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 thatcategorically rejects the US Air Force’s two-year process to award the KC-Xcontract sets up a repeat scenario with a changed political backdrop and vastlydifferent views about the product positions of the two competing teams.

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

That means the landmark US military contract victory forthe transatlantic consortium of Northrop Grumman, EADS North America andAirbus, which offered the A330-200-based KC-30B, is likely to be voided. TheUSAF has 60 days to respond to the GAO’s decision.

Boeing, meanwhile, can expect a welcome reprieve from boththe certainty of losing its 50-year monopoly on the USAF’s strategic tankerfleet, and of allowing its biggest competitor to gain a prized manufacturingfoothold on USsoil.

At the same time, a repeat of the tanker competitionpresents Boeing’s executives with some difficult decisions. Boeing hadconsidered the KC-767 the “right-sized” aircraft to meet the USAF’srequirements and a sure-thing for the contract award, but the selection teamand 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 pickthe KC-30B.

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

That perception could place Boeing in an awkward competitiveposition entering the second round, said Richard Aboulafia, the Teal Group’svice president of analysis.

“The weakest aspect of Boeing’s counterattack is theirproduct position,” Aboulafia said. “If the Air Force really does prefersomething in the A330-size class, the 767 looks a bit too small, and the 777too large. [Boeing's] best hope is to play up their strong tanker experienceand the 767′s lower costs and footprint.”

Northrop’s team could submit a second proposal with theconfidence of clearly knowing the customer’s preference for an aircraft largerthan the 767-200ERX.

However, Northrop’s seemingly favourable position has beendamaged by Boeing’s protest. GAO’s investigation detected multiple errors inthe USAF’s sums. The new results reverse Northrop’s position as the lowest-costbidder, although by a tight margin. The GAO report also revealed thatNorthrop’s bid failed to provide for two years of required maintenance support.

“We continue to believe thatNorthrop Grumman offered the most modern and capable tanker for our men andwomen in uniform,” says Northrop in a statement.

More importantly, perhaps, theNorthrop team’s offer also faces the fall-out from a protectionist politicalbacklash ignited by the USAF’s contract award, and enflamed further by theGAO’s findings.

“I’ve been saying that thisprocess was flawed, we shouldn’t hand away billions of dollars and thousands ofjobs, and that Boeing should build these tankers,” Senator Patty Murray, aWashington Democrat, said on the Senate floor on 19 June.

“The GAO decision backs up eachof my concerns,” Murrayadded.

If the Democratic party sweepspresidential and congressional elections in November, Boeing can expect strongpolitical support for keeping the tanker contract away from Airbus, Aboulafiasaid.

 

Finally, the USAF must answer theGAO’s ruling amidst an unprecedented leadership crisis that removes two keydefenders of the contract award for the KC-30B. Two weeks ago, Secretary of the Air Force Michael Wynne and Chief ofStaff General T. Michael Moseley were forced to resign as a result of nuclearsecurity lapses.

 

SIDEBAR

The Government Accountability Office identified sevencategories of flaws in the US Air Force’s selection process that awarded theKC-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 forBoeing’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 leftbehind: the USAF failed to prove that it could correctly assess theKC-30B’s ability to refuel all fixed-wing aircraft

4. Double-speak: theUSAF told Boeing it had fully satisfied a requirement. The USAF later changedits 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: correctingmistakes in the USAF’s cost estimates shows that Boeing submitted the lowestestimated lifecycle cost, not Northrop

7.  Improper increases: the USAF did notthink Boeing’s estimates for non-recurring engineering costs were too low, butdecided to raise them anyway because Boeing failed to explain them. The USAFalso couldn’t prove that its own model for predicting costs was accurate.



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2 Responses to Tanker protest analysis

  1. Royce 20 June, 2008 at 1:48 pm #

    Put aside the protectionism issue for a moment and look at the nature of the contest. These are two different sized aircraft, and having a direct comparison/contest between them is kind of bizarre. If the Air Force really needs a tanker as big as the KC-30 it should have written its requirements in accordance with that need. The problem for the USAF is that for years they didn’t make the case for such a big tanker. Time to start that process on the Hill and in public.

  2. SMSgt Mac 21 June, 2008 at 5:33 am #

    The GAO press release points make abslutely no sense compared to the AF’s post-hearing legal brief (redacted) available at NG’s tanker website here: http://www.americasnewtanker.com/docs/Public_Redacted_Version_AF_Post_Hearing_Brief.pdf

    The ‘size issue’ is addressed (again) in the legal brief as well, once again reminding everyone that the AF was after a ‘capability’ not a ‘size’.

    This was a GAO punt, pure and simple, to push the issue into Congress’ hands if the AF chooses to proceed. If their legal brief is any indication the AF really thinks the KC-45 is the better offer. The question now becomes: how much political capital does the AF want to spend getting what they think is the better offer? Heck, how much capital does the AF still have? In an odd sort of way, they could actually build credibility and capital if they successfully fight for their decision.

    Gee, what could go wrong if Congress is involved?

    Inmates. Asylum. You know the rest.

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