FEATURE ARTICLE

January 2007

Tanker Procurement Faces Budget Hurdles

By Sandra I. Erwin

A replacement for the Air Force’s aging air refueling tanker fleet has been tagged as the service’s top procurement priority. If the program gets under way as planned, however, it will face fierce competition from other projects vying for Air Force funds.

A tanker procurement program — valued at $28 billion — would replace up to 500 KC-135 refueling aircraft, although the Air Force expects to buy 179 initially.

The Air Force is scheduled to launch an industry competition this month, and intends to award a contract to begin the development in late 2007. More than any other military procurement, the tanker program will be closely watched because of its troubled history. In 2002, the Air Force was about to enter a lease agreement with Boeing for up to 100 tankers when it came to light that a procurement official had negotiated an employment deal with Boeing in exchange for contract awards.

Starting in 2010, the Air Force will need to budget anywhere between $2.5 billion and $4 billion a year to buy up to 15 tankers annually. But that is contingent on whether the Air Force stops buying C-17 heavy cargo aircraft before 2010. “The C-17 has to die — from the Air Force budget — so that the tanker may live. It’s a dollar for dollar tradeoff,” said James A. McAleese, a defense industry analyst at McAleese & Associates.

“The tanker program can be sustained at $2 billion to $2.5 billion a year, which is what was being spent on the C-17,” he said. “But it is unlikely that it will receive the $3 billion to $4 billion a year the Air Force says it will.”

A contractor will be selected to begin the tanker development in fiscal 2008, but production would not start until 2010. At that point, the C-17 would have to be off the books. The Air Force still may acquire additional C-17s beyond 2010, but they would be funded by war-emergency dollars and would not crowd out tanker dollars.

The Air Force also may contemplate canceling aircraft upgrade programs for the C-5 and the C-130 cargo aircraft to pay for the new tanker, McAleese said.

Two industry teams — one led by Boeing and the other by Northrop Grumman — will be competing for the tanker award. Boeing will be proposing a tanker based on either its 767 or 777 commercial airliner. Northrop Grumman will be bidding a modified Airbus 330. Both will be equipping the jetliner with advanced air-refueling systems, anti-missile defenses and cargo handling equipment, so the tanker can serve both as an aerial refueler and as a conventional transport.

It is a highly anticipated competition not only because of the size of the program but also because of its global implications for international trade. While some insiders speculate that the U.S. government is unlikely to buy an Airbus tanker, others argue that the Air Force should be trusted to carry out a fair competition and to select a contractor based on its merits and ability to deliver the best product.

Despite senior-level support for the program, however, it may not be easy to get it funded in the timeline the Air Force wants. Even after the C-17 procurement ends, the Air Force still has to contend with other budget pressures, such as congressional efforts to increase the size of the Army and the Marine Corps, possibly at the expense of Air Force big-ticket programs. “It is unlikely that the incoming Congress will be as favorable to the Air Force as [former Defense Secretary] Donald Rumsfeld was,” said McAleese.

For that reason, the Air Force should try to accelerate as many programs as possible into production before a new administration comes into office in 2009, he said. “The Air Force is in a race against time.”

Lawrence Korb, a former Reagan administration official and a critic of the current White House, said these issues are symptomatic of a budget process that has been “out of control” under Rumsfeld. The incoming defense secretary, Robert Gates, “will have to make some tradeoffs and difficult decisions that will not go down well with military, industry and Congress,” said Korb. Speaking about the Defense Department, he added, “The place has been on ‘automatic pilot’ when it comes to reshaping the force and making the tough choices.”

Please email your comments to SErwin@ndia.org

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