The Ugly Air Force Tanker War Comes to Conclusion
With the announcement by the U.S. Air Force on February 24 that Boeing was the winner of its aerial tanker competition a messy, decade-long procurement saga drew to an end. The battle to see which company clinched the estimated $30-35 billion bid was one embroiled in corruption, controversy and political considerations.
At stake was an opportunity to provide the U.S. Air Force with a fleet of new aerial tankers that will replace its Eisenhower-era KC-135 refueling planes.
The tanker acquisition program initially began in 2001. The first attempt – a plan to lease Boeing 767s rather than purchase them outright – fell apart when it became embroiled in ethics violations resulting in a former senior Air Force acquisition official and a chief financial officer at Boeing both being prosecuted and sent to jail.
After that failed endeavor Congress intervened, mandating that a formal competition be conducted. This was announced in January 2007 with the lease-to-buy arrangement waived in favor of regular purchasing of the aircraft. The effort ultimately dragged into a two-round slugfest with the second round – dubbed KC-X by the Air Force – seen by the Pentagon as a chance to finally bring conclusion to the entire messy affair.
The competition pitted two companies – U.S. aerospace and defense giant Boeing and European Airbus parent EADS (European Aeronautic Defense and Space) – in a struggle to win one of the more lucrative military aviation contracts on the international market.
For Boeing the competition represented an opportunity to research and develop innovative new methods in refueling technology, provide it with an edge in similar global competitions, and keep its premier rival out of its home market. As for EADS, at stake was an opportunity to not only notch a profitable contract, but – more importantly – to solidify a foothold in the U.S. market by establishing a local fixed-wing manufacturing base.
As the Air Force’ announcement date approached EADS had reason to feel confident. Proposing a solution based on the larger Airbus A330 multi-role tanker transport (MRTT) airframe, EADS had already managed to come out ahead of Boeing in the initial round of competition for the opportunity to supply the Air Force with up to 179 refueling tankers. That round, decided in February 2008, had resulted in a successful Boeing challenge upheld by the Government Accountability Office, which found “significant errors” in the competitive process.
EADS had made its previous bid in tandem with U.S. firm Northrop Grumman but this time went forth alone after Northrop dropped out in March 2010 citing rules favoring the Boeing bid.
Confidence in EADS’ proposed KC-45 bid stemmed from several crucial factors, including the larger A330 airframe that could fly farther, hold more cargo and carry more fuel than Boeing’s KC-46A proposal based on the smaller 767 airframe. Such characteristics were of importance to Air Force officials convinced that future military operations will center on the Pacific Rim region where long refueling flights would be the norm.
Another issue seeming to favor EADS’ KC-45 option was that Boeing’s KC-46A “NewGen Tanker” solution will not take to the air until 2015. Considering the Air Force’ need to begin retiring its aging KC-135s purchased in the 1950s and 1960s and integrate a new fleet into its inventory, the KC-45 might have been considered a more timely alternative. Further, EADS seemed to have navigated the U.S. political minefield with savvy, winning powerful supporters in the southern states along the Gulf.
Yet Boeing was not without its own advantages. Despite EADS bidding through its U.S. holding company, EADS North America, and its political allies, Boeing was still seen by many as the “home team”. Though its 767 airframe was smaller than the A330 the Boeing solution offered more operational flexibility as the larger EADS plane would face basing limitations requiring additional money spent on modifying airfield infrastructure. Also, the fuel consumption estimates for the A330 over a 40-year period projected higher than those of the Boeing plane, thus increasing the operational costs of the EADS option.
Because the two aircraft alternatives offered up were very different aircraft, the Air Force was confronted with the dilemma of producing requirements that somehow fit both platforms while performing a competition seen as open and fair. In the end there could be little doubt that the loser would feel the competition was weighted in favor of the winner.
Ultimately the Boeing bid proved more cost effective for the Air Force, thus the choice of the KC-46A as the preferred solution. Pentagon officials described Boeing’s proposal as the “clear winner”, stating that it offered better value to the U.S. taxpayer – perhaps itself an indicator that the Air Force is adjusting to the national budget reality and preparing for leaner times ahead.
When EADS announced it would not protest the Air Force decision a week later it emphasized the cost factor, claiming the outcome was decided by price. According to information provided to EADS during its Air Force debriefing the Boeing bid came in $2 billion – or 10 percent – under that of its own.
One more thing should be noted. Against the tanker competition was the backdrop of the Airbus-Boeing commercial rivalry, one stoked by Boeing’s accusation that Airbus has been the beneficiary of illegal subsidies from the European Union. The spat landed in the World Trade Organization’s in-box, with both sides claiming victory at the WTO’s ruling on the subsidy dispute. While the WTO case had no bearing on the tanker competition it underlined the ferocity of the rivalry between the two bidders.
The question now becomes whether Boeing can execute its end of the deal by keeping its KC-46A program within budget while meeting the agreed-upon delivery schedule of 18 aircraft by 2017. Should it fail to do so the competition for the next production batch of tankers – KC-Y – may result in a victory dance for Boeing’s arch rival. But that competition is more than a decade out and for now Boeing is securely perched in the catbird seat.
Photo by Monica’s Dad.
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