A Twist in the Boeing-Airbus Tanker SagaDean Foust
When the Air Force on Sept. 25 released the specs for a fleet of 179 new refueling tankers it hopes to purchase—a prized order that could be worth $35 billion to the winning aircraft maker—analysts who pored through the documents quickly declared that the Pentagon's new requirements favored one bidder: the consortium led by Airbus and Northrop Grumman (NOC).
There's one problem for the Airbus camp: With the tanker contract having become heavily politicized, many Washington insiders believe the Air Force's efforts to create an open and transparent competition will be all for naught and that the lucrative contract will eventually be split evenly between the Airbus team and archrival Boeing (BA). "The Air Force worked real hard to create a fair competition, but the political genie is out of the bottle," notes Loren Thompson, a veteran defense analyst for the Lexington Institute, a Washington think tank. "If they don't come up with something that satisfies all parties, they may never get a single tanker."
Such an outcome would be a blow to the Airbus-Northrop team, which won the initial contract last year but saw that decision voided when Boeing and its congressional supporters accused the Air Force of a bidding process that was too opaque and arbitrary. The military didn't make the same mistake again. Indeed, many analysts praised the Pentagon for being meticulous this time in how it drafted the requirements for the KC-X tanker.
Exacting Criteria While the first set of specs listed 808 requirements—of which only 37 were mandatory—the Air Force is far more exacting in its latest specs. The new "request for proposal" (RFP) lists 373 mandatory requirements—every one of which Airbus and Boeing must meet or be disqualified. In addition, the Air Force added 93 criteria that, while not mandatory, are nonetheless desired, and it spelled out how much extra credit each bidder could receive for delivering on these extra features or capabilities.
While the new RFP included far more detail, analysts say it effectively leads to the same conclusion: The wish list set out by the Air Force plays to the strengths of the Airbus-Northrop consortium, which plans to build its tankers using the same platform as the Airbus A330, a civilian aircraft flown by many commercial airlines. The Air Force specs put a premium on the ability of each tanker to fly long distances and carry heavier loads of fuel—two criteria that would seem to rule out the Boeing KC-767, the smaller of the Chicago-based manufacturer's two available offerings. And while the Air Force wants the new tankers to be nimble enough to take off and land on the 15,000-foot runways common at newer military bases, it also now wants the refueling aircraft to be able to navigate the short, 6,000-foot runways found on bases in places like India and the Philippines. That's 1,000 feet less than the original requirement and a condition Boeing's other potential candidate, a tanker based on its larger 777 commercial jet, would have trouble meeting.
What's more, the Air Force is demanding delivery of the first "preproduction" versions of the tankers roughly 18 months after it picks the winner next July. And at the behest of Defense Secretary Robert Gates, the Pentagon is now stipulating that it will pay a negotiated "not-to-exceed" price for each tanker—a condition it hopes will spare it the cost overruns common with the old "cost-plus" contracts. That timetable and pricing stricture don't augur well for Boeing, which has conceded it would be hard-pressed to have the KC-777 in production by then—and would likely be hesitant to bid a fixed price before it knows what its true manufacturing costs will be. "Since the 777 tanker is still a paper airplane, I'm not sure Boeing is going to be willing to guarantee a delivery date or price," says Scott Hamilton, an aerospace industry consultant in Issaquah, Wash. "That could represent an intolerable risk for the company."
Political Shift In the end, many analysts think the contract won't be decided on these exacting requirements but on politics. While the initial award was made when the Republicans were still in power and would have brought jobs to GOP strongholds such as Alabama and South Carolina, the political winds have since shifted. With the Democrats in control, that bodes well for Boeing, since most of its factories and employment hubs are concentrated in blue states such as Illinois, Connecticut, and Washington.
Already some Democrats, such as Senator Patty Murray (D-Wash.) and Representative John Murtha (D-Pa.), have pressed the Pentagon to pick Boeing, since the World Trade Organization issued a preliminary ruling in mid-September that European governments had given improper subsidies to Airbus. Murtha, who chairs the House Appropriations subcommittee on defense, inserted a provision into the defense appropriations bill that has passed the House (it's not in the Senate's version) which would authorize the Pentagon to boost the number of tankers it purchases each year to 36, vs. the 15 that are planned currently. Murtha's plan calls for the Air Force to divide the contract equally at first—and then steer more future sales to the aircraft maker that delivers its planes at the lowest cost each year.
Analysts say Murtha's proposal could be the compromise to end a politically tinged process that's now in its eighth year. While Deputy Defense Secretary William Lynn on Sept. 24 reiterated the Pentagon's plan "to make a single award," splitting the contract may be his best hope for heading off the inevitable appeals and protests by whichever manufacturer loses the second round. A joint contract, say analysts, would also make sense from an operations perspective: By doubling up on orders, the Pentagon could accelerate the retirement of its current fleet of Eisenhower-era tankers, some of which will be 80 years old before they're replaced under current plans. The Pentagon would gain a mix of Airbus KC-30s that would be optimum for longer-range assignments across the Pacific Rim and the smaller Boeing KC-767s that would offer a cheaper alternative on shorter refueling jobs. "The Democrats, which are Boeing's backers, are in the ascendance," notes Richard Aboulafia, vice-president for analysis at Teal Group, a Fairfax (Va.) aerospace consulting firm. "No matter what happens, Boeing is going to get a piece of the action."
And when the Boeing KC-777s are ready sometime in the next decade, they could be brought in as a replacement for the KC-10s, an aging fleet of planes whose fuselages will have to be replaced at great expense in coming years. While a split order might raise the Pentagon's initial costs—and create political problems for Gates, who has promised to rein in defense procurement—it could generate savings down the road by negating the heavy costs of modernizing the rest of the aging tanker fleet. It would also bring a painless end to a political battle that otherwise could at some point outlast the oldest of the Pentagon's tankers.