There are now reports that the U.S. Air Force may slip the announcement of a winner of the KC-X contract until the end of the year. The last planned date was the middle of November. This was a slight slip as the original goal was to have work start on that date.

Now it could be as late as just before Christmas that an award will be made. There are potential concerns with the results of the mid-term elections in early November that may have to be reflected on when coming to a decision on whether to award to Boeing (BA) or EADS (EADS:P). No matter what the program may see further delay if the loser protests the decision.

The Government Accountability Office (GAO) is also addressing two protests by the U.S. Aerospace (USAE) and Antonov team over the failure of the Air Force to accept their proposal claiming it was delivered five minutes too late. There is a chance that any upholding of the protests would cause further delays to the source selection and award.

The KC-X is now on its third iteration over the the last nine years and continues to look as if a new tanker won’t be purchased anytime soon.

There has been plenty of expectations that the loser of the latest KC-X competition would file a protest. Boeing (BA) was able to overturn the award to Northrop Grumman (NOC) and EADS (EADS:P) in 2008 when the Government Accountability Office (GAO) upheld its protest of that contract. Now there has already been a protest of this round before the source selection has really got underway. The protester, too, is not one of the usual suspects but U.S. Aerospace (USAE) who announced that they were teaming with Ukrainian aircraft manufacturer Antonov for the multi-billion program to replace the KC-135 in use by the U.S. Air Force.

U.S. Aerospace is protesting the fact that the Air Force said their proposal was received late and will not be considered in the competition. The service has made clear that only the EADS and Boeing ones were received by the deadline of 2:00 PM on 9 July.

The upstart bidder says that their proposal was at the site thirty minutes prior to that time but that Air Force personnel deliberately delayed the courier preventing delivery until five minutes after the deadline. The Air Force is standing by its decision.

The KC-X has been an on-again-off-again program for most of this decade. The initial plan of a lease of 767 based aircraft from Boeing was thrown out amid convictions of U.S. Air Force and Boeing personnel for corruption. The second attempt as mentioned above was lost on protest. This third try looked fairly smooth once EADS committed to bid on their own until late June when the U.S. Aerospace proposal emerged. Now a source selection that is supposed to be complete in early November is facing a potential hiccup depending on how the GAO rules on U.S. Aerospace’s protest. The addition of a third proposal to evaluate may cause delays in the selection and award process.

KC-X just gets more interesting as time passes.

The two civil airliner giants both attended the Farnborough Air Show with Boeing (BA) conducting the first overseas flight of the new 787 and EADS (EADS:P) sending an A380. Both companies announced substantial orders from a variety of airlines and leasing agents while also taking the time to criticize their opposition’s bids for the KC-X new Air Force aerial tanker.

Boeing received an order for sixty 737 aircraft from Mr. Udvar-Hazy’s new leasing company as well as Emirates Airlines needing thirty 777 wide body aircraft. GE’s leasing company also bought forty 737 aircraft and Avalon twelve. Royal Jordanian airline purchased three of the new 787.

EADS got an order from Russia’s Aeroflot for eleven A330. That carrier already operates sixty-four A320 and 10 A330. Hong Kong Air followed with a plan to buy fifteen of the new A350 XWB, the equivalent of the composite 787, and ten A330. The Chilean carrier LAN also bought fifty A320.

All-in-all both companies felt very good about their orders and the future of the airline industry. There are hopes that the world economy is recovering and this will lead to more sales and greater investment in new equipment.

At the same time the two companies sniped at each other about the ongoing U.S. Air Force KC-X aerial tanker contract. Boeing submitted a bid to use their new 767 variant, NewGen Tanker, to replace the aging KC-135 fleet. EADS has based their proposal around the A330 like they did with their last proposal.

Boeing is making clear that they will offered a very competitive price based on their reducing production costs by leaning out their line. Boeing believes that in the end the contest will be decided on price and they plan on having the best price including lifetime operating costs.

