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Air Force KC-46A Pegasus Tanker Aircraft Program

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Order Code RL34398 Air Force Air Refueling: The KC-X Aircraft Acquisition Program Updated August 4, 2008 Christopher Bolkcom and William Knight Foreign Affairs, Defense, and Trade Division Air Force Air Refueling: The KC-X Aircraft Acquisition Program Summary KC-X is the first of three planned programs intended to recapitalize the Air Force’s air refueling fleet. Eventually, the KC-X program is expected to acquire 179 new, commercial off-the-shelf airliners modified to accomplish air refueling. The program is expected to cost approximately $35 billion. Both Boeing and a consortium consisting of Northrop Grumman and European Aeronautic Defence and Space Company (EADS) competed for KC-X. Boeing offered a variant of the 767200, while Northrop Grumman submitted a version of the Airbus 330-200. On February 29, 2008, the Air Force awarded the KC-X contract to Northrop Grumman. The initial $12.1 billion KC-X contract covers purchase the first 68 KC-45s of the anticipated 179 aircraft. Boeing protested the Air Force’s decision to the Government Accountability Office (GAO). GAO upheld the Boeing protest, and in July, Defense Secretary Robert Gates announced that he would reopen the tanker competition. Air Force in-flight aerial refueling aircraft, often referred to as “tankers,” provide both persistence and range to Department of Defense (DOD) fighters, bombers, airlift and surveillance aircraft. The Air Force’s tanker fleet greatly multiplies the effectiveness of DOD air power across the continuum of military operations. Today, the KC-135, which makes up the preponderance of the Air Force’s tanker force, is among the Air Force’s oldest aircraft. Potential issues for Congress include: ! ! ! ! ! ! ! ! ! ! ! ! How long can the KC-135 fly? What is the lowest cost alternative for KC-135 recapitalization? How many new tankers does the Air Force require? What will KC-X cost? What capabilities should KC-X have? How will KC-X fit with future tanker requirements? Was the competition fair? What are the economic and trade effects of the KC-X program? What is the impact of Boeing’s contract protest? Why did the GAO sustain the protest? Can DOD split the tanker contract between the competitors? Where does the Air Force plan to base KC-X aircraft? Government-sponsored analysis concluded that purchasing new, commercial aircraft to recapitalize DOD’s tanker fleet is the least expensive option for recapitalizing the KC-135 fleet from a life-cycle cost perspective. It is also the most capital intensive option. At least three less capital intensive options could potentially augment the Air Force’s longer-term KC-X program: ! ! ! Buy and convert surplus commercial airliners into military tankers Re-engine some fraction of the KC-135E fleet Develop commercial Fee-For-Service aerial refueling (FFS AR) This report will be updated as conditions warrant. Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Select Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 FY2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 FY2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 FY2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Air Refueling in Joint Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Cold War . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1991 Persian Gulf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Recent Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 DOD Air Refueling Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 KC-135 Stratotanker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 KC-10 Extender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Service Organic Air Refueling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Air Refueling Operational Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Boom vs. Probe and Drogue Air Refueling . . . . . . . . . . . . . . . . . . . . . . 7 Capacity vs. “Booms in the Air” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Tanker’s Receiver Capability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Issues for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 How Long Can KC-135s Fly? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Airframe Service Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Corrosion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Maintenance Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 What Is the Lowest Cost Option for Tanker Recapitalization? . . . . . . . . . . 11 How Many Tankers Does the Air Force Need? . . . . . . . . . . . . . . . . . . . . . . 12 National Military Strategy (NMS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Mobility Capability Study (MCS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 What Will KC-X Cost? