Despite strong start to KC-46, delays possible

The Air Force’s KC-46 tanker is a model acquisition program in several ways, yet four things may keep the aircraft from entering service on schedule, senior defense officials said.

“We need to use the type of procurement practice that we used on KC-X on as many programs, frankly, as we can,” said Shay Assad, the Defense Department’s director of defense procurement and acquisition policy. “In those instances where we can define our requirements in a firm way, we need to use this type of contract.”

Assad conceded there are many who oppose fixed-price contracts, and he noted that DoD spent a huge amount of time to lay out the Air Force’s precise requirements. But if the risks are fully understood and the requirements are constructed soundly, Assad told lawmakers Thursday, such contract vehicles are appropriate.

Assad said the KC-46 contract offers great advantages to the government. Boeing is completely responsible for any price increases above the contract ceiling price. Boeing estimates the program’s cost at $5.2 billion, which means that the company will swallow a loss of about $300 million unless it can bring costs down, Assad said.

The contract ceiling is $4.83 billion, Maj. Gen. (sel.) Christopher Bogdan, the Air Force’s KC-46 program manager, said later.

Bogdan said the contract is meant to give Boeing every incentive to manage costs ruthlessly. The Air Force is now obligated to buy just four test planes, he said. The rest of the 179 aircraft are options, including the 18 fully operational planes that Boeing is obligated to deliver by August 2017, he said.

If the company can’t deliver on its promises, the Air Force can start the follow-on KC-Y or KC-Z programs sooner than planned, Bogdan said.

Air Force acquisition executive David Van Buren, who was also testifying, said that if the KC-46 works as advertised, the Air Force could dispense with replacing the KC-10 with a heavy tanker. However, the Air Force wants to keep its options open, he said.

The contract isn’t all stick; there is a carrot being offered, too.

“The good news for us is, if they finish that program for less than $4.8 billion, for every dollar less, we get 60 cents of it and they get 40 cents of it,” Bogdan said.

Nonetheless, both the program office and Boeing have cash in reserve in case of problems, Bogdan said.

Van Buren said that the service also got a good deal because the first two production lots will be built to a firm fixed price, while subsequent aircraft fall under a “not-to-exceed” pricing structure.

But if Congress cannot pass a 2012 budget, the entire tanker effort could head toward disaster. Disruptions to cash flow would have “very negative” consequences, Van Buren and others said.

If the service operated on a continuing resolution for the whole year, the program would wind up $203 million short, which could require the entire deal to be restructured.

The KC-46, meant to offload 212,000 pounds of fuel and double as a cargo plane, is well into its first year of development, Bogdan said. The aircraft is being designed with a 40-year lifespan and will undergo its preliminary design review in 2012 and its critical design review the following year, Van Buren said.

The first flight of a 767-2C airframe without the tanker-specific hardware will occur in 2014; a fully equipped KC-46 aircraft will fly by the end of that year, Van Buren said.

Engineering and manufacturing development will wrap up in 2016.

Bogdan said Boeing will put the KC-46 through two sets of preliminary and critical reviews under military and civilian procedures.

Boeing is projecting that it will deliver 18 operational aircraft five months before the deadline in August 2017, Bogdan said.

FOUR THREATS
Bogdan said there are four potential threats to the schedule.

Boeing is building the KC-46 as a military derivative of a commercial airframe, which normally means completing the aircraft as a civilian product, then modifying it for military service. But Boeing and its subcontractors are building the tanker as a military aircraft from the outset. For example, the emplacement for the refueling boom might be built into the plane at the factory, rather than being cut out of the fuselage later, Bogdan said.

But this risks delays if the subcontractors can’t immediately build the modified components correctly, he said.

The second potential pitfall, Bogdan said, is that Boeing is contracted to deliver an aircraft with a Federal Aviation Administration type of certificate. There are two parts to this requirement: the baseline 767-2C must first get its Amended Type Certificate, as all new variants of existing civilian aircraft must; but also, the plane must get a Supplemental Type Certificate for all of its various military modifications, Bodgan said.

These steps would normally be done in sequence, but production modifications require them to be done at roughly the same time, which means any course corrections may cause delays, Bogdan said.

The Air Force could simply issue a military-type certificate, but then the service couldn’t use the testing already done by civilian users, which would make operating the plane more expensive, he said.

Third, flight testing may not go as smoothly as Boeing hopes, Bogdan said. The company, in partnership with the FAA, is efficient at testing new civilian aircraft, but testing military aircraft is more complex.

Fourth is software.

“I’ve never been on a program where software was not an issue,” Bogdan said.

Boeing plans to reuse much of its civilian software, which Bogdan said is a good move. But modifying code for military use is always difficult, he said. Another good move, he said, is setting up three labs to support KC-46 software development, including one dedicated to the tanker program. But he said he will be watching software progress like a hawk.

Putting the Boeing 787 cockpit avionics into the KC-46 may cause integration problems, but will be well worth it to get an upgradable, reliable and vastly more capable system, Bogdan said.