Tanker protest analysis

For what it's worth, here's my take on the tanker protest situation. This article will appear in next week's Flight International magazine.

The US Government Accountability Office (GAO) ruling that categorically rejects the US Air Force's two-year process to award the KC-X contract sets up a repeat scenario with a changed political backdrop and vastly different views about the product positions of the two competing teams.

The GAO's findings are not binding, but the full weight of the investigative agency's seven-point rebuttal (see below) is expected to compel USAF officials to start over again.

That means the landmark US military contract victory for the transatlantic consortium of Northrop Grumman, EADS North America and Airbus, which offered the A330-200-based KC-30B, is likely to be voided. The USAF has 60 days to respond to the GAO's decision.

Boeing, meanwhile, can expect a welcome reprieve from both the certainty of losing its 50-year monopoly on the USAF's strategic tanker fleet, and of allowing its biggest competitor to gain a prized manufacturing foothold on US soil.

At the same time, a repeat of the tanker competition presents Boeing's executives with some difficult decisions. Boeing had considered the KC-767 the "right-sized" aircraft to meet the USAF's requirements and a sure-thing for the contract award, but the selection team and the USAF's leadership clearly disagreed.

General Arthur Lichte, commander of Air Mobility Command, has used sweeping terms to describe why the USAF selection team decided to pick the KC-30B.

"From my perspective, I can sum [the KC-30B's advantages] up in one word: more," said Lichte, speaking to reporters at the Pentagon on 29 February. "More passengers, more cargo, more fuel to offload, more patients that we can carry, more availability, more flexibility and more dependability."

That perception could place Boeing in an awkward competitive position entering the second round, said Richard Aboulafia, the Teal Group's vice president of analysis.

"The weakest aspect of Boeing's counterattack is their product position," Aboulafia said. "If the Air Force really does prefer something in the A330-size class, the 767 looks a bit too small, and the 777 too large. [Boeing's] best hope is to play up their strong tanker experience and the 767's lower costs and footprint."

Northrop's team could submit a second proposal with the confidence of clearly knowing the customer's preference for an aircraft larger than the 767-200ERX.

However, Northrop's seemingly favourable position has been damaged by Boeing's protest. GAO's investigation detected multiple errors in the USAF's sums. The new results reverse Northrop's position as the lowest-cost bidder, although by a tight margin. The GAO report also revealed that Northrop's bid failed to provide for two years of required maintenance support.

"We continue to believe that Northrop Grumman offered the most modern and capable tanker for our men and women in uniform," says Northrop in a statement.

More importantly, perhaps, the Northrop team's offer also faces the fall-out from a protectionist political backlash ignited by the USAF's contract award, and enflamed further by the GAO's findings.

"I've been saying that this process was flawed, we shouldn't hand away billions of dollars and thousands of jobs, and that Boeing should build these tankers," Senator Patty Murray, a Washington Democrat, said on the Senate floor on 19 June.

"The GAO decision backs up each of my concerns," Murray added.

If the Democratic party sweeps presidential and congressional elections in November, Boeing can expect strong political support for keeping the tanker contract away from Airbus, Aboulafia said.

 

Finally, the USAF must answer the GAO's ruling amidst an unprecedented leadership crisis that removes two key defenders of the contract award for the KC-30B.  Two weeks ago, Secretary of the Air Force Michael Wynne and Chief of Staff General T. Michael Moseley were forced to resign as a result of nuclear security lapses.

 

SIDEBAR

The Government Accountability Office identified seven categories of flaws in the US Air Force's selection process that awarded the KC-X contract to the Northrop Grumman/EADS North America KC-30B.

Here are the categories:

1. Wrong metrics: the USAF ignored its own evaluation criteria and neglected to account for Boeing's lead on satisfying an undisclosed list of "non-mandatory requirements"

2. Extra credit: the USAF gave Northrop bonus points for exceeding the fuel offload threshold, violating its own rule

3. No aircraft left behind: the USAF failed to prove that it could correctly assess the KC-30B's ability to refuel all fixed-wing aircraft

4. Double-speak: the USAF told Boeing it had fully satisfied a requirement. The USAF later changed its opinion, but did not inform Boeing

5. Not just an oversight: Northrop's refusal to provide two years of maintenance support was "unreasonably" judged by the USAF to be an administrative oversight

6. Math mistakes: correcting mistakes in the USAF's cost estimates shows that Boeing submitted the lowest estimated lifecycle cost, not Northrop

7.  Improper increases: the USAF did not think Boeing's estimates for non-recurring engineering costs were too low, but decided to raise them anyway because Boeing failed to explain them. The USAF also couldn't prove that its own model for predicting costs was accurate.