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 What Capabilities Should KC-X Have? . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Airlift Capability: Doors and Floors . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Defensive Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Was the KC-X Competition Fair? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Request for Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 RFP Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Comparing the Competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 What are the Economic and Trade Effects of KC-X? . . . . . . . . . . . . . . . . . 21 WTO Dispute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 U.S. Industrial Base Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Buy American Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 What Is the Impact of Boeing’s Protest? . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Why Did the GAO Sustain the Protest? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Can DoD Split the Tanker Contract Between the Competitors? . . . . . . . . . 29 Arguments Favoring a Split Buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Arguments Against a Split Buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Where Might KC-X Aircraft Be Based? . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Potential Options to Augment KC-X Recapitalization . . . . . . . . . . . . . . . . . . . . 32 Convert Used Commercial Aircraft into Tankers . . . . . . . . . . . . . . . . . . . . 32 Retire or Re-engine KC-135Es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Viability of the KC-135E Fleet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Recapturing Modernization Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Legislative Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Fee-For-Service Air Refueling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 What Independent Studies Say . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Counter Arguments to RAND’s Assumptions . . . . . . . . . . . . . . . . . . . 36 FFS AR Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Legislative Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Appendix A. Previous Issue for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Modernization Controversy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Appendix B. KC-135R System Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Appendix C. KC-10 System Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Appendix D. KC-767 System Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Appendix E. KC-30 System Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Appendix F. Key Suppliers for Commercial Variants of the Boeing 767 and Airbus 330 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 List of Figures Figure 1. Photo of “Boom” Air Refueling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 2. Photo of “Hose and Drogue” Air Refueling . . . . . . . . . . . . . . . . . . . . . . 8 Figure 3. KC-135 Refueling Air Force Fighters . . . . . . . . . . . . . . . . . . . . . . . . . 40 Figure 4. KC-10 Refueling Air Force Fighters . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Figure 5. Artist Impression of KC-767 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Figure 6. Artist Impression of KC-30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 List of Tables Table 1. Tanker Operations in Iraq and Afghanistan, 2004-2007 . . . . . . . . . . . . . 5 Table 2. KC-135 and KC-10 Operational Capabilities . . . . . . . . . . . . . . . . . . . . . 6 Table 3. Tankers Used in Recent Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Table 4: Suppliers and Corporate Parent Domiciles for Components Incorporated into the Boeing 767 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Table 5: Suppliers and Corporate Parent Domiciles for Components Incorporated into the Airbus 330/350 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Air Force Air Refueling: The KC-X Aircraft Acquisition Program Introduction KC-X is the first of three planned programs intended to recapitalize the Air Force’s air refueling fleet. Eventually, the KC-X program is expected to acquire 179 new, commercial off-the-shelf airliners modified to accomplish air refueling missions. The program is expected to cost a total of approximately $35 billion. Both Boeing and a consortium consisting of Northrop Grumman and European Aeronautic Defense and Space Company (EADS) — the parent company of Airbus — competed for KC-X. Boeing offered a variant of the 767-200, while Northrop Grumman submitted a version of the Airbus 330-200. On February 29, 2008, the Air Force awarded the KC-X contract to Northrop Grumman. The initial $12.1 billion KC-X contract provides for the purchase the first 68 KC-45s of the anticipated 179 aircraft.1 On March 11, 2008, Boeing filed a formal protest of Air Force’s decision,2 and