DoD Testers Express Concerns with KC-46A Schedule

One of the issues facing Boeing (BA) and the KC-46A new aerial tanker program is that it is already behind schedule. The Air Force originally planned to award a contract in 2001-2002 timeframe and have new tankers flying before 2010. The contract was not awarded until almost a decade later and the first aircraft will begin service in 2017. This was caused by three attempts to conduct the source selection with Boeing winning the third round from EADS North America, part of EADS (EADS:P).

This has meant the current initial development contract is very short. Boeing is planning on taking commercial B-767 aircraft off of their line, installing a new cockpit from the 787 as well as necessary military gear. They also need to demonstrate that the aircraft is able to meet the requirements of the Air Force and keep it all within cost as Boeing agreed to a fixed price development contract.

The Director, Operational Test & Evaluation (D,OT&E) which is an independent body within DoD responsible for evaluating programs performance as well as their overall test plans releases an annual report reviewing major defense programs and their test plans. They expressed concerns to Congress that the KC-46A is hoping to conduct a very aggressive test campaign. In their report, which may be found on their website here, they write that in their opinion “The DOT&E review of the post-Milestone B draft TEMP indicates the KC-46 test program is not executable.”

This is due for the following reasons:

 

  • The plan requires 42 hours of testing a month compared to an average of 30 on similar large aircraft military programs.
  • It assumes that only 15 percent of the tests would be repeated.  A higher repeat rate adds time to the overall testing program.
  • There is not time in the schedule to fix issues found in Developmental Testing (DT) prior to Operational Testing (OT).
  • There is not enough time allocated to test the fuel boom with Air Force and Navy aircraft.
  • The OT time is too short for the 750 flight hours planned to be flown and D,OT&E calculations estimate that 1,250 hours is the minimum required.

 

The organization recommends a new Test & Evaluation Master Plan (TEMP) be developed that includes a more realistic schedule for testing.

The Air Force, of course, disputes D,OT&E claims and believes the testing schedule is appropriate and executable. They feel that they have structured the program to support a proper OT decision and then into production and service.

The other pressure is on Boeing as an extension of the test program will cost them money. The fixed price contract has already reached a point where there is little slack or money left in it. More flight hours, more tests and more re-work will cost Boeing and reduce the potential for any profit on this contract. The Air Force recognizes this as they add in their defense of the program that they “structured the KC-46 development contract as a fixed price contract to protect the DoD and taxpayers from any cost growth on the program if the test program is not executed as planned.” So Boeing will pay for these issues if any.

D,OT&E can tend to be very conservative when it comes to these types of assessments but that does not mean they are right. One of the biggest issues affecting program development timelines is the need for more testing. Problems are discovered that were not necessarily anticipated and they take time to fix and then there is also time added to do the test again. The KC-46A is probably looking at a test program that will take some amount of time between their estimate and D,OT&E. Even if there is only a little growth it will affect Boeing’s cost and bottom line.

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Boeing Signs Contract While Waiting on EADS to Move

The Air Force and Boeing (BA) executed the first part of the new KC-X aerial tanker contract. This is a $3.5 billion development effort that will deliver the first four KC-46A aircraft.

Unlike many other programs of this sort the U.S. is going to try a Fixed Price contract for the development effort as a cost control measure. In the past it has been hard to do real development work this way as there may be unknown issues that cause more schedule and cost. The assumption is because the KC-767 (and the KC-30) were fairly mature systems already in production for other customers that this risk is minimal. Of course the KC-46A is not identical to the other 767 tankers Boeing has built for Japan and Italy.

At the same time it has been reported that EADS NA (EADS:P) received their debrief from the Source Selection Board and now has a few more days to file a protest. There would have had to be something fairly serious revealed in the briefings to warrant such a move but until the deadline passes without one being filed there is always a chance a protest will occur. Although all the reports are now saying that EADS will not protest now even though there remain few future programs for the European aerospace company to bid on and get into the U.S. market.

