Para.9.7.  DATA from other public sources/publications  and specific research/other learning

PwC do not mention or Exhibit any market data/articles from any aerospace/general publications or any Teal Reports in their C$3m+ report. 

Mr Neill oral evidence on 14 November 2007

Mr Stafford

The only trade estimates referred to by PwC – are Forecast international.  Did you provide Teal?

Mr Neill 

We gave everything we had to hand – included the plan for production. Did not include the International – I think it included Teal – but cannot recall.


Did you provide data from other publications?

Mr Neill


and in 27 July 2009 UK hearing
 The Judge is accessing his notes from the evidence at P72-74 by Mr Neill on 14 November 2007 following Mr Lynch QC’s second challenge to our junior counsel’s record of that UK court evidence during 27 July 2009
                           “Did you provide Data from other Publications?”  –     Mr Neill   -  Yes




My notes say that he was aware of a production plan, and the pessimism was shared and reflected in Teal Group forecasts. And he mentions that Forecast International is referred to in PwC, we provided all the information to PwC which included all the plans from Airbus, and we didn't give them Forecast International. They had to obtain them.   We also provided data from other publications.      


From my note it looks as though it was the evidence that further documentation was provided.  (Pause)

Mr Little

Okay, so on that basis, sir .. interrupts

Mr Neill

Do you want me to add, sir?


Yes, please.

Mr Neill




Mr Neill 

Yes, it's now two years since this happened but I recall quite clearly, and Mr Little knows this, that it was my practice to keep copies of all trade publication articles, documents, as well as any forecast that we would make, this would be, the trade publications would be Flight International and Aviation Week primarily, but other things, such as Air Transport World and the likes. What I did was I handed the file, with as much of that data in it that I had, I gave it to Pricewaterhouse.  And I do not recall if the Teal presentations that I referred to earlier were in that file or not.

As you have just read Mr Neill’s clear recollection of this “Data from other publications”  was that in March 2007 he provided PwC with his file of A340 press articles etc retained from Flight International,  Aviation Week and  Air Transport World publications and perhaps others.(c) He could not recall whether he provided the Teal Group external market presentation information. These naturally gave a sense as to the A340 market/sales etc. at the relevant times (e.g. November 2005 = 4270), and (e.g. January 2006 = 4272-4)  and (1 August 2006 = 4279 – part of conversation re PD22 with Mr Neill on 8 August 2006) whilst he provided his general aerospace industry perspective each quarter in his briefings during the Earnings webcast calls – e.g. Page 2 of the Q2.2006 – 15 August 2006 where he briefed the industry equity analysts  

“On top of that, there was the indecision that we had around the whole A350 program, and then the final decision to go with what is now known as the A350 XWB as a competitor to Boeing's latest product. They took pains in getting there and, in doing so, they sent a number of concerns back not only through the investment community but through the supply chain as well, especially for those who had already started working on the A350 program.

In Boeing's case -- different story. The story for the quarter was the strength of the order book for the Boeing 787 that built through that period but also for the Boeing 777 as well. In fact, Boeing won the bulk of the orders for twin-aisle airplanes and had, for the first time, some success that they could boast about.  We saw that at the Farnborough Air Show.”

I know he did retain such a file in his office as on regular occasions we would discuss articles and subjects which we had both seen or read – including the two referenced here.   I also used articles from publications regularly in my December 2005, March 2006, and May 2006 Magellan Aerospace Board presentations.  

PwC do not mention any market data/articles from any publications or any Teal Reports in their C$3m+ report.  Although a “forensic” investigation PwC were also unable; recently, to retrieve Mr Neill’s “Publications” file and return it to MAC when requested (4294A/G). This was to enable its contents for the period September 2005– March 2007 to be a matter of court record. I have been able to obtain all the relevant A340 articles directly from the Publications mentioned by Mr Neill on 27 July 2007 for that period.  Those articles that I recall that Mr Neill and I had read separately and discussed (mostly Flight international) are annotated accordingly now in the UK court bundle and feature in my A340 Report from pages 26 – 29 at the relevant timelines in 2005 – 2006. I also remember picking up a copy of Business Week in early November 2005 (whilst in North America) and reading the article Boeing Roars Ahead” which included the remarks  “the A340 is going the way of the dinosaur from Ed Greenslet of Airline Monitor, one of the other external market forecasters.  I remember discussing and leaving that Business Week magazine (4296/A) with Mr Neill – it would probably have been in this Publications file – certainly he was well aware of the A340 subject matter from our multiple discussions.

I also used copies from publications/articles with the MAC Board, often sending the Directors copies to read in advance of the Board meeting so that they could be used as part of my Board presentation. For example, an extensive folder (100+) pages was provided on the Aerospace/Market environment in December 2005 to each MAC Director. I used these, amongst other things, to help identify phases of progression and crucial decisions. For example for the A340 – 500/600 programme:

  1.  the response to the Boeing 787 program and sales success was the launch of  the original Airbus A350. Initially it had been launched as a much-improved A330 at Paris Airshow in June 2005.  It was not targeted to replace the A340-500/600 and separately an engineering programme was launched  in September 2005 called the A3456 – or A340 Enhanced. I initially learned this from both Geoff Pinner in AUK Engineering and Iain Gray as MD, Airbus UK . I was aware of this because of the study and engineering resource implications on the UK wing and resources. This also gained some publicity in Flight in November 2005 (4270) and I spoke with Mr Neill and the MAC Board about that article/subject matter on 8 December 2005. 