on June 18, 2008, the Government Accountability Office (GAO) upheld this protest. On July 9, 2008 Defense Secretary Robert Gates announced that he agreed with GAO’s findings that the tanker competition was flawed and that DOD would therefore reopen KC-X bidding process. Air Force in-flight air refueling aircraft, or “tankers,” enable Department of Defense (DOD) fighters, bombers, airlift and surveillance aircraft fly farther and stay aloft longer. As such, the Air Force’s tanker fleet greatly multiplies the effectiveness of DOD air power across the full continuum of military operations. Today, the KC135, which makes up the preponderance of the Air Force’s tanker force, is among the Air Force’s oldest aircraft. Potential issues for Congress include: ! ! ! ! ! ! ! How long will the KC-135 remain a viable air refueling platform? What is the lowest cost alternative for KC-135 recapitalization? How many new tankers does the Air Force require? What will KC-X cost? What capabilities should KC-X have? How will KC-X fit with future tanker requirements? Was the competition fair? 1 “Tanker Contract Award Announced,” Air Force Print News, February 29, 2008, online at [http://www.af.mil/news/story.asp?id=123088392]. 2 Boeing News Release, “Boeing Protests U.S. Air Force Tanker Contract Award,” March 11, 2008, online at [http://www.boeing.com/ids/globaltanker/news/2008/q1/080311b_ nr.html]. CRS-2 ! ! ! ! What are the economic and trade effects of the KC-X program? What is the impact of Boeing’s contract protest? Why did the GAO sustain the protest? Where does the Air Force plan to base KC-X aircraft? Government-sponsored analysis concluded that purchasing new, commercial off-the-shelf aircraft to recapitalize DOD’s tanker fleet is the least expensive option for recapitalizing the KC-135 fleet from a life-cycle cost perspective. However, this course of action is also capital intensive in the near-term when compared with other potential courses of action. At least four alternatives to the Air Force’s KC-X acquisition were suggested each of which could potentially still be compatible with the Air Force’s longer-term KC-X program: ! ! ! ! Use a “Split-Buy” model for future tanker recapitalization Buy and convert surplus commercial airliners into military tankers Re-engine some fraction of the KC-135E fleet Develop commercial Fee-For-Service aerial refueling (FFS AR) Select Legislation FY2009 The Administration’s KC-X request for FY2009 includes $62 million in advanced procurement funding for five aircraft expected to be procured in FY2010 and delivered in 2012.3 Additionally, the Administration requested $832 million for RDT&E funding to support system development and demonstration.4 In their report 110-652 (H.R. 5658) House authorizers denied the Air Force’s request for advanced procurement funding. The committee included three provisions related to aerial refueling. Sec. 132 requires the Air Force to maintain at least 46 KC135E aircraft in long-term storage. Sec. 133 repeals an out-of-date section from PL 108-136, and Sec. 134 requires the Secretary of the Air Force to report on the process used to determine KC-X requirements. The House matched the request for R&D funding. In their report 110-335 (S. 3001) Senate authorizers rejected the Air Force request for advance procurement and instead transferred these funds to KC-X R&D. On July 30, 3008, House Appropriators released a statement summarizing their mark-up of the FY2009 Defense Appropriations Bill. In this press release, the committee “directs that industrial base concerns be included in the evaluation of the 3 “Aircraft Procurement, Air Force, Volume 1,” USAF Committee Staff Procurement Backup Book, FY2009 Budget Estimates, February 2008, pp. 2-33. 4 “Research, Development, Test and Evaluation (RDT&E), Descriptive Summaries, Volume 2, Budget Activities 4-6,” Department of the Air Force FY2009 Budget Estimates, February 2008, p. 987. CRS-3 tanker contract award.”5 Press reporting of this mark-up assert that this provision gives Boeing an advantage in the revised competition for KC-X.6 FY2008 The Administration requested $314 million for KC-X RDT&E, which authorizers fully supported.7 Appropriators, as in FY2007, provided $114 million for RDT&E.8 Additionally, appropriators provided $150 million into a “Tanker Replacement Transfer Fund” thereby providing the Air Force latitude to use the funds as needed in procurement, operations and maintenance, and/or RDT&E as needed to support KC-X acquisition.9 FY2007 The Administration’s KC-X request was for $36 million for advanced procurement funding and nearly $204 million for research, development, test, and evaluation (RDT&E). However, authorizers denied the requested procurement funding and cut RDT&E funding to $152 million.10 Appropriators provided at total of $70 million in funding stating, “the amount provided in the conference agreement was identified in