The Association of the United States Army 2011 Annual Meeting and Exposition is this week.
For more information check out this link.
The Association of the United States Army 2011 Annual Meeting and Exposition is this week.
For more information check out this link.
At a recent public event the Undersecretary of Defense for Acquisition, Logistics & Technology, Ashton Carter, was asked about the projected cost increases for the KC-46A development. His response was that he, and OSD, are not really that worked up about the fact that Boeing (BA) may exceed the projected ceiling price of the contract.
In his eyes the U.S.’s liability is based on the $4.9 billion price. Boeing’s bid of $3.6 was a conscious business decision on their part. Some members of Congress, led by Senator John McCain (R-AZ), have raised concerns about the increase and the fact that the cost share structure of the contract obligates the U.S. to pay 60% of the first billion in increases.
There is also the idea that this situation would encourage contractors to submit low estimates for development contracts, or buy-in, with the goal of making up the difference in their production or by having the U.S. pay some of the overruns. McCain and the Senate Armed Services Committee (SASC) are also investigating the large cost increases in F-35 production that are requiring the U.S. to pay over $700 million as part of their cost share.
The idea that the Defense Department would accept this kind of business model is interesting. One of the criticisms of defense acquisition is this very point. In the late Sixties when Lockheed, now Lockheed Martin (LMT), did the same with the C-5 transport, although perhaps not deliberately, it is considered one of the examples of acquisition abuse and the program was almost cancelled. Now Carter is saying that as long as it involves a Firm Fixed Price Contract it is an acceptable practice.
This is just the beginning of the situation and Boeing certainly has the ability to not charge more then the ceiling price as they work the KC-46A development. Their current estimate of about $5.2 billion may be conservative and costs for the first 18 aircraft could be under $4.9 billion.
Israeli Aerospace Industries (IAI) has been modifying at least one Boeing (BA) 767 aircraft to be a tanker for the Colombian Air Force. The major difference between this aircraft and the KC-X the U.S. Air Force is buying is that it doesn’t rely on a boom for refueling but just the drogue and hose system.
A photo of the aircraft named “Jupiter” was taken recently and posted at Airliners.net. It may be found here.
The aircraft is painted in the correct national markings and has camouflage. It has a pod under each wing for the drogue to refuel aircraft.
Boeing is proposing a version of their 767 aircraft for the KC-X as well as building tankers for Italy and Japan. IAI’s product demonstrates that the 767 is certainly flexible enough to be modified for the tanker mission. It also raises the question about why the new tanker for the Air Force has taken so long to get off of the ground.
The EADS (EADS:P) subsidiary Airbus built tanker reportedly received its military certification from Spain’s military certification authority, INTA. While the European Aviation Safety Agency (EASA) does certify civil aircraft for many different nations it does not military systems. EADS needed a military certification authority to do that and used Spains.
The A330 MRTT is being built for Australia and the United Kingdom to perform aerial refueling missions. It has also been proposed by EADS for the U.S. Air Force’s KC-X contract as well as some Middle Eastern customers.
Military certification is a step forward in the process of the aircraft being accepted for use by its customers. The program has seen some delays but is moving forward into service with Australia and then Great Britain.
Here is the latest post I wrote for BNET: Government –
“When Northrop Grumman (NOC) announced in March that it would not bid for the new aerial tanker for the U.S. Air Froce, the KC-X, Boeing (BA) and its many supporters in Congress believed it was sure to get the $35 billion contract. Now the deadline to bid has been extended 60 days to allow the European aerospace giant, EADS (EADS:P), to submit a proposal.
There are already reports that EADS, which would seek to provide A330 airliners made by its subsidiary, Airbus, to be modified into the tankers, is talking to other defense contractors about partnering.”
The rest may be found here.
Now, that Boeing is the only bidder on the KC-X, the Seattle Times notes that Boeing now has to make sure that it is not seen as taking advantage of being the sole bidder:
Northrop Grumman walked away from the $40 billion Air Force refueling-tanker competition Monday, drawing a widely criticized and nearly decadelong procurement process close to an outright Boeing victory.
