This past week a study was released prepared by analyst Rebecca Grant on the KC-X program as a whole. Grant is the head of the think tank IRIS.

The report may be found here.

Grant believes that due to budgetary constraints the KC-X buy will be the only new tanker purchased and that the Air Force’s follow on KC-Y and KC-Z increments won’t happen.

She also believes that the use of the aircraft to support operations in the Pacific will be paramount over other planned missions. This drives her to conclude that large fuel capacity and range will be two of the capabilities driving the Air Force’s source selection decision.

Those two factors favor the larger EADS (EADS:P) A330 based system over Boeing’s (BA) 767 tanker aircraft.

If the second and third increments of aircraft are not purchased it would be a blow to both aerospace companies as the Air Force has said that they might be new competitions rather then just buys of the KC-X winner which makes sense as ultimately the Air Force does need to buy a replacement for the KC-10.

Ms. Grant’s thoughts have caused a great deal of thought and comment as the military nears its decision on which aircraft to buy.

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.

Boeing (BA) submitted their proposal for the KC-X aerial tanker program a day after rival EADS (EADS:P) did. Today was the day it was formally due, EADS coming in a little early. The Boeing proposal stresses their cost and size benefits over competing EADS with their larger A330 based aircraft. Boeing is basing their bid on a modified 767 airliner with advanced avionics from the yet to enter service 787.

Also U.S. Aerospace and Antonov submitted their competing proposal after losing a bid to delay things sixty days. There total cost is under thirty billion for a contract the Air Force has estimated at $37.5 billion based on an aircraft cost of only $150 million each.

The Air Force plan is to award the contract in four months. The three bids may make the competition’s source selection last longer and may also raise the chance of a protest.

If the U.S. Aerospace / Antonov team wins it might get very interesting.

In a sign that they are ramping up work on their bid for the new KC-X aerial tanker program EADS (EADS:P) announced that they are moving their proposal preparation team to new offices in Mobile, AL. If the European defense giant does win the contract they will assemble the A330 aircraft at that city and then apply the specific military modifications there or at another facility.

Reportedly EADS will concentrate about 100 workers in Mobile. They are currently based in Arlington, VA where the EADS North America headquarters is and Melbourne, FL. The Melbourne site was most likely established when EADS was working with Northorp Grumman (NOC) on their last attempt in 2008. Northrop has an aircraft modification facility there used to support the E-8 JSTARS program.

The Defense Department and Air Force expect to received proposals in July and award in the Fall. The Boeing (BA) team and their “NewGen Tanker“ is considered the only other potential offer.

EADS (EADS:P) had decided to go it alone with their own bid for the KC-X aerial tanker after former partner Northrop Grumman (NOC) decided the requirements favored Boeing (BA) too much. All that meant is that EADS would prime the contract but would probably find other companies, including U.S. ones, to sub for them. It is now being said by EADS that they have found at least one U.S. defense contractor to do “sensitive equipment”. The company is unidentified at this point.

This only makes sense as it allows Airbus to deliver a A330 aircraft or tanker to a U.S. facility to do the integration of the military equipment such as radios and defensive equipment. EADS is planning to do this with Lockheed Martin (LMT) on the Army’s new attempt at buying an Armed Reconnaissance Helicopter (ARH) and should do this for KC-X. Lockheed planned the same thing with Augusta Westland on the failed VH-71 program. By using an American company to do this sort of work it helps with security and technology transfer issues. It is also the reason that EADS North America exists.

Kansas legislators in both the House and Senate are planning to introduce a bill that would require the Pentagon to take WTO rulings into account. The Department of Defense has maintained that in accordance with U.S. laws and regulations that those matters cannot be considered or punished in contract awards. If it did that would be a violation of the WTO itself.

The bill would allow price adjustments to be made in bids to reflect illegal subsidies rulings. The legislators, Senator Brownback (R-KS) and Congressman Tiahart (R-KS), claim it would be applicable to any defense contract but it is obviously targeted at EADS (EADS:P) and their KC-X bid. The legislators claim that without taking these subsidies into account the price of the A330 based tanker will be artificially low.

They would prefer the contract go to Boeing (BA) who would do substantial work in Kansas on their tanker program.

EADS North America has set up a new website, http://www.kc45now.com/index/, that stresses the “Tomorrow’s tanker, ready today” aspect of their program. This is following up on their plan to stress the availability of their aircraft as compared to the newer Boeing (BA) “NewGen” tanker that while is is based on the 767 integrates some 787 avionics into it. This might require some development time.

The A330 is already in production for Italy and the U.K. and will, technically, only require the necessary U.S. Air Force specific equipment integrated onto it.

In an article at the Seattle Times, Dominic Gates writes that EADS (EADS:P) is planning on offsetting some of their cost disadvantages related to the bigger aircraft and establishing a new production facility with less development. The aircraft they will offer again for the KC-X program is a modified version of the A330 MRTT already planned for Australia, Great Britain, UAE and Saudi Arabia.

The aircraft is a little behind schedule but is in test flights and will deploy the first of five aircraft to Australia this year. The U.K. ones are slated for 2011 and the two oil states will get there aircraft soon after. There will have to be some modifications to the A330 to meet U.S. Air Force needs but they should be minor. EADS feels that Boeing (BA) will have to spend more money to get their 767 based tanker ready as it does incorporate the 787 cockpit and parts of other 767 models. This means that it is not identical to the 767 tankers ordered by Japan and Italy. Japan has received three of their four aircraft while Italy has seen developmental delays and has not received any.

It is expected that the A330 will cost more to manufacture due to its size and the shipping involved to send the components to the U.S. from overseas. The bigger aircraft while capable of carrying more fuel and having a longer range then the 767 will cost more to operate and may require infrastructure investment as it is much larger then the KC-135 tankers being replaced.

Once the proposals are in it will be seen if EADS can do their pricing correctly.

It seems that EADS North America the subsidiary of the EADS (EADS:P) is searching for a U.S. company to partner with them on the KC-X tanker contract. Reports are that L-3 Communications (LLL) had been the prime target for this role but now they are rethinking that role.

EADS had planned to be a sub-contractor to Northrop Grumman (NOC) providing A330 aircraft that would then be militarized by Northrop. Now they are planning on being the prime contractor with a U.S. company to aid them. The roles are different enough that it will put pressure on EADS to prepare most of the proposal themselves as well as provide most of the contract management. With their history so far in the U.S. that might be a bit too much for them.

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.