writing by the Department of Defense as the level needed to meet all fiscal year 2007 requirements.”11 Background The KC-X program — currently the Air Force’s top acquisition priority — is the first of three planned programs intended to recapitalize the Air Force’s air refueling fleet.12 As part of the KC-X program, the Air Force is expected to acquire 179 new, commercial off-the-shelf airliners modified to accomplish air refueling missions. The Air Force plans to designate the new aircraft as the KC-45A.13 Future programs known as KC-Y and KC-Z — each anticipated to replace approximately 5 [http://appropriations.house.gov/pdf/MurthaSubMarkup07-30-08.pdf] 6 Les Blumenthal. “Boeing Tanker Bid Gets Big Boost.” Seattle Times. July 31, 2008. John Doyle. “Appropriators to USAF: Consider tanker’s industrial base concerns.” Aerospace Daily & Defense Report. August 1, 2008. 7 H.Rept. 110-477, Conference Report to Accompany H.R. 1585, p. 797. 8 H.Rept. 110-434, Conference Report to Accompany H.R. 3222, pp. 308. 9 Ibid, Section 8112, p. 46. 10 H.Rept. 109-702, Conference Report to Accompany H.R. 5122. 11 H.Rept. 109-676, Conference Report to Accompany H.R. 5631, p. 315. 12 Major General (USAF) Larry Spencer, “FY09 President’s Budget: ‘America’s Edge: Global Vigilance, Reach and Power,” FY2009 Budget Rollout Brief, February 4, 2008, Slide 8, online at [http://www.saffm.hq.af.mil/shared/media/document/AFD-080204-089.pdf]. 13 “Now All We Need is the Aircraft,” Air Force Association Daily Report, January 24, 2008. CRS-4 one-third of the Air Force’s tanker force — are expected to continue the recapitalization effort over the next several decades. To provide the context of why the Air Force is pursuing the KC-X program today, this section of the report analyzes the role of air refueling aircraft in joint operations, outlines the DOD’s current air refueling capabilities, and explains key air refueling operational constructs from which tanker requirements are derived. In addition, a review of refueling issues previously faced by Congress is provided in Appendix A. Air Refueling in Joint Operations Air refueling has played a significant role in our nation’s national security beginning in the Cold War and continuing into current military operations. Tankers increase the range and flexibility of forces and extend the amount of time combat and surveillance aircraft can stay “on-station.” They also extend the range of fighters, bombers, and other aircraft. According to Air Force leaders, “Clearly the tanker fleet is really some of the very fiber that holds our Air Force’s unique global capabilities together. It is an essential enabler for getting to the fight and fighting the fight.”14 Cold War. The Air Force initially began to purchase the KC-135 fleet in the mid-1950s to refuel newly acquired B-52 nuclear bombers operated by Strategic Air Command.15 Additionally, air refueling played a significant conventional role in the Vietnam War during the 1960s and 1970s by flying 194,687 sorties (an average of more than 21,000 sorties each year) that refueled 813,378 aircraft with almost 9 billion pounds of jet fuel.16 A brief review of recent conflicts indicates the importance of tanker aircraft. 1991 Persian Gulf. During the 1991 Gulf War, tankers contributed to two objectives: “the speedy deployment of large air forces into the region, and the use of these forces in large and complex air combat operations.”17 First, nearly 100 tankers formed “air bridges” across the Atlantic and Pacific Oceans that allowed fully loaded fighters and bombers to deploy nonstop from U.S. bases directly into the Persian Gulf region. During combat operations, tankers allowed air defense and command and control aircraft to remain aloft for extended periods of time while extending the range 14 A. Butler, “Air Force Mulling Replacement for Aging, Maintenance-Needy KC-135,” Inside the Air Force, May 4, 2001. 15 Richard K. Smith, 75 Years of Inflight Refueling: Highlights 1923-1998, Air Force History and Museum Program, 1998, pp. 44-45. 16 17 Ibid, p. 60. Thomas A Keaney and Elliot A. Cohen, Gulf War Air Power Survey Summary Report, Washington, D.C., 1993, p. 190. CRS-5 of most attack missions.18 In so doing, 306 tankers flew 16,865 missions while delivering over 800 million pounds of fuel to 51,696 receiver aircraft.19 Recent Operations. In 1999, 175 air refueling aircraft participated in NATO combat operations in Kosovo by flying 5,215 sorties while transferring more than 253 million pounds of fuel to 23,095 coalition receivers.20 Between September 11, 2001 and the end of 2007, tankers flew 10,400 missions enabling homeland defense air patrols as part of Operation Noble Eagle.21 Combat operations in Afghanistan during 2001 and 2002 required 80 tankers that executed 15,468 sorties while offloading 1.166 billion pounds of fuel to 50,585 aircraft.22 Operation Iraqi Freedom also required a significant