Op-Ed: Deal Of The Century: Who Will Win The Tanker Competition?
(Source: The Lexington Institute; issued Jan. 15, 2008)

(© The Lexington Institute; reproduced by permission)
By Loren B. Thompson, Ph.D.

Sometime in February, the Pentagon's Defense Acquisition Board will meet to ratify a plan for what looks likely to be the biggest purchase of wide-body aircraft in the world during the early decades of the present century. The program is called KC-X, and it is the first installment in a multi-decade effort to replace nearly 600 aerial refueling tankers that the Air Force uses to extend the range of its own planes and other aircraft in the joint force.

Two teams led by Boeing and Northrop Grumman are competing to provide a modified commercial transport as the replacement plane, and while the initial contract is worth "only" $40 billion, when you add in potential follow-on orders and in-service maintenance contracts, the eventual value could be over $100 billion. So the stakes are high. KC-X could end up being the second biggest military procurement in the world, surpassed only by the tri-service Joint Strike Fighter.

Announcement of a winner may come sooner than most observers expect, because the Air Force doesn't need to await completion of the acquisition plan before disclosing which replacement aircraft it prefers. It has been reviewing proposals since last spring, and has given three sets of "mid-term grades" to each team. The teams rewrote their proposals each time, but once you accumulate three data points, that creates a vector that leads to a likely outcome even before the "best and final offer" is on the table.

At this point, the source selection authority impaneled by the Air Force must have a pretty good idea which team is going to prevail. The companies submitted their best-and-final offers on January 3, but cost is only one of five selection criteria being used, and it isn't weighed as heavily as mission capability, proposal risk or past performance.

The stakes are even higher for the Air Force than they are for the contractors, because about 90% of its aerial refueling fleet consists of Eisenhower-era KC-135s that will reach half a century of age at the end of this decade. Since nobody has ever operated a fleet of jets that is so old, there is no way of reliably predicting when they will become safety risks to the pilots who fly them. But if safety problems crop up anytime soon, they could cripple U.S. air power: the service only has enough money to buy about 15 planes per year, and at that rate it would take four decades to replace 600 planes on a one-for-one basis.

The Air Force has tried to run a squeaky-clean acquisition process to make sure tanker modernization finally gets moving, but whoever loses the award is sure to protest, leading to further delays.

Many observers expect the Boeing plane to win, because it was the Air Force's original choice to provide a future aerial refueler in an abortive leasing scheme, and it costs less to operate using the Air Force's existing concept of operations. It also has greater domestic production content, which presumably makes it a political favorite.

However, the modified Airbus commercial transport being offered by Northrop Grumman is newer and bigger. If Airbus follows its commercial practice of underbidding Boeing, it will be hard to explain why the Air Force wants to pay more for a less capable plane. Air Force experts respond that bigger isn't always better, since the Airbus plane consumes more fuel and takes up more space on the ground.

Beyond the operational merits of the two planes, a political minefield lies ahead for the Air Force and whichever contractor it selects. If the Northrop plane wins, buy-America sentiment will surge on Capitol Hill, potentially blocking a purchase. If the Boeing plane wins, legislators from the South whose region stood to benefit from tanker assembly will seek to split the buy between both teams.

The Air Force will get its tanker in the end, but which contractor benefits may ultimately come down to a test of political skills, and there is no guarantee new tankers will reach the fleet before old ones begin failing.


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