With the likely prospect of air tankers rolling out of Everett until around 2027 at least, the outcome could secure as many as 2,000 direct jobs in Everett and an additional 6,000 statewide at suppliers and others, according to previous Boeing estimates.
Yet Northrop’s withdrawal leaves Boeing with a pricing dilemma as it prepares a final bid. The Pentagon, embarrassed by the lack of competition, now will be under extra scrutiny over what it pays for its tankers.
On one hand, because the contract is a fixed price — meaning the winner must swallow the loss if program costs escalate beyond the price it bids — Boeing typically would be expected to aim high, especially with no competition.
At the same time, Boeing will want to avoid the appearance that it is taking advantage of Northrop’s withdrawal to jack up the price.
“This competition was supposed to be a model for future procurement,” said Issaquah-based aviation analyst Scott Hamilton of Leeham.net. “It’s clear the Department of Defense fell short again in running a procurement process that works.”
The contract is to supply the Air Force with 179 tankers used to refuel fighter, transport and bomber aircraft en route to their targets.
Northrop had teamed with EADS, parent of European planemaker Airbus, to offer a tanker based on the Airbus A330.
In 2008, the Defense Department cited a rough contract value of $35 billion, or about $196 million per airplane, plus an extra $5 billion in operational support and other costs.
Certainly, the rivalry in the previous round of the tanker competition between the Boeing 767 and the A330 drastically reduced the cost to the taxpayer.
Read the entire article at the Seattle Times.
The Wichita Eagle reports that the a group backing building both the Boeing and EADs tankers, doesn’t want to reveal its backers:
The investors backing a campaign asking the government to split its contract for aerial refueling tankers between Boeing and Northrop Grumman want to remain anonymous for now. The campaign is called Build Them Both.
“We are funded by a group of investors who have asked to remain nameless at this time,” said the effort’s campaign manager, Carrie Giddens.
The group is not union sponsored and does not have ties to either Northrop or Boeing, Giddens said in an e-mail exchange. However, “we have sought out funding from both companies, their suppliers and unions who would be impacted by building them both.”
The requests went out in the past two weeks.
On Monday, Giddens called Northrop’s decision to pull out of the bidding process “bad news for American workers, our men and women in uniform, and for the taxpayer.”
With only one company seeking a contract, 50,000 jobs that would have been created won’t be, Giddens said in the statement. “Without an ongoing competition there is no way to control costs, to the detriment of our military and taxpayer.”
The Wall Street Journal has weighed on the KC-X Tanker bid process, in an article entitled “Trans Atlantic Defense Deal Falters.” The article notes:
The decision by Northrop Grumman Corp. and its European partner this week to drop out of a $40 billion competition to build aerial-refueling tankers for the Air Force is the latest example of how trans-Atlantic defense ventures have faltered.
Many observers view the size of the tanker deal, and the prominent role played by Northrop partner European Aeronautic Defence & Space Co., as the most significant instance of how trans-Atlantic partnerships can get tripped up.
Noorthrop billboard in Alabama in 2008 advertised a future tanker plant, but the company quit the project.
“There’s no doubt that this outcome will reinforce the long-held understanding in Europe that the U.S. defense market is highly protected,” said Alex Nicholl, a specialist on European defense companies at the London-based International Institute for Strategic Studies.
“This is not the first time that the rules of a U.S. competition have been rewritten to suit the American competitor. No doubt it won’t be the last.”
Read the entire article at theJournal.
Spirit AeroSystems Named to Boeing Tanker Supplier Team
WICHITA, Kan., March 11 /PRNewswire-FirstCall/ — Spirit AeroSystems Holdings, Inc. (NYSE:SPR) has been named to the Boeing (NYSE:BA) NewGen Tanker Supplier Team. Boeing, Spirit’s largest customer, is bidding on the KC-X program, the U.S. Air Force’s next line of tanker aircraft.