tanker contribution, requiring a peak of 305 tankers in March of 2003.23 In 2003, 185 tankers flew 6,193 sorties refueling 28,899 receivers with 376 million pound of fuel.24 Table 1 summarizes tanker contributions to ongoing operations in both Afghanistan and Iraq from 2004 to 2007. Table 1. Tanker Operations in Iraq and Afghanistan, 2004-2007 Sorties Fuel Offloaded (lbs.) Receivers Refueled 2004 2005 2006 2007 12,465 12,391 12,787 15,875 740 million 778 million 871 million 946 million N/A N/A 42,083 79,798 Source: U.S. Central Air Forces/Combined Air Operations Center Public Affairs Office. DOD Air Refueling Capabilities Air Force KC-135 Stratotankers and KC-10 Extenders form the preponderance of DOD’s air refueling capability and the KC-X program is designed to recapitalize this portion of DOD air refueling capability. Both Stratotankers and Extenders can also carry passengers and cargo. However, airlift capability comes at the expense of a corresponding decrease in the amount of fuel they can carry. Further, the Air Force, Navy and Marine Corps also maintain small refueling fleets tailored to meet servicespecific requirements. 18 Ibid. 19 GAO-04-349, Military Aircraft: DOD Needs to Determine Its Aerial Refueling Requirements, June 2004, p. 10. 20 Ibid. 21 “Noble Eagle Sorties Continue,” Air Force Association Daily Report, January 4, 2008, online at [http://dailyreport.afa.org/AFA/datapoints/2008/]. 22 GAO-04-349, p. 10. 23 Defense Science Board Task Force Report on Aerial Refueling Requirements, May 2004, pp. 27-28. 24 GAO-04-349, p. 10. CRS-6 KC-135 Stratotanker. KC-135s first entered service between 1957 and 1965, as Boeing delivered 732 KC-135A Stratotankers to the Air Force. In the 1980s, KC135As were upgraded to KC-135Es with four Pratt & Whitney TF-33 engines — capable of producing approximately 18,000 pounds of thrust. E-model engines were obtained from surplus commercial Boeing 707 airliners. Beginning in 1982, other KC-135As were upgraded to KC-135Rs following modification with four CFM56/F108 turbofans — each capable of generating approximately 22,000 pounds of thrust. Today, the KC-135 fleet averages approximately 46-years of age. Twenty KC-135Rs have been modified with Multi-Point Refueling System wingtip pods so they can simultaneously refuel two probe-equipped aircraft.25 Another eight KC135Rs have been modified to receive fuel in-flight. On-going modifications are giving KC-135s advanced avionics that improve reliability and meet increasingly KC-135 aircraft stringent global air traffic management requirements.26 specifications are listed in Appendix B. Table 2 summarizes selected operational characteristics of the Air Force’s KC-10 and KC-135 air refueling aircraft. Table 2. KC-135 and KC-10 Operational Capabilities Inventory Fuel Capacity Passengers Cargoa KC-10A 59 356,000 lbs. 75 170,000 lbs KC-135E 85 180,000 lbs. 54 83,000 lbs KC-135R 418 200,000 lbs. 54 83,000 lbs Sources: The Air Force Handbook 2007, pp. 172-175; current KC-135E inventory verified through e-mail with SAF/LL, January 28, 2008. a. Cargo payloads are in lieu of carrying fuel. KC-10 Extender. The KC-10 combines air refueling and long-range cargo capabilities into a single aircraft. The KC-10 is more flexible and more capable than the KC-135 as it can carry much more fuel and can be refueled in the air to increase delivery range or on-station time. It is, however, less maneuverable on the ground than the KC-135. All KC-10s use an advanced flying boom27 that can refuel either boom or probe and drogue receivers on the same flight.28 Additionally, 20 KC-10s have been equipped with wingtip probe and drogue systems similar to ones installed 25 Probe and drogue air refueling is accomplished by a probe-equipped receiver flying the receiver aircraft’s probe into the tanker’s drogue — a basket attached to the end of a flexible hose or the tankers boom. Once connected, the tanker transfers fuel to the receiver aircraft. 26 Susan H. H. Young, “Gallery of USAF Weapons,” Air Force Magazine, May 2007, p. 145. 27 Boom in-flight air refueling is accomplished by an Air Force Airman known as the Boom Operator, flying the tanker’s refueling boom into the receiver’s receptacle. Once connected, the tanker pumps fuel from its fuel tanks into the receiver’s fuel tanks. 