EADS agrees that price is important but at the Air Show the CEO, Mr. Gallois, made clear that there won’t be a sacrifice of profit to just win the contract. Due to problems with the A380 and the A400M transport aircraft EADS has some financial issues to face and while it might be attractive to win the contract the company may not really be able to afford to not have some money made on it. The size of the recent commercial orders indicate that the military contract while it would open the European company up to a new market is not critical to their future.

The European Union (EU) has appealed the recent WTO ruling that their aid to EADS amounted to an illegal subsidy. The company and leaders in Europe have also decried the decision by the trade body to delay their ruling on the similar Boeing case. Boeing’s allies in the U.S. have used the WTO decision to say that EADS has an unfair advantage in the KC-X competition as it received the subsidies. EADS and the EU is countering by saying that the U.S. military contracts over the last fifty years to Boeing are the same thing.

The Pentagon has made it quite clear that despite the desires of some in Congress they cannot take the WTO decision into account in their source selection.

It will be a long hot summer at this rate, and when the decision is announced in November the chance of a protest by one of the losers is very high. The contract is a key military one in the next few decades no matter what each company says about it. Winning the contract will give them a leg up on their competitors for the future orders for tankers and aid them in getting more and better commercial contracts.

EADS North America, the American subsidiary of EADS (EADS:P), turned in their proposal for the KC-X aerial tanker today to the U.S. Air Force. This represents their second attempt to win the program and the Air Force’s third try.

EADS North America will base their program on a modified Airbus A330 transport aircraft. As with the previous attempt in 2008 they will assemble the aircraft at a facility in Mobile, AL. Then they will receive the necessary modifications to meet the U.S. requirements. Airbus will also assemble all of their A330 transports at this new facility if EADS does win the contract when it is awarded in November.

Boeing (BA) will also turn in their proposal by tomorrow. A third contended, U.S. Aerospace, has committed to submit a proposal by Friday if the Air Force does not grant their extension request.

In the latest move by Congress to try and get the U.S. Air Force and DoD to consider the WTO rulings on EADS (EADS:P) subsidies, legislation has been introduced that will require at least a report by the Pentagon on their affect on the competition.

Congressman Adam Smith (D-WA) (No shock there?) is trying to amend the 2011 Defense Authorization Act to require the Air Force to detail the advantage the subsidies gives EADS prior to issuing the contract. Since the DoD cannot consider the ruling in awarding the contract this at least gets a record out of the effect (if any) on the contest.

The U.S. Air Force and Transportation Command briefed Congress on their recent study of aerial refueling requirements. For the worst scenario it is estimated that the U.S. lacks twenty percent of the required capacity.

One of the reasons is that the KC-135R fleet is getting old. They require substantial depot time which limits the size of the fleet. The study states that at any one time nineteen percent of the aircraft are not available at any one time. This puts pressure on the KC-10 and KC-130 aircraft.

The study reinforces the need for a rapid start and completion of the KC-X 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.

The current U.S. fleet of aerial tankers consists of a few hundred Cold War era KC-135 aircraft and less then a hundred KC-10 built in the Eighties. The KC-135 is based on the Boeing (BA) 707 airliner but were built as tankers not converted from passenger aircraft. The KC-X program will replace most of the KC-135 if all 400 or more are purchased and built. The initial contract which the proposals are due on is for about 150 aircraft.

Because it will now be several years before the first KC-X flies and a substantial number are available the U.S. Air Force will need to continue to upgrade, maintain and overhaul the existing aircraft. The most modern variant of the KC-135 is the R model. Today ARINC Engineering Services was awarded a contract to upgrade several KC-135R models with new avionics. No value was given for the contract but it will provide modern, digital instruments for the older aircraft. Eventually all KC-135R will receive this upgrade.

Due to the fact that it has taken almost ten years to get to this, the third, attempt to award a contract for a new tanker the KC-135 and KC-10 fleets will fly for several more years beyond what was expected. The continued investment in modernizing these aircraft will help them meet the current set of mission requirements while waiting for the new tankers.

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.

EADS North America released this press release today relative to their decision to bid on the KC-X contract.

