EADS, Northrop And Boeing Gird For Third Tanker Try

On Friday the 25th the U.S. Air Force posted the draft Request for Proposals (RFP) for the new KC-X aerial tanker. This will be the third attempt since 2001 to begin buying aircraft to replace the KC-135 fleet that has served since the 1950’s. The full RFP may be found here at FedBizOpps.gov. This initial RFP is for 179 aircraft with two further batches that might not be the same aircraft (KC-Y and KC-Z). This initial batch may be worth $30 - 35 billion to the winner.

In 2001 - 2002 time frame the Air Force negotiated with Boeing for a lease of about 160 Boeing 767 aircraft. This decision was overturned by Congress after revelations of corruption in the Air Force acquisition staff and for failing to follow proper procedures. Both senior Boeing and Air Force employees went to jail for this. The Air Force then attempted a conventional acquisition which did not see a RFP go out until 2007.

In this contest Boeing bid a variant of their 767 tanker already being developed and produced for Japan. Northrop Grumman teamed with EADS to provide an A330 based tanker also being developed for England and Australia. Unlike the 767 tanker the A330 has already entered service.

Northrop Grumman won the contest in the Summer of 2008 with a plan to have EADS assemble the aircraft in Mobile, AL and then conduct the necessary military modernization at one of their facilities. Boeing protested the win saying the Air Force changed the requirements during the source selection and did not apply the selection factors consistently. The Government Accountability Office (GAO) upheld the protest and a new contest was ordered. As part of this it was decided that the Secretary of Defense would be responsible for the next acquisition.

Originally the Bush Administration planned a quick turn around with a new proposal and source selection to start before the end of the year. It was decided though to wait for the new administration and let them decided how to do this. Secretary of Defense Gates delayed everything several months while conducting a review and then by this month decided the Air Force had done enough to be placed back in charge of this process.

The new acquisition will reflect some of the reforms proposed for defense acquisition over the last twelve months. One of the main goals of the competition is that there be no protest of the award delaying things further. First the selection will be a “Best Value” approach which means that higher price may be offset with better performance. The RFP lists over three hundred mandatory requirements that all bid systems must meet. Then there are another hundred optional ones that allow the selection board to trade off price for performance.

The Air Force envisions the first aircraft being delivered in 2015 with a short Engineering, Manufacturing and Development (EMD) phase of two years. That part of the acquisition cycle is when the prototype is made ready to demonstrate the ability to meet the full up requirements and enter initial production. In another reform this EMD contract will be a fixed price contract saving the Air Force money. It is hoped that the aircraft will need little changes and there will be little schedule issues as if there are delays or problems the contractor may end up losing money on this part of the contract.

This contract will be the largest military one that EADS and Boeing will be able to get in the next fifteen years or so for their commercial aircraft lines. This means the competition will be very intense. The U.S. needs two bidders to ensure proper competition and the recent World Trade Organization ruling on EADS doesn’t help this process. There are some in Congress who support Boeing would would like to use the ruling to influence the Air Force towards selecting Boeing. This is a sticky issue for the Air Force as the buy is so consequential and competition to tight.

The plan is for a final RFP to come out in sixty days or so with a new and final submission from the bidders in early 2010. The source selection will probably be made by the end of that year with a goal of the first aircraft delivered in 2015. The RFP envisions batches of between 12 - 18 aircraft a year to support the 179 aircraft buy. Then there will be at least two further orders. This could end up being a thirty year or more production contract and based on the history of the KC-135 support for another fifty.