Upon a contract award from the United States government to Boeing, Spirit will build the Boeing tanker’s forward fuselage section in Wichita, Kan. After completion, Spirit will ship the hardware to Boeing’s Everett, Wash., facility for final assembly.
“We’re honored to continue to build quality airplane assemblies for Boeing, and ultimately, for the United States Air Force,” said Richard “Buck” Buchanan, Spirit senior vice president and chief operations officer. “Spirit is proud to be part of the integrated Tanker Team, and is poised and ready to deliver world-class components to our customer.”
Sen. Sam Brownback, R-Kan., said, “I am pleased that the men and women of Spirit AeroSystems will play such a significant role on the NewGen Tanker. The Boeing/Spirit Team has a strong track record of delivering superior value to their customers and I know they will continue this success in building the world’s finest tanker for the United States Air Force.”
U.S. Congressman Todd Tiahrt, R-Goddard., said, “The highly-skilled workers and engineers at Spirit AeroSystems are among the best in the world and will play an integral role in building the next generation of tankers. We are moving toward a tanker contract that will stimulate the aviation industry in Kansas and lead to even more high-quality, high-paying jobs. Spirit workers will provide nothing but the best components for the KC-767, and that is important for our military men and women to successfully carry out their missions.”
On March 4, Boeing announced it would offer the Boeing NewGen Tanker, an airplane based off of the 767 platform, in the competition to supply the U.S. Air Force with a multi-mission aerial refueling aircraft that will meet all the warfighter’s mission requirements for the next several decades.
Boeing will respond to the Air Force’s KC-X Request for Proposal by May 10, and the Air Force is expected to announce its decision later this year.
The contract will be for 179 new KC-X aerial refueling tankers.
On the web: http://www.spiritaero.com/
About Spirit AeroSystems, Inc.
Based in Wichita, Kan., Spirit AeroSystems is the world’s largest independent supplier of commercial airplane assemblies and components. In addition to its Kansas facility, Spirit has locations in Tulsa and McAlester, Okla.; Prestwick, Scotland; Samlesbury, England; Kuala Lumpur, Malaysia; and is developing new manufacturing facilities in Kinston, N.C.; and Saint-Nazaire, France. In the U.S., Spirit’s core products include fuselages, pylons, nacelles and wing components. Additionally, Spirit provides aftermarket customer support services, including spare parts, maintenance/repair/overhaul, and fleet support services in North America, Europe and Asia. Spirit Europe produces wing components for a host of customers, including Airbus.
Source: Spirit AeroSystems Holdings, Inc.
Statement on US Refueling Tanker Program Announcement
WASHINGTON, March 9 /PRNewswire-USNewswire/ — The European Commission notes yesterday’s decision by Northrop Grumman / EADS not to submit a bid to the US Department of Defense for the US Air Force’s aerial refueling tanker contract.
“It is highly regrettable that a major potential supplier would feel unable to bid for a contract of this type. Open procurement markets guarantee better competition and better value for money for the taxpayer,” stated EU Trade Commissioner Karel De Gucht.
In February 2008, Northrop Grumman / EADS was selected and awarded the contract to provide aerial refueling tankers for the US Air Force in a fair and transparent competition. This was a positive sign for free and open competition across the Atlantic. This also seemed to indicate that successful bids are possible when European industry teams up with US industry and they are allowed to compete fairly. This award was subsequently cancelled at the end of 2008.
In December 2009, Northrop Grumman / EADS expressed serious concerns to the Department of Defense and the US Air Force on the proposed acquisition criteria for the contract.
The European Commission would be extremely concerned if it were to emerge that the terms of tender were such as to inhibit open competition for the contract.
The US defense trade balance with the EU has traditionally been significantly in the US’ favor. In 2008 the US exported $5 billion and imported only $2.2 billion worth of defense material, in line with a historic ratio of double exports to imports.
The Commission will be following further developments in this case very closely.
Source: Delegation of the European Union to the United States