  2. by the end of  2005/January 2006  in the Aerospace publications reporting (e.g.4272/4) it was clear that the Boeing 777 had completely outsold the A340. Current sales campaigns were being lost on a monthly basis by Airbus. Without the A340 “Enhanced” product the future looked “terminal”. This is why my email dated 19 February 2006 to Mr Neill, Mr Butyniec, Mr Dekker and Mr Edwards (1437/8)  pointing to the current situation regarding sales campaigns and  my concerns that some internal Airbus estimates of production volumes for the A340-500/600 programme were for just 75 sales/deliveries from  that  time was crucial  ( a total production build of 150/155  aircraft - (Brian Little witness statement para 200.)                                                                                                                                                                                           

I also endorsed my Q4.2005 Canadian regulatory Senior Officer quarterly certificate dated 24 February 2006 to Mr Neill and Mr Dekker recording the “continuing challenges on A340 and we would need to keep under close scrutiny in 2006”.   (Brian Little witness statement para 201.doc 1457-1460)

From my customer network within the Airbus top management I was aware that some of the sales campaigns (Qatar) and orders ( such as Emirates  A340 600  for 18 aircraft ) were all now inextricably tied up with product development decisions on A340 Enhanced and  the A350 Version 2. Some of this was also reported within the aerospace/airline industry. (Flight 4276)

  1.  On or about 16 March 2006 - from the knowledge I had gleaned from within Airbus and the recent articles I had read in publications  (c ) - just before MAC’s Board  meeting on the 17 March 2006, I informed Mr Dekker that MAC’s financial statements were based on an  assumption  regarding Aeronca’s ability to fully recoup its NRC on the A340 and that MAC would have to review its financial statements to ensure they accurately reflected the Group’s profitability and assets in the second half of the year . For example, I was aware from Mr Iain Gray (the Airbus UK MD, a member of the Airbus Executive Committee and a key member of the Airbus product development steering committee) that Emirates had now stated unequivocally to Airbus that their order for 18 A340 600 aircraft for delivery in 2009 -2011 was dependent on an Enhanced A340- 600 product. The engineering study (AUK Wing/T1500 engine) for A3456 was now vital. Rolls Royce had also firmly told Airbus that Airbus / RR needed to do something different as the Boeing 777 (its only engine source was GE) was winning every major sales campaign.

  2. Again at the 11 May 2006 MAC Board (Brian Little W/S 204). I provided files (c )  and a presentation on the Twin Aisle market (including A340 /A350 – 247/6) explaining in some detail during that 10/15 minutes the phases which the original A350 and A340-500 /600 were moving through. I demonstrated the logic and business-sense behind my recommendation that we continue to be present in this Twin Aisle market and believed that we should target a sales revenue value of $500K+ per aircraft of core competence work from BOTH the Boeing 787 and Airbus A350 aircraft programmes as they would most likely broadly share this market. MAC presence on the growing successful Boeing 777 programme was very low – some $67K per aircraft – whilst opportunities for new profitable work on it were likely to be very limited.  The MAC Board concurred. As part of the presentation I also commented on the widely publicised reporting of remarks ( 4290) by Mr Udvar Hazy, one of the best known customers (ILFC – International Lease finance Corporation)  and a respected commentator  in the airline industry on the challenges facing Airbus on A340 -500/600 and their “current” A350 product offering.  Several key decisions would now be made in the next couple of months.

Mr Edwards also referred to the Pricing challenges with Aircelle and that Mr Dekker and I were now seriously considering a potential action through arbitration. I was underway with a complete contract review of all the prior Magellan/Aircelle contract documentation and some European lawyers were now provisionally engaged with us to determine the probable value of any arbitration process and expected case outcome. Then July/August 2006 timeline and my conclusion “end of the A340-500/600  line” –

The timeline for the four crucial decisions that finally determined my “end of the A340-500/600 line “ conclusion were:
(1)  A350-1000XWB was publicly launched at the Farnborough Air Show on 17 July 2006 (now effectively a product specification for the long-term A340- 500/600 replacement) following a “customer/airlines initial A350 product specification - rebuttal year” for the earlier Airbus product offerings for A350/A340 Enhanced (Aviation Week- 4290/4290A). (Brian Little Witness Statement paragraph 205)

  1. A consequence of this was the A340 – 500/ 600 “Enhanced” (A3456?) work ceased – 10 July 2006 (Brian Little Witness Statement paragraph 204)

(3)  Because the A340 “Enhanced” study was terminated, Emirates and Airbus considered a different aircraft sales solution in July/August 2006.  Within a few months, Emirates officially confirmed their cancellation of their existing order for 18 A340 600 aircraft and the diversion of those cash prepayments into other Airbus sales transactions. (Flight .29.Nov.2005= 4270 & 17.March.2006=4277 & 1 Aug.2006= 4279/80 & UK Times : 28 Oct 2006 =2642/3     (BL W/S 205)

