House Panel Seeks Report If Boeing Tanker Cost Rises $5 Million

The U.S. Air Force must report to Congress any cost increase of $5 million or more in Boeing Co. (BA)’s aerial tanker program, according to the 2012 Defense Department spending bill approved by the House Appropriations Committee’s subcommittee on defense.

The panel “directs the secretary of the Air Force to report any authorized contract modifications with a cost greater than or equal to” $5 million, no later than 30 days after that change is made, according to the committee report that accompanies the bill. Bloomberg News obtained a copy of the document.

Boeing, the sole supplier of refueling tankers to the Air Force since 1948, beat European Aeronautic, Defence and Space Co. for a $35 billion program to build 179 new KC-46A tankers. The initial contract for the development phase was valued at $3.5 billion.

Deputy Defense Secretary William Lynn said on Feb. 24, when Boeing won the contract, that the Pentagon “committed to a fixed-price contract structure that would deliver the Air Force a capable aircraft at the most competitive price.”

The appropriations bill underscores Congress’ continued scrutiny of the program. As part of the legislation authorizing defense spending for fiscal year 2012, the full House approved a provision that would require the Pentagon to review and brief Congress quarterly on the program. At each review, Pentagon officials should provide notice of “major engineering, design, capability or configuration change to the tanker as well as the cost for those changes.”

C-17 Replacement

House lawmakers are also proposing an increase of $225 million to replace the “operational loss” of one Boeing C-17 cargo plane. The Pentagon did not request that money as part of its proposed budget for fiscal year 2012, which starts Oct. 1.

The bill would cut $149.5 million from the multinational missile defense program known as the Medium Extended Air Defense System, or Meads. The Pentagon in February said it would terminate Meads when the current contract ends in 2013.

The $4.2 billion development program is managed from Orlando, Florida, by Meads International LLC, a joint venture of Bethesda, Maryland-based Lockheed Martin Corp. (LMT), Lfk- Lenkflugkorpersysteme Gmbh of Germany and MBDA of Italy. MBDA is jointly owned by BAE Systems Plc, European Aeronautic, Defence and Space Co. and Finmeccanica SpA. (FNC)

The House’s defense authorization bill, passed in May, also would cut $149.5 million from a request of $406.6 million for Meads and would limit the availability of funds until the secretary of defense either negotiates a multilateral termination or restructures the program and ensures that technology developed can be transferred to other programs.

Abrams Tanks

The defense appropriations panel also added $272 million to the Pentagon’s budget for General Dynamics Corp. (GD)’s Abrams tank, backing the company’s effort to override an Army plan to suspend the program. The Army had requested $181.3 million for the enhanced Abrams M1A2.

General Dynamics, based in Falls Church, Virginia, and at least 200 of its suppliers have been lobbying Congress to add almost $1.4 billion over the next four years.

The Army’s 2012 budget proposed to suspend the ongoing upgrade of older tanks to an enhanced Abrams M1A2 model while the Army assesses plans for next-generation armor. The Abrams was designed in the 1970s.

The Army proposes to shut down work at the Lima, Ohio-based tank plant between 2013 and 2015.

The House-passed authorization bill also includes $272 million in addition to the Army’s $181.3 million request for 2012, enough to buy about 60 tanks. The defense appropriations panel is following suit.

The full House Appropriations Committee will consider the 2012 defense bill on June 14.

To contact the reporter on this story: Roxana Tiron in Washington at rtiron@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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