EADS outlines bidding strategy for KC-X win

Washington DC
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As the KC-X competition enters perhaps its final week, EADS North America has revealed a major shift in pricing strategy and outlined how its proposal may prevail over Boeing's bid.

After a seven-month evaluation phase, the US Air Force allowed both competitors to submit final changes on 11 February. A week before the deadline, EADS chief executive Tom Enders ruled out making any "hectic, last-minute" changes, according to a Reuters story.

However, EADS officials in the USA changed their minds over the next six days.

Ralph Crosby, chairman of EADS NA, on 16 February explained how the undisclosed price cut became possible.

The US Air Force's "refinement of our understanding and our refinement to them of our proposal built the case of, 'hey, we could in fact revise our price from the initial bid'," Crosby says. This is partly due to specification changes.

Price is the key factor in the air force's evaluation process for KC-X. To measure the price of both proposals, it multiplies each bid by a factor of 1.25, then adjusts the estimates based on an analysis of life-cycle fuel and infrastructure costs. A mission-based assessment, which rewards the aircraft that performs better in simulations, also adjusts the price.

Crosby concedes that Boeing's smaller KC-767 NewGen Tanker is likely to beat the Airbus A330-based KC-45 on fuel burn and infrastructure costs. But he estimates the difference amounts to no greater than $1.5 billion over 30 years. Boeing, however, advertises that the KC-767 life-cycle operating costs will be $36 billion cheaper over the same period.

The KC-45's bigger size may be an advantage in the mission-based refuelling assessment, Crosby says. The same aircraft scored 6% higher than the KC-767 in the previous competition, which was awarded to the KC-45 before a protest overturned the decision.

Based on the models used in this competition, the KC-45 could beat its competitor by an even greater margin, Crosby says.

The most important factor, however, may be the price submitted by each bidder for development and production. As the larger aircraft, the KC-45 would seem to be the most expensive. Crosby, however, insists EADS has an opportunity to underbid Boeing.

In the last competition, the KC-45 was initially judged cheaper than Boeing's proposal. Since then, Northrop Grumman has withdrawn as prime contractor for the EADS bid, lowering the KC-45's cost base. Crosby also notes that Airbus is ramping up production of the A330, although Boeing has announced similar plans for the 767.

"How those criteria and factors are added together," Crosby says, "[are why] we feel very good about the opportunity."