Boom or bust time for US tankers

Selecting a contractor to build 179 aerial tankers for the US Air Force is set to dominate Washington's industrial and political interests in 2008, with the latter's role potentially decisive. The KC-X contract is formally scheduled to be awarded in February 2008 for the Boeing KC-767A or Northrop Grumman/EADS North America KC-30 - the tanker version of the Airbus A330-200 airliner - although air force officials are widely expected to delay the decision until at least the second quarter.

But the decision, whenever it comes, is expected by all parties to spark weeks or even months of government audits and political reviews, delaying contract signature even further. Postponing the decision date may also add pressure from other directions, with the World Trade Organisation due to rule on a Boeing-Airbus dispute over civil aircraft subsidies around mid-2008.

National elections scheduled next November could also affect the timing of such a sensitive contract award, as was the case in 2004 when the US Navy postponed its VXX contract award for a new fleet of Lockheed Martin/AgustaWestland US101 presidential helicopters until three months after the polls.

Driving the controversial nature of the KC-X programme is not least the flawed legacy of the air force's abortive attempt in 2003 to lease 100 KC-767s from Boeing. That deal was undone by the company's improper hiring of Darleen Druyun, the air force's former second most senior civilian acquisition official.

Moreover, the $40 billion cost for the initial KC-X programme and the $100 billion needed to replace the entire USAF tanker fleet over time makes the service's decision the most potentially lucrative deal for airliners in history.

Political interest

But political interest in this competition is also driven by the efforts of both KC-X competitors to cultivate a legislative power base. Boeing's political supporters in the US Congress lean towards the Democratic majority, while the Northrop/EADS base is aligned generally with the Republicans, although there are some exceptions. "That's my pet theory," says Richard Aboulafia, an aerospace and defence analyst for the Virginia-based Teal Group consultancy.

Aboulafia points to Boeing's attachment to the Democratic strongholds of Washington state, where the KC-767 airframes will be built, and Connecticut, where the Pratt & Whitney PW4062 engine is sourced. Northrop and EADS, meanwhile, derive their political sponsorship from the Republican bases of Alabama and Ohio, the latter being the home base of engine supplier General Electric. A notable exception to this rule is Northrop's recent announcement placing manufacture of the KC-30 refuelling boom in Bridgeport, West Virginia, which is the state represented by powerful Democratic Senator Robert Byrd.

The political element of the competition is already in full motion. A bipartisan group of more than 50 senators and members of the House of Representatives signed a letter of support for the KC-767, which was delivered to President Bush. A few weeks later, a group of five southern governors signed a letter to Bush expressing support for the KC-30 as a regional economic development tool.

Congress does not play a direct role in contract decisions, but has the power to release or withhold funds for acquisition programmes. Any decision the USAF makes looks bound to be protested to the Government Accountability Office, but also contested by the Congressional budget committees, as the rival factions seek to undermine each other. "They're talking about legislative paralysis," says Aboulafia. Two of the US military's recent key competition results have sparked bitter legal challenges: successful in the case of the air force's 141-aircraft CSAR-X combat search and rescue helicopter contest, now under way for the third time (see box P40), but rejected for the US Air Force/Army Joint Cargo Aircraft selection of the L-3 Communications/Alenia North America C-27J Spartan.

US presence

Industrial interests in the KC-X competition are also powerful. Airbus sees an opportunity to not only enter the lucrative US defence market, but also to establish a manufacturing presence on US soil. The European airframer has selected Mobile, Alabama for final assembly of the KC-30. Scott Hamilton, managing director of the Seattle-based Leeham consultancy, has speculated that the same site could be used in future to build commercial A330-200 freighters for Airbus.

Boeing has a clear interest to not only deny Airbus an operational foothold in the US south-east, but also to extend the life of the 767 line in the face of a rapid decline in commercial interest. Boeing has taken the step of unveiling a new design - the 767-200LRF - for KC-X, which it hopes will garner commercial interest in the growing freighter market.

The air force decision will come at a key time for the rival manufacturers, which so far have shared only limited spoils in the international tanker/transport market with their competing designs. Australia has five A330-based KC-30s on order, with the United Arab Emirates having selected three and the UK yet to finalise a private finance initiative deal for 14. France and Saudi Arabia are also believed to favour the Airbus derivative for their requirements. Boeing has to date received orders to supply four KC-767s each to Italy and Japan.

The USAF began its tanker replacement odyssey in November 2001, when Boeing's supporters in the US Senate inserted wording in a defence spending bill authorising the service to lease up to 100 767s as tankers. Over the next two years it pursued its case for replacing its oldest 707-based KC-135E tankers. By November 2003, the lease deal was all but signed when the disclosure of Druyun's improper hiring by former Boeing chief financial officer Mike Sears unravelled the whole programme.

But the USAF was back in the game by early 2004, unveiling its competitive KC-X acquisition strategy. A request for information was released in August 2005, but was put on hold for seven months pending the assessment of an analysis of alternatives. Approval to launch the programme was finally received in April 2006, and a draft request for proposals was published last January.

Procurement programmes

KC-X represents the first of three consecutive acquisition programmes that will replace the USAF's roughly 400 KC-135E/Rs and 50 McDonnell Douglas KC-10s. The follow-on programmes are dubbed KC-Y and KC-Z, and a different aircraft may be procured for each.

The KC-X procurement calls for buying up to 179 aircraft, of which the first 80 will be awarded by the current contract competition. The remaining tranche of 99 aircraft could be awarded non-competitively to the KC-X winner, although the USAF reserves the option of switching at that point - scheduled for 2016 - to the KC-Y platform.

The initial contract award for KC-X will include four test aircraft and 43 tankers during low-rate initial production, with programme costs amounting to about $13 billion through fiscal year 2013, according to the Department of Defense's Office of Inspector General.

Source: Flight International