Op-Ed: Musings on the USAF’s Tanker Decision
(Source: defense-aerospace.com; issued March 3, 2008)
By Giovanni de Briganti

With the benefit of hindsight…
In retrospect, it’s hard to see why selection of the Northrop/EADS KC-45A was so unexpected, given how both candidates stacked up against the five broad criteria that the USAF had previously identified.

While speculation had concentrated on the KC-767’s reputed advantages, including its smaller ground footprint and its ability to use smaller airfields, its much bigger handicaps were overlooked.

In fact, it should have been clear that Boeing was going to lose on at least three of five main criteria (mission capability, as it offered the smaller payload/offload; proposal risk, given its problems in developing the KC-767 for Japan and Italy; and past performance, given the troubled history of the USAF tanker lease.) while, at best, drawing on the other two (cost price, and integrated fleet aerial refueling rating).

The Northrop-Grumman/EADS team, on the other hand, demonstrated a smooth KC-30 development program and the mature configuration of its MRTT tanker, sold to several countries, albeit in small numbers. It thus offered much less risk than its competitor.

So, when US Air Force acquisition chief Sue Payton said that Northrop Grumman won because, “overall, [it] did have strong areas in aerial refueling and in airlift, as well as their past performance was excellent and they offered great advantage to the government in cost price, and they had an excellent integrated fleet aerial refueling rating,” she wasn’t saying anything that could not have been inferred.

But no-one had dared to gamble that the USAF would play by its own rules, perhaps because of its past performance on the tanker issue, and that the Pentagon would allow it to give such a massive contract to a foreign company, especially in an election year.


Europe busts another US monopoly
Tanker aircraft are the fourth major market segment in which EADS and other European companies are breaking long-standing, de facto monopolies held by US industry, after tactical airlift (with the Airbus A400M), medium-range air-defense missiles (with Eurosam’s Aster), and beyond-visual-range air-to-air missiles (with the MBDA Meteor).

With the A380, Airbus has also broken Boeing’s monopoly on jumbo jets while, in the helicopter market alone, the Agusta-Westland AW-101 has broken into the heavy lift helicopter segment formerly shared by the Sikorsky CH-53 and the Boeing CH-47, while the NH-90 has supplanted the Bell UH-1 and Sikorsky UH-60 in the utility helicopter role and the Eurocopter Tiger is effectively challenging the Boeing Apache in the attack helicopter market.

Worryingly for the US industry, it has no credible candidates for any of the above market segments in the development pipeline, meaning it has in effect conceded them to Europe for the foreseeable future.

To be fair, it should be noted that US industry scored one success when it busted Europe’s near-monopoly on short-range anti-tank missiles with the Javelin.


Contract worth at least $17 billion to EADS
EADS Chief Executive Louis Gallois told French media March 1 that the contract would be worth “over half of its total value” to EADS, or over $17 billion. The balance will be shared between Northrop Grumman (defensive and other systems) and General Electric (engines). It will be interesting to see how much of the total value actually ends up as profit in EADS’ accounts.


Are teeth gnashing in Farnborough?
In 2006, BAE Systems sold its 20% stake in Airbus to EADS, fearing that it might prove financially risky. BAE made 2.75 billion euros from the sale, and used the cash to pay down its pension obligations, buy back some shares and acquire Armor Holdings, Inc. in the US.

One wonders what BAE’s share of profits from the tanker contract would have amounted to over time. Airbus will make the wings for the tankers at its British plants in Broughton and Filton, The Times reported March 2, adding that “the contract will bring in $6 billion worth of work and help secure 9,000 British jobs” on the wings alone.

Was BAE too hasty in baling out of Airbus?


Still cheaper than leasing
The KC-45A contract works out to an average of $175 million per aircraft. This compares very favorably to the $215 million per aircraft that the Air Force would have paid had its 2002 leasing agreement with Boeing gone through. (In Nov. 2003, the Congressional Budget Office estimated that “it would cost $21.5 billion to lease 100 tankers and then purchase them at the end of each lease period,” as proposed by Boeing.)

So the US Air Force will save about $7.16 billion ($40 million per aircraft, for 179 aircraft), or 20%, by buying the KC-45A – and just on the first contract.

-ends-




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