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Analysis 

Boeing, Air Force Turn Page on Controversial Tanker Program 

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By Stew Magnuson 



The Boeing Co. in September opened the first of five planned systems integration laboratories for the Air Force’s new KC-46 aerial refueling tanker program.

A few weeks later, the company began assembling the first of the refueling booms in a nearby building at Boeing Field in Seattle.

“We are pleased that this facility opened on schedule,” Maureen Dougherty, KC-46 vice president and program manager for Boeing, said in a statement.

“On schedule” and “ahead of schedule” are two phrases that have not traditionally been associated with the Air Force’s long, tortured road to replacing its fleet of aging aerial refueling aircraft.

From an ill-fated plan in 2002 to lease instead of purchase new tankers from Boeing, to a nearly five-year process to finally award a contract to Boeing in 2011, “delays,” “corruption” and “protests,” were words more often associated with the program formerly known as the KC-X.

Boeing is clearly happy to spread some good news.

The assembly of the booms that will slide down from the back of the KC-46 to deliver fuel to jet fighters, or any other fixed-wing aircraft, marks the first time Boeing is moving from design activities to production.

Maj. Gen. John Thompson, the Air Force’s tanker program executive officer and KC-46 program director called the opening of the facility “a big day.”

The boom — based on the refueling system that Boeing pioneered 60 years ago — will be modernized and go into testing in the third quarter of 2013. The first of the five systems integrations labs will be where the boom undergoes the integration process.

Along with the Boom Assembly Center and the five systems integration laboratories, Boeing expects to open a Finishing Center in late 2013. This will be where the hardware and software is installed onto a 767 commercial airliner.

Before that, comes the critical design review, slated for the summer of 2013.

“The program has made significant progress over the past 20 months since contract award, completing several key milestones in support of the design and development phase on or ahead of schedule,” Jerry Drelling, Boeing KC-46 tanker program spokesman, said in October.

Boeing is currently executing the engineering, manufacturing and design contract, which will require the delivery of 18 combat ready tankers by 2017.

The Air Force will conduct a critical design review of Boeing’s efforts so far to wed a modernized refueling system onto one of its 767s in mid-2013. If that goes well, the first flight is scheduled for early 2015. Low rate initial production would come as early as the third quarter of 2015.

“Per the initial contract, Boeing remains on plan to deliver 18 combat-ready KC-46A tankers by 2017,” Drelling added.

The program is expected to run through 2027 and deliver 179 tankers to replace the KC-135 Stratotankers, which have been in service since 1956. The need to replace the old airframes became more urgent in the middle of the last decade as the ongoing wars doubled and sometimes tripled the amount of time they were in the air every month. Meanwhile, maintenance and sustainment costs were rising dramatically. As is the case with many old aircraft, these costs rise the older the airplanes become.

An initial plan to lease Boeing tankers based on the 767 ran into trouble when lawmakers called into question its price tag. It was later revealed that an Air Force procurement officer involved in the contract had been negotiating to secure a job with Boeing after her retirement. She ended up in prison, Boeing executives resigned, and the company was slapped with a $615 million fine.

The full-on acquisition program that followed pitted Boeing against the European firm EADS and its U.S. partner Northrop Grumman. The European-led consortium won the initial contract, which Boeing protested. Such a large contract going to a foreign company sparked controversy.

By the time of the second competition, firm fixed-price contracts were the trend being pushed by the office of the secretary of defense. The traditional cost-plus contracts, in which vendors could bill the Pentagon when programs were delayed or went over budget, were out of vogue.

The tradeoff for fixed-price contracts was that the services had to freeze their requirements in place, thus preventing the so-called “requirements creep,” that had military customers adding new features to a program while it was under development, therefore boosting its costs, and sending the program over budget.

Boeing won the second bid. By that time, Northrop Grumman had dropped out of the partnership. EADS leadership accused Boeing of underbidding and said its rival risked losing money on the contract.

Whether Boeing makes a substantial profit with a fixed-price contract is one of the current question marks in the program.

Drelling said no one has to worry about Boeing’s bottom line.

“While it is not Boeing’s policy to release information on our internal costs,” he said. “We are meeting the cost and the schedule targets that were established in our winning KC-X proposal. Our current estimate of the cost to complete engineering, manufacturing and design phase of the program is consistent with our estimate at the time we developed our bid, and there are no additional costs that will accrue to the government.”

He added: “Boeing won the KC-X competition with an aggressive but responsible bid. The program will be profitable.”

Richard Aboulafia, senior analyst with The Teal Group, said maybe there won’t be a lot of monetary returns for Boeing in the initial phase, which includes the first 18 aircraft. But there will be another 161 aircraft to come, and possible sustainment and parts contracts. It was also a strategic “must win” against EADS.

“They’re going to have a nickel in the bank at the end of the day,” he added.

Photo Credit: Boeing

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