(4)  In June 2006 (after re-appraisal-Flight.14. Feb 2006 – 4276) Qatar Airways confirmed their initial decision for 20  Boeing 777 aircraft, rather than any further orders for the A340  600 product (Flight 27June 2006- 4278).  This was yet another sales win, as for Air Canada in Nov 2005, for the Boeing 777 (4272/4). As Air Transport World  (ATW) reported  “ Some orders are option conversions from previous sales battles , but in the past 18 months the trend is that Boeing are winning all  the major campaigns” (4287- March 2007(Brian Little Witness Statement paragraph 201)

At our weekly MAC staff meetings on Tuesday 1 August 2006 (Request 8 doc; the only set of MAC staff minutes that cannot be located by MAC; from the 1246 pages they decided to disclose) and on the 12 September 2006 (Section.35.2179) I discussed with Mr Edwards, Mr Neill and Mr Furbay the current A340 market /sales and related product developments, alongside further A340 programme reductions for 2007 -2009. These covered the period from mid-July and the Farnborough Air Show through to early August 2006, and I also updated them all whilst attending the entire four-hour staff meeting on 12 September 2006, after my recent telecoms of that last several days with Airbus in Toulouse /UK on A340 – 500/600.

All of these developments and their implications for future A340 aircraft sales campaigns/orders plus their consequential impact on MAC finances were discussed by me with Mr Neill on 8 August 2006 in his office for 10/15 minutes (PD22), AND then noted on my Senior Officer quarterly certificate (part of Canadian regulatory & MAC processes) for a further discussion on 9 August with Mr Neill/Mr Dekker, which never took place   (My Protected disclosure PD22).    (Brian Little Witness Statement paragraphs 210 & 211)

I ensured it was to feature in my specific conversation with Messrs Neill and Edwards on 10 August 2006, after a difficult MAC Board meeting. I told them both again that Airbus’s  internal sales plans were now for some 60 (to 155 a/c) to 100 (to 195 a/c) aircraft  and I believed the financial consequences for MAC would mean A340 write-offs in excess of  C$10 million (PD23- confirmed : Yes .Col.1). and would be required in our future public financial reporting ( PD23- confirmed :Yes Col 3(1).Brian Little Witness Statement  paragraph 212.doc 2605  Obviously a part of that impact would be to simply further inflate MAC funding needs in the strategic plan by FY2011. This customer Pessimistic scenario (of 155 a/c) was now final confirmation of what I had said in my emails (1437/8) to Mr Neill ,Mr Edwards, Mr Butyniec and Mr Dekker on 19 February 2006  - a further 75 aircraft deliveries  to a 150/155 total aircraft production build for the A340 -500/600.

I raised the subject again on Thursday 14 September 2006 with Mr Dekker at 07.39 pm in the final part of my 29 minute call , (PD24 - confirmed Yes:.Col.1.and Yes ; Col 3 (1) ) Brian Little Witness/S para 213 as part of a wider review on the potential forthcoming arbitration  on A340 pricing and the current contract escalation formula with Aircelle(849-879), following our extensive conversation on  some other crucial  MALUK subjects (Protected disclosures - PD6,PD7,PD8,PD9,PD10– deferred, and then not investigated by PwC).

The significance of these A340 decisions from a strategic and financial accounting /cash recovery perspective was enormous for MAC and its future cash /funding. This A340 subject would all be against a backdrop of increasing liquidity challenges and , in 2007, of activity to replace the funding of the C$70 million of 8.5% convertible unsecured debentures whilst  being strategically central to future cash generation for use in MAC and of course the accuracy of its Balance Sheet/P&L.(3038). There is no way that they could be considered as normal, random, management conversations. The level and circumstances in which these meetings took place underpin their importance from a policy, strategic and business/legal perspective, before the forthcoming Strategy meetings, which I would lead in Toronto in my functional Senior Vice President (SVP) role for MAC business strategy development on Tuesday 19 September 2006

Q9.7A:   Why did PwC ignore and exclude the market information from Mr Neill’s A340 “Data from publications” file, the relevant information available from multiple aerospace and general publications within the public domain and within PwC own A&D practice over the 7 month period of their investigation? 

It is a documented fact at para 8.75 that PwC relied solely on access to the Forecast International April 2007 numerical aircraft build forecast at Exhibit 8.4 for their A340-500/600 “production  volumes” assessment.   

There was not a single document or article in a publication which I have read, since PwC commenced their investigation in January 2007, which would support an increasing (or indeed sustained) sales campaigns, aircraft sales or production expectation for the A340-500/600 at Airbus.  Which was of course consistent with Airbus’s own plans and expectations. 

Q9.7B:    IF PwC had reported what they actually found, when it carried out at least a  rudimentary assessment of all the aerospace and general publications information/ market volumes forecast information implications ( of 135 a/c build – together with the Airbus production plans at Para 9.3) available to it, would this have completely undermined the PwC reported “findings of fact”, and hence PwC derived conclusions??