28 Ibid. CRS-7 on the KC-135.29 The KC-10 currently averages approximately 23 years of age.30 KC-10 aircraft specifications are listed in Appendix C. Service Organic Air Refueling. The Air Force, Marine Corps, and Navy maintain some air refueling capability to facilitate certain organic capabilities. The Air Force operates modified C-130s to refuel Air Force special operations and combat search and rescue helicopters while the Marine Corps uses modified C-130s to refuel Marine helicopters and fighters. Further, some Navy aircraft have been configured to refuel other Navy or Marine Corps aircraft in-flight as a secondary mission. These aircraft give carrier battle groups organic refueling capability when operating independently. However, carrier-based naval aircraft are capable of providing relatively small fuel off-loads in comparison to Air Force tankers. Thus, the Navy primarily relies on the use of Air Force tankers for long-range flight operations.31 Air Refueling Operational Concepts Air refueling aircraft support a wide variety of aviation missions, such as, but not limited to: surveillance, air-lift, long-range bombing, battlefield interdiction, and air superiority. Each of these missions requires different aerial refueling capabilities. Therefore, when planning the acquisition of a tanker fleet, careful consideration must be given to a few key attributes. For example, a tanker aircraft’s method of dispensing fuel – flying boom vs. probe and drogue – is a key factor for mission planners. For some missions, the gross amount of fuel carried by a tanker must be weighed against the number of tankers and the number of refueling points (either boom or hose) that can be brought to bear. Finally, some tankers can themselves be refueled by other tankers while in flight, which can add considerable flexibility to certain air operations. Boom vs. Probe and Drogue Air Refueling.32 Aircraft can be equipped to be refueled from a flying boom (most Air Force aircraft) or with a probe and drogue (most Navy, Marine Corps, and allied aircraft). Mission planners must ensure that tankers in the field are equipped to connect with their intended receiver aircraft. Figure 1 illustrates “boom” air refueling. 29 The Air Force Handbook 2007, pp. 172-175. 30 “Age of the Active Duty Fleet,” Air Force Magazine, May 2007, p. 63. 31 Department of the Navy (N78) provided to CRS by email September 2, 2005. 32 For more information on aerial refueling methods, see CRS Report RL32910, Air Force Aerial Refueling Methods: Flying Boom versus Hose-and-Drogue, by Christopher Bolkcom. CRS-8 Figure 1. Photo of “Boom” Air Refueling Source: USAF Photo by A1C Lonnie Mast. Both the KC-10 and KC-135, can perform both “Boom” and “Drogue” refueling. However, while KC-10s can refuel either type on the same mission, most KC-135s must be converted from “Boom” refueling to “Drogue” or vice versa on the ground. This limitation reduces the KC-135s effectiveness in comparison to the KC10 and potentially in comparison to the KC-X which is expected to be equipped to refuel both receiver types on the same mission. Figure 2 illustrates hose and drogue refueling. Figure 2. Photo of “Hose and Drogue” Air Refueling Source: USAF photo by TSgt Erik Gudmundson. CRS-9 Capacity vs. “Booms in the Air”. The type and number of receivers (Boom vs Drogue) on a given mission establishes the timing, location and fuel off-load demands for tankers in the field. Thus, the number of tankers required to support a mission is sometimes driven by the tanker’s offload capacity. Other times, tanker mission requirements are based on maintaining sufficient tankers aloft to match the timing and location of receiving aircraft needs. Planners strive to accomplish air refueling missions as efficiently as possible while optimizing the effectiveness of the receiver’s mission. Therefore, planners must ensure scheduled tankers have sufficient capacity and are scheduled in sufficient numbers to ensure the overall effects desired by joint force commanders.33 Thus, considering the breadth of missions DOD might face, and considering a given amount of money, acquisition officials must weigh whether air forces are best served by a few tankers with lots of fuel, or more tankers, each of which would carry less fuel. Tanker’s Receiver Capability. A tanker that is capable of both giving and receiving fuel in flight may also bolster flexibility for air operations. Because of the dynamic nature of military operations, the type of aircraft planned to fly a given mission can change; often at the last minute. Tanker aircraft that themselves can be refueled in the air can help mitigate these last minute changes by serving as an aerial “consolidation point.” Tankers that have the “wrong” refueling method (due to a last minute change in mission) can off-load their fuel into another tanker that has the “right” refueling method. Optimally, all Air Force tankers would be able to take on fuel while airborne, but acquiring this capability costs money. How many tankers should have this capability, and at what cost? Issues for Congress The KC-X program is anticipated to begin recapitalizing the Air Force’s Eisenhower-era KC-135 fleet, which makes up the preponderance of the Air Force’s tanker force. Potential issues for Congress surrounding the KC-X program include: ! ! ! ! ! ! ! ! ! ! ! 