Northrop Grumman and EADS win in the US Air Force's KC-X tanker contest has major consequences for US aerospace
Whether by creating an aircraft manufacturing hub in the southern USA, or by closing the US defence market to foreign competitors, Northrop Grumman and EADS winning the US Air Force's KC-X tanker contest will reshape US aerospace.
Announcing on 29 February that Northrop's Airbus A330-based KC-30 tanker had been selected over front-runner Boeing's KC-767, the USAF succeeded in stunning both bidders and sparking a political furore.
Boeing demanded a debriefing and Congress held a hearing, but with USAF officials staunchly defending their decision process under tough questioning, lawmakers elected to wait until both teams are debriefed before holding a closed-door session.
"This is not a done deal," warned Congressman Jack Murtha, chairman of the powerful House appropriations subcommittee on defence, after the 5 March hearing. "This committee funds this programme and all this committee has to do is stop the money and this programme is not going to go forward."
CONSEQUENCES
But whether Congress faults the USAF's selection process and overturns the decision, or changes the law to make job creation and industrial base criteria in future procurement decisions, the Northrop/EADS win has changed the face of US defence.
KC-X - now designated the KC-45A - gives Northrop a foothold in the mobility market and EADS the first major US defence win for its signature Airbus product. The plan to build a final assembly and tanker completion facility in Mobile, Alabama will establish a large-aircraft production centre in the southern USA.
The companies say they will create 1,500 jobs in Mobile and 300 in Bridgeport, West Virginia where Sargent Fletcher will build the EADS-designed refuelling boom. But a Northrop statement that it would "in-source 2,000 jobs from Europe" so incensed French unions that EADS had to clarify that the jobs would be created in the USA and not transferred from Europe.
Airframe sections for all 179 aircraft to be procured under the $35 billion tanker programme will be produced at Airbus sites in Europe. The four test aircraft under the $1.5 billion development contract will be assembled in France. But beginning with the second production KC-45A, the aircraft will be assembled in the USA (see table).
For EADS, the KC-X win is an opportunity to establish an Airbus manufacturing facility in the USA just when it is looking to increase the dollar content of its aircraft to offset the euro's strength. EADS is moving to fulfil its commitment to assemble commercial A330-200F freighters in Mobile. With the USAF planning to buy 12-18 tankers a year, plus export customers and freighter orders, this could push the US facility's output as high as 48 aircraft a year.
But for Boeing, this may be the beginning of the end for its tanker and 767 programmes. The A330 tanker has five customers to the KC-767's two and will be the US Air Force-backed contender in future competitions. The KC-45A is also the front-runner for a second tranche of 180 USAF tankers under the KC-Y procurement planned for 2024-36.
At the current production rate of one a month, Boeing's backlog of 50 commercial orders will keep the 767 line open for only four more years. Airbus, meanwhile, has orders for 72 A330-200Fs and sees a market for 380 over the next 20 years.
Despite establishing an Airbus manufacturing presence in the USA, the KC-X win is a "breakthrough" for Northrop but a "one-off" for EADS, says US defence analyst Loren Thompson. He believes it will be harder for EADS to break into the US market with its military products, particularly the Airbus Military A400M airlifter. "For purely military aircraft, the USA will always be a monopoly," he says.
PROTEST OR NOT
Boeing's debrief by the USAF on why it lost the KC-X was set for 7 March, with Northrop to learn why it won on 10 March. Boeing is expected to decide quickly whether to protest. It will be no small decision. Boeing does not dispute awards, and is more often the target for protests.
"We will only protest in the event we think there is an irregularity in the proposal phase," says Jim Albaugh, chief executive of Boeing Integrated Defense Systems. But Thompson doubts there will be a protest. "Boeing is unlikely to find a plausible basis for overturning the decision," he says. "They lost on so many grounds."
While Sue Payton, USAF assistant secretary for acquisition, says Northrop met and exceeded the request for proposal requirements and gave the best overall value, Thompson says the company beat Boeing on four of the five factors evaluated: mission capability, past performance, cost/price and an integrated fleet aerial refuelling assessment. "It was not a close outcome," he says.
Boeing's loss may have its roots in last-minute changes to the final KC-X RFP before it was released in January 2007. Made after Northrop threatened not to bid, the adjustments allowed the USAF to consider capabilities that exceeded the baseline KC-X requirement.
The changes persuaded Northrop to offer its larger A330-based tanker, with its greater cargo and passenger capacity, while Boeing elected to stay with the smaller KC-767, believing the USAF's requirement was for a medium-sized tanker, with the emphasis on refuelling efficiency.
"In our reading of the RFP, this was never about being the biggest," says Albaugh. "This was about deploying fuel to the fight. This was about deploying to forward runways. This was about replacing the [Boeing] KC-135."
This belief was turned on its head at the contract announcement when USAF Air Mobility Command chief Gen Arthur Lichte was asked whether size had mattered in the selection. "I can sum it up in one word: more," he said. "More passengers, more cargo, more fuel to offload, more patients we can carry, more availability, more flexibility, more dependability."
The USAF later said Lichte was not part of the source selection team, but by then the damage was done. If the competition had been about a large aircraft, says Albaugh, Boeing would have offered the 777, but "we were discouraged [by the air force] from doing so". But at the time the final RFP was released, the KC-777 was little more than a brochure, whereas the KC-767 was flying.
Thompson believes Northrop prevailed largely because its analytical expertise got the air force to think about the mission differently, and persuaded it that a bigger aircraft was an asset, not a liability. But the even larger 777 would have been prohibitively expensive, he says, adding: "Boeing was just unlucky not to have a commercial aircraft quite big enough, while the next one was way too big."
Boeing, for its part, is baffled why its proposal was evaluated as being more costly and risky than Northrop's. The company planned to build the KC-767 on its existing commercial production line in Seattle, Washington and military modification centre in Wichita, Kansas.
Northrop and EADS will build a new assembly and completion centre and train a new workforce. Boeing's experience with the 787 and the start-up challenges at the green-field fuselage assembly facility in Charleston, North Carolina led it to suggest the Northrop/EADS approach was riskier.
OFF THE SHELF
But Northrop and EADS were offering essentially an off-the-shelf tanker based on the KC-30B under development for Australia. Boeing proposed a unique hybrid version of the 767 that had never been built. Thompson says USAF selectors ranked the proposal as high risk, forcing Boeing to stretch the development schedule, adding cost to its bid.
Factored into the USAF's assessment of risk were the significant delays to Boeing's KC-767 tanker programmes for Italy and Japan. Boeing counters that EADS is up to two years behind schedule in delivering the boom-equipped KC-30B to Australia.
"Our view is that the air force is buying a more costly and less capable aircraft as measured by their RFP and is taking on risk," says Albaugh. "We need to understand why our conclusion is different than the air force's."
What was not among the USAF's selection criteria could prove crucial to Congress. While lawmakers may be presuaded the USAF conducted itself correctly, there are calls to require the Pentagon to consider job creation, manufacturing location, industrial base and government subsidies when buying equipment - protectionist moves that could close the US defence market to foreign competitors.
Source: Flight International