EADS North America Intends to Submit Proposal for U.S. Air Force Tanker

ARLINGTON, VA — (Marketwire) — 04/20/10 — EADS North America announced today that it intends to submit a proposal on July 9, 2010 for the U.S. Air Force’s tanker modernization program and will offer the KC-45 — the most capable, American-built solution that is flown, proven and in production now.

EADS North America is progressing in discussions with potential U.S. partners to build a winning team in order to provide the most capable, best value solution to the Air Force.

The KC-45 is the only aircraft flying today that meets the U.S. Air Force’s tanker requirements as outlined in its KC-X Request for Proposal (RFP). The KC-45 builds on the EADS-based tanker that was previously selected in 2008 by the Department of Defense and that has won the last five consecutive tanker competitions worldwide.

“We will offer a modern, more capable tanker in response to the Defense Department’s decision to encourage competition for this major taxpayer investment,” said EADS North America Chairman Ralph D. Crosby, Jr. “Our KC-45 is the only real, flying, low-risk solution that today meets the demanding Air Force air refueling requirements and is actually in production now. That fact is critical because our warfighters deserve a true best value solution.”

EADS North America will build and modify the KC-45, along with A330 commercial freighters, at an EADS North America/Airbus production facility to be constructed in Mobile, Alabama. The KC-45 program and aircraft production/modification center will create and support tens of thousands of high-value American jobs while making a long-term investment in the nation’s economy at a time when other aerospace companies are outsourcing production overseas.

“This tanker competition is all about the warfighter and the aircraft that most successfully meets their requirements. The KC-45 offers what the Air Force needs today: a modern military tanker that is in production now with deliveries beginning this year,” said Sean O’Keefe, EADS North America Chief Executive Officer. “Not only does the KC-45 offer the best value and a huge capability advantage over the competition, it also will support tens of thousands of jobs across America by expanding our nation’s industrial aerospace capacity.”

The KC-45 is the U.S. military version of the proven A330 Multi Role Tanker Transport (MRTT). To date 28 aircraft have been ordered by four U.S. allies. The MRTT has transferred more than 265,000 lbs. of fuel to a range of military aircraft — from F-16 and F/A-18 fighters to the E-3 AWACS — using the same refueling systems offered on the KC-45.

“Our aircraft has demonstrated its unparalleled capability by refueling a variety of military aircraft utilizing both boom and hose and drogue systems, as well as by operating in the receiving position. That’s a statement our competition can’t make,” said Crosby.

The Royal Australian Air Force will receive the first A330 MRTTs later this year. Additional aircraft are in production or undergoing mission-equipment outfitting for the United Kingdom, Saudi Arabia and the United Arab Emirates.

“We’re progressing forward in discussions to expand the ranks of our nearly 200 current U.S. suppliers, some of which are joining us for today’s announcement,” continued O’Keefe.

At the heart of the KC-45 is the most capable aerial refueling system operating today. The aircraft’s fly-by-wire Aerial Refueling Boom System (ARBS) has a demonstrated fuel offload rate of 1,200 U.S. gallons per minute — the only system which meets the U.S. Air Force’s requirements without further modification. The system’s proven all-electric fly-by-wire technology ensures enhanced controllability and safety that greatly aids the boom operator and receiver aircraft’s pilot.

The KC-45 also carries an all-digital hose and drogue system for probe-equipped aircraft. The under-wing refueling pods are the most modern in service today, with the capability to deliver up to 420 gallons of fuel per minute through 90-ft.-long hoses at refueling speeds from 180 to 325 knots. The KC-45 will also feature a modern fuselage refueling unit, common with that of allied MRTT users such as the United Kingdom.

About EADS North America
EADS North America is the North American operation of EADS, a global leader in aerospace, defense and related services. As a leader in all sectors of defense and homeland security, EADS North America and its parent company, EADS, contribute over $11 billion to the U.S. economy annually and support more than 200,000 American jobs through its network of suppliers and services. Operating in 17 states, EADS North America offers a broad array of advanced solutions to its customers in the commercial, homeland security, aerospace and defense markets.