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Both Companies Submit Final Proposals But Will Continuing Resolution Allow Award?

It has been confirmed that both Boeing (BA) and EADS North America (EADS:P) submitted their final proposals for the KC-X aerial tanker program. The Air Force had asked that they be submitted by today and both companies turned them in early.

One pressing question that remains is if the Department of Defense remains under Continuing Resolution (CR) for the rest of the year rather then Congress passing a proper budget is it possible to award the new contract? It looks like the Republican controlled House is planning on doing CR until the new Fiscal Year (FY) starts in October. There has not yet been any statement from the Government on this question.

One would think that even if the source selection is carried out and a winner chosen with the caveat that the contract award would have to wait until the next FY it might affect the pricing. Having a requirement to guarantee the pricing for several months has not been identified yet and it would have some effect on each company’s bids.

As everything with this program nothing is easy and it seems this third attempt may be even more complex and controversial than the first two.

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WTO Report States Boeing Received Illegal Aid Effect on KC-X Undetermined

In the latest round of the back-and-forth at the World Trade Organization (WTO) between the United States and the European Union (EU) over airline development and sales the report on Boeing (BA) was leaked to the press and found that the Chicago based company received illegal subsidies from the U.S. Government and four states. In September this finding was also leaked as a preliminary to the completion of the final report.

Earlier last year the WTO had ruled in favor of the U.S. in their complaint about launch aid for EADS’ (EADS:P) Airbus products. Since that time there have been those in Congress trying to rewrite acquisition law and regulations so that the illegal aid to EADS would be taken into account in the upcoming KC-X new aerial tanker decision on which Boeing and EADS submitted bids for the initial $39 billion contract.

The findings by the WTO that both sides provided illegal aid that caused unfair competition to the other should lead to negotiations to settle the matter. The normal WTO punishment of having the losing company pay back the economic affect on the other will probably not happen due to the large amounts involved.

The two decisions may aid the Pentagon in deciding the KC-X contract as it possibly removes the issue from the competition and might limit some chances for a protest by the loser. The Pentagon has made clear for months that it cannot take into account the WTO rulings in their source selection and evaluation hence the attempts by Boeing’s supporters in the legislative branch to change the rules.

Now with both bidders confirmed to have benefited from illegal subsidies of some sort it hopefully will remove the issue and allow a competition based on merits and meeting the requirements as defined by the Air Force and Defense Department.

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Rumors Percolate of a February Award for KC-X

There are starting to be media reports that indicate the U.S. Air Force will announce the winner of the KC-X aerial tanker contract in February of this year. The decision had been planned before the end of 2010 but due to delays in reviewing the proposals and the inadvertent slip up of sending the competition’s information to the two bidders it has now moved to 2011.

In a recent presenstion the Secretary of the Air Force, Michael Donley, said that Senate hearings into the information mess may be limited due to the current source selection process. To some this indicates the Air Force does not want the hearing near the decision announcement. The award and potential protest would also constrain what information could be given to the Senate and discussed at the hearing.

Sean O’Keefe, EADS North America’s CEO, also recently said that he expects the award soon. He believes best and final offers will be submitted before January 31st and then the Air Force decision in February.

This will be the third attempt to buy a replacement for the KC-135 aircraft since 2001. The Air Force, Boeing (BA) and EADS (EADS:P) all hope that it will be the last and final try.

There is a good chance no matter who wins the award that there will be a protest. The 35 billion plus contract for these aircraft is the biggest military aviation contract right now. It is critical to both companies aircraft production plans and would give them a significant advantage in future tanker competitions world wide.

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House Votes to Require Pentagon to Consider “Unfair Competitive Advantage”

The House of Representatives winding down the lame duck session voted today to pass legislation forcing the Pentagon to take into consideration in source selection whether one of the bidders has an unfair competitive advantage. While not naming any names the law is oriented towards EADS (EADS:P) bid for the new KC-X aerial tanker program. The law has little chance of being considered in the Senate anytime in the next few days.

