Finally PwC conclude in their findings at para 8.122 that “…  the A340 programme was approximately 33% complete at the end of FY2006.”.