The KC-X Argument

5 May 2008 (Last Updated May 5th, 2008 18:30)

Anthony Beachy takes a look at both sides of the USAF KC-X contract argument. He finds out what has been delaying the long-awaited tanker project.

The KC-X Argument

The US Air Force's (USAF) decision (announced on 29 February 2008) to award a $35bn air refuelling tanker contract to Northrop / EADS has caused a political storm in the US and has prompted the losing bidder, Boeing, to file a formal protest.

The Government Accountability Office (GAO) will rule on the validity of the claims made by Boeing, which offered a modified version of its 767 against an Airbus 330 variant offered by a Northrop Grumman / EADS team. Both sides have launched a PR battle aimed at members of Congress and the general public, where issues of American versus European jobs resonate loudly.

This is not the first time the tanker programme has been mired in controversy.

In late 2003, the USAF offered a $23.5bn leasing contract (again involving a variant of the 767) to Boeing, which supplies the existing fleet. But that deal was later cancelled, following revelations that a top Pentagon procurement officer, Darleen Druyun, had accepted an executive position at Boeing.

Druyun and Michael Sears, the former Boeing finance director, were jailed, and Boeing CEO Phil Condit stepped down over the controversy. Boeing was also fined $615m.

The cancellation of the original contract paved the way for Northrop Grumman and EADS to enter a bidding war with a version of the Airbus A330-200, known as the KC-30 for the USAF's requirement of 179 tankers.

Replacing its 500 KC-135 Stratotankers, based on the Boeing 707,has been the USAF's top procurement priority for some time. Officials fear that the entire fleet of tankers – which are, on average, nearly 50 years old – could suddenly be grounded because of metal fatigue or corrosion, robbing the military of one of its vital strategic assets. The USAF does have a younger fleet of 59 KC-10s, but even these are already a quarter of a century old.

THE USAF KC-X VERDICT

Boeing appealed the USAF decision to the General Accounting Office on 11 March 2008. A decision from the GAO is due 100 days from the date of the appeal. Explaining Boeing's decision to challenge the USAF's verdict, William Barksdale, tanker communications manager with Boeing, told Air Force Technology that the company believed the acquisition process was 'flawed' and 'just wanted someone unbiased to take a look at it' as 'after being debriefed by the USAF we believed that some things just didn't add up'.

"Boeing appealed the USAF decision to the General Accounting Office on 11 March 2008."

He adds: "Usually when you get debriefed you get hit over the head with why you lost, but having been in the room during that debriefing it wasn't like that at all. We received winning marks, so you have to question what happened beyond those marks that made you lose."

Barksdale says, for example: "We saw the scorecard, which showed our scores next to Northrop / EADS, and they were very much even.

"We got the same set of scores and, in addition, out of 98 discriminators (a means of identifying the areas in which the competing companies did well), we had one weakness in software development, which we believe is a pretty common phenomenon when it comes to new programmes, while Northrop / EADS had five weaknesses. Moreover, one of their weaknesses was the refuelling boom, the critical area of the entire tanker programme. After all, what makes a tanker a tanker is the boom."

BOEING CITES RISKS

Barksdale argues that "Northrop and EADS have never built an airplane together, never mind a tanker", which inevitably means there is a risk in awarding the contract to the joint venture. He adds that the KC-30 will be built in 'multiple locations', but that some of the facilities do not yet exist, whereas 'we already have facilities established that have built a thousand 767s and are highly experienced in modifying tankers'. Thus, he argues, it is simply a matter of common sense to wonder why Boeing did not come out on top in terms of risk.

Barksdale also argues that Northrop / EADS are lying when they have made a point of claiming that Boeing does not have a boom or an aircraft that has flown. He says "in reality the aircraft we offered the USAF is a minor model derivative of the 767-200 long-range freighter and, although it doesn't exist, building derivatives is something that we have done many times over."

To back up his argument, Barksdale says: "Boeing Commercial has built ten versions of the 767, nine of which were delivered on time. The one that wasn't was because of 11 September 2001."

"Boeing believed that cost would be a decisive factor in its favour."

Furthermore, he states: "Our [Boeing's] boom – the fifth we've built – has had a thousand test flights and has refuelled B52s and F15s extensively.

"By contrast, the plane offered by Northrop / EADS has just refuelled an F16 for the first time. They've never built a boom before, so it's all new technology to them."

Barksdale believes that Boeing lost because some very fundamental things were changed that 'unfairly skewed' the selection process. He says that Boeing also believed that cost would be a decisive factor in its favour.

"We thought that the USAF would base its decision on the long-term cost of the aircraft, namely the most probable life-cycle cost, and that would carry the day for us. The rival aircraft is more expensive to maintain just because it is bigger and eats up 24% more fuel than the 767. Given the rising cost of fuel, you are saving billions of dollars just in terms of fuel over a long, long period of time."

NORTHROP / EADS COUNTERS 'MISINFORMATION'

Meanwhile, Northrop and EADS have launched a media offensive to counter the 'misinformation' that is being circulated about the tanker programme. They say that the tanker competition underwent 'the most rigorous, fair and transparent acquisition process in Department of Defense history' and that 'the Air Force went to unprecedented lengths to make sure both companies were kept fully informed about all requirements and the status of their respective bids'.

Paul Meyer, vice president of Air Mobility Systems at Northrop Grumman, has said that he was shocked by allegations that the USAF manipulated data 'to keep Northrop / EADS in the game'. He also challenged the assertion that the USAF had changed the requirements for the tanker during the selection process. "We won outright," he says, adding that Northrop is systematically lobbying members of Congress to build support for its victory.

POLITICAL BATTLE EXPECTED

The USAF has stated that it will accept the GAO's recommendation (due in June), even though it will not be legally binding. Most analysts expect the GAO to dismiss the protest because the USAF suggested EADS and Northrop had easily beaten Boeing. That would leave Congress as the only route for Boeing to get the deal blocked.

Boeing's congressional supporters – chiefly from the states of Washington and Kansas, where Boeing has its main plane-making plants – have accused the Air Force of exporting jobs and endangering national security by awarding the job to the Northrop / EADS team.

"Northrop says there are numerous examples of transatlantic cooperation on far more sensitive technologies."

Another common complaint, articulated by representative Norm Dicks, is that Airbus has 'consistently used unfair European government subsidies to take jobs away from American aircraft workers'. Critics point out that the USA is already suing Airbus in the World Trade Organisation (WTO) over subsidies.

Northrop / EADS have countered these arguments by saying that they will create around 48,000 direct and indirect jobs nationwide and that 60% of the work will be performed in the US, compared with 44,000 jobs and 85% of the work under Boeing's plans. Northrop cites a Defense Department statement that trade disputes between the two commercial jet builders will be resolved by the WTO and aren't relevant to the tanker competition.

As for security issues, Northrop says there are numerous examples of transatlantic cooperation on far more sensitive technologies. Foreign suppliers play essential roles in the F-35 Joint Strike Fighter and the VH-71 Presidential Helicopter. Moreover, no sensitive military technology will be exported to Europe, because Northrop says it will handle all of the planes' critical military technology.

It is clear that if the GAO does rule in favour of Northrop / EADS, a bruising political battle in Congress will ensue. Meanwhile, no work on the tanker project is taking place – except in the media.