Unexpected Hitches Put Air Force Tanker Back in the Crosshairs

By Sandra I. Erwin

The Air Force until recently did not consider its new aerial refueling tanker to be a procurement problem child. But the program is back on the radar following a series of technical glitches that have delayed the tanker’s first flight by more than six months.

The KC-46 Pegasus tanker — based on a 767 commercial airliner — is being developed by The Boeing Co. under a fixed-price contract, so the Air Force is not financially responsible for cost overruns. But until the tanker finally takes to the skies and shows it can refuel airplanes, Air Force leaders have reasons to be nervous, experts said.

“A year ago I would have said there’s no major concern,” said retired Air Force Lt. Gen. Charles R. “CR” Davis, who recently served as the service’s top military adviser on weapon acquisitions.

Davis is less optimistic now. The technical mishaps that resulted in the delays are worrisome because the tanker itself is not a complex weapon system where glitches are expected. “We can screw up some complicated things. But this should not have caused delays and overruns,” Davis said in an interview. “I do worry about that.”

Boeing said it needed to postpone the first flight — originally scheduled for spring 2015 — until October due to problems with the fueling apparatus after an incorrect chemical was poured into the system. Previously, there had been problems with the wiring. The company took a $536 million charge in the second quarter for tanker cost overruns.

These engineering mistakes are unwarranted, Davis said. “Next thing you know they’re having to do some rework on the refueling system. We’re talking plumbing. This is not rocket science.”

The program is now in the crosshairs of Sen. John McCain, R-Ariz., chairman of the Senate Armed Services Committee. In an Aug. 31 letter to Defense Secretary Ashton Carter, McCain said he was alarmed by “recent problems with the tanker modernization program that could prevent the Department of Defense from delivering this critical capability to our warfighters as promised and on schedule.”

While the recently announced cost overrun is “deeply unfortunate,” McCain wrote, “it is encouraging that the contractor, and not the taxpayer, will bear this expense. That said, the resulting delays to the program’s internal deadlines for completing key qualification and planned ground and flight testing activities are indicative of a program at risk of not meeting its planned delivery milestones.”

A Boeing spokeswoman said the company would not comment on the letter and referred all questions to the Defense Department. A Pentagon spokeswoman said Carter received McCain’s letter and will respond to the senator privately. Air Force Chief of Staff Mark Welsh told Defense News in a recent interview that he is now much more concerned about the tanker program than he would have been a year ago.

Davis said the Air Force never expected the tanker program to be perfect, knowing that Boeing had underbid the cost to ensure a win over rival Airbus. Boeing won the contract in 2011 after a heated two-year-long competition.

“Everyone was very clear that Boeing made a very strategic move to win the tanker contract and keep Airbus out of the U.S. market,” Davis said. “Everybody fully expected that contract would quickly go to ceiling and continue to go beyond that. … But some of these basic engineering mistakes by a premier airplane builder on an aircraft that has been built thousands of times, to me that’s worrisome,” Davis said. “Wiring bundles placed too closely together for almost an entire airplane? This was clearly a violation of basic systems engineering. Things like that should not have happened because they’re not that complex,” he added. “I hope there’s no more of these kinds of issues out there.”

One possible explanation is that Boeing “underestimated the basic challenges of the program,” Davis said. “They’ll have to watch it. There’s no reason to have those tankers late. It’s not that hard.”

In the letter to Carter, McCain warned that his committee will “continue to exercise close oversight to ensure that those defense officials who are responsible for this program enforce the schedule and deliver combat capability to our warfighters.”

Industry consultant Loren Thompson, of the Lexington Institute, said McCain’s letter should serve as a wakeup call. “Any time you get a letter from Senator McCain about the poor performance of your program, it’s something to worry about,” Thompson told National Defense. “I think Senator McCain is probably the single most important influencer of acquisition decisions outside the Pentagon.”

Thompson, who has close ties to Boeing, said the tanker is by no means in serious trouble yet. “But it’s clearly taking longer and costing more to develop than Boeing anticipated.” The company knew that several hundred million dollars might be the price of getting in, “But I don’t think it expected that it would have to dig as deep into the hole as it has.” Even with losses approaching a billion dollars — that will be partially offset by tax advantages — the tanker is a worthy pursuit for Boeing, Thompson said. “I don’t think the company has put a limit on the loss that it is willing to absorb. For the simple reason that Boeing expects the program in the long run to be a big money maker.” If the Air Force modernizes the entire tanker fleet, the program may be ultimately worth $100 billion.

“I’m sure Boeing did not anticipate this amount of difficulty,” Thompson said. “They have made tankers before. This looks like a straightforward project.” Once the plane flies successfully, he added, the “political issues will go away.”

Boeing’s president and CEO Dennis A. Muilenburg told investors in a July conference call that the integrated fuel system is the last major component undergoing qualification testing. “No new technology is needed to resolve these issues, which are well defined and understood,” he said. “Our teams are very focused on executing the plan” to deliver 18 KC-46A tankers by August 2017 and 179 tankers by 2027.

The company remains confident in the long-term financial value of the tanker program, said Muilenburg. “With a potential market of up to 400 aircraft worth $80 billion, we expect to realize strong returns over decades of production and in-service support.”

While the tanker program has not garnered the headlines like other higher profile military projects, it is indeed a critical weapon system for the United States. Current tankers are reaching the half-century mark and need to be replaced, Thompson said. “The Air Force’s aerial refueling fleet is unique in the world. Without it, U.S. and allied aircraft would have great difficulty sustaining operations.”

Topics: Aviation, Logistics, Manufacturing, Procurement, Acquisition Reform

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