This is fallout from the World Trade Organization (WTO) ruling earlier this year that EADS had received illegal subsidies from European nations. This was mainly in the form of “launch aid” loans that would only be paid back if the aircraft were profitable but also included tax breaks and infrastructure funding. The Pentagon has made clear that U.S. procurement law and regulation do not allow these types of rulings to be a factor so Boeing (BA) supporters in the House and Senate have been making efforts to change the law so that EADS will not have a “competitive advantage”.

The WTO has also made a ruling against the European counter claim against Boeing that it had received some aid from the U.S. government.

The KC-X is in this situation as there are currently only two Western companies that are able to build this aircraft. In order to gain any competition with a goal of cost savings Boeing and EADS must be considered. A wild card attempt by U.S. Aerospace teamed with Ukrainian manufacturer Antonov was not considered.

If you think Congress is upset about EADS think about how they would react to an Antonov win no matter how cost effective or capable it would have been.

Until the Air Force makes its source selection decision known this kind of fighting will continue. Protests by the loser are also to be expected as the KC-X saga enters its tenth year.

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Loren Thompson Predicts EADS Win

The well known aerospace analyst writes that based on discussions he has had it looks good for EADS North America to win the current KC-X new aerial tanker competition. He believes that the information accidentally shared by the U.S. Air Force with EADS and its U.S. competitor, Boeing (BA), indicate that the analysis by the source selection board favors EADS A330 MTT based bid.

EADS did win the contest two years ago teamed with Northrop Grumman (NOC) only to have it overturned on protest by Boeing. The Government Accountability Office (GAO) ruled that the Air Force had not applied its own criteria properly in evaluating those bids.

This time around EADS bid by itself and proposed basically the same aircraft. Boeing bid a modified version of their 767 tanker incorporating parts of the new 787 cockpit and other improvements.

Last month the Air Force had to admit it sent information to the two bidders about the others after mixing up the CD’s with data.

In Thompson’s analysis the data showed the Air Force favoring the EADS aircraft. Of course Boeing will have a chance to protest if they really do lose this contract.

In another piece of this very complicated puzzle this latest development may have serious affects on the latest attempt to replace the KC-135 Cold War era tankers.

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Air Force Confirms Slip While Their Error Roils Contest

24 November – Update: The Air Force reportedly reassigned the two persons involved in sending the information to the wrong bidders. They still claim that the error will not affect the contest. EADS has said on record that haven’t ruled out a protest based on this incident.

The Air Force in a recent announcement confirmed that the source selection for the KC-X new aerial tanker won’t be completed until second quarter of Fiscal Year 2011. This was part of a much more important admission by the military that they had accidentally sent evaluation information on Boeing (BA) and EADS (EADS:P) bids to the wrong teams. Boeing got EADS and vice versa.

The computer data files sent to the contractors included pricing data for the two bids. The effect of this error on the whole contest is yet undetermined and the Air Force seems to be trying to push through with the hope that the leak is minimal. Without the companies coming forward to admit to looking at the data there is no way of knowing how much effect this will have on the proposals.

Certainly this adds yet another twist to the ongoing saga that is the KC-X competition and will certainly play a role if there is a protest by the losing bidder.

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Is KC-X It For Tanker Acquisitions?

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.

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Air Force Hedging on KC-X Award Date

First the contract was going to start in November. Then it was an award in November. Now the U.S. Air Force is saying a winner will be announced in the next few months or so.

Using the argument that it is better to do something right not quick the Air Force chief of staff, General Schwartz, did not commit to the November date or even this year.

This is not surprising considering the complexity of the proposals and the history of this contract. To avoid a protest which will cause further delays to buying the new aerial tanker the source selection must be thorough and done in such a way that the loser cannot feel discriminated against.

A protest by the loser be it Boeing (BA) or EADS (EADS:P) is expected but there is always a chance that they will take the loss graciously and it may be hoped their political supporters as well.

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