33 Ibid. How long can the KC-135s Fly? What is the lowest cost alternative for KC-135 recapitalization? How many new tankers does the Air Force require? What will KC-X cost? What capabilities should KC-X have? Was the competition fair? What are the economic and trade effects of the KC-X program? What is the impact of Boeing’s contract protest? Why did the GAO sustain the protest? Can DOD split the tanker contract between the competitors? Where might KC-X aircraft be based? CRS-10 How Long Can KC-135s Fly? During the controversy that surrounded the Air Force’s 2001 tanker lease proposal, a Defense Science Board (DSB) task force was formed to study the urgency of recapitalizing the KC-135 fleet. As part of the study, DSB examined the potential longevity of the KC-135 fleet. The 2006 RAND Analysis of Alternatives (AOA) also looked at the technical condition of the KC-135 fleet. The DSB stated that airframe service life, corrosion, and maintenance costs factors would potentially determine the KC-135s operational life expectancy.34 Airframe Service Life. KC-135s, along with their B-52 counterparts, were originally purchased to give the United States a nuclear strategic strike capability. As a result, both fleets of airplanes spent a significant amount of time during the Cold War on ground alert. Consequently, in 2004, the average KC-135 airframe had flown only about 17,000 hours of an estimated service life of 36,000 hours (KC-135E) or 39,000 hours (KC-135R). Thus, the DSB concluded that KC-135 airframe were viable until 2040 at “current usage rates.”35 The 2006 RAND AOA also concluded that the KC-135 fleet “can operate into the 2040s,” but not without risks.36 Corrosion. The 2004 DSB Task Force concluded that corrosion did not pose an “imminent catastrophic threat to the KC-135 fleet” and that the Air Force’s maintenance practices were postured “to deal with corrosion and other aging problems.”37 The task force went on to say, However, because the KC-135s are true first generation turbojet aircraft designed only 50 years from the time man first began to fly, concerns regarding the ability to continue operating these aircraft indefinitely are intuitively well founded.38 Maintenance Costs. KC-135 maintenance costs were the subject of widespread concern earlier in this decade. For example, the Government Accountability Office found that KC-135 flying hour costs increased by 29% between 1996 and 2002 when adjusted to constant 2002 dollars.39 In contrast, the 2004 DSB task force agreed that KC-135 maintenance costs had increased significantly, but found they had leveled off due to changes the Air Force made in its 34 Defense Science Board Task Force Report on Aerial Refueling Requirements, May 2004, p. iv. 35 Ibid. 36 Michael Kennedy et al., “Analysis of Alternatives (AoA) for KC-135 Recapitalization, Executive Summary,” RAND Corporation, 2006, pp. 15-16. 37 Defense Science Board Task Force Report on Aerial Refueling Requirements, May 2004, p. iv. 38 39 Ibid., p. 17. GAO-04-349, “Military Aircraft, DOD needs to Determine Its Aerial Refueling Requirements,” June 2004, p. 13. CRS-11 KC-135 depot processes. Based on the more current data, DSB forecasted more modest growth in the future.40 Outlook. While many believe the Air Force can continue to operate some number of KC-135s for many years, concerns are often expressed about potential maintenance problems that may arise in flying 50 to 80 year-old tankers that could possibly result in the entire KC-135 fleet being grounded. The DSB examined this issue and concluded: “although grounding is possible, the task force assesses the probability as no more likely than that of any other aircraft in the inventory of the Services.”41 RAND’s AOA was less conclusive. For example, the AOA believe it is possible that KC-135 will be able to operate in the 2040s. However, the AOA lacked confidence that future operation could continue without risks of major maintenance cost increases, poor fleet availability or possible fleet-wide grounding. Further, the AOA concluded that “the nation does not currently have sufficient knowledge about the state of the KC-135 fleet to project its technical condition over the next several decades with high confidence.”42 RAND recommended more thorough scientific and technical study of the KC-135 to provide a more reliable basis for future assessments of the condition of the KC-135 fleet.43 What Is the Lowest Cost Option for Tanker Recapitalization? In 2004, consistent with congressional direction, the Acting Undersecretary for Defense for Acquisition, Technology and Logistics directed the Air Force to conduct an Analysis for Alternatives (AOA) for air refueling. The AOA had two purposes — first, to identify lowest cost options for recapitalizing the Air Force’s KC-135 fleet; and second, to inform recapitalization timing. The RAND Corporation was subsequently selected to conduct the AOA and the findings were independently reviewed for sufficiency both within DOD and by the Institute of Defense Analysis.44 RAND considered the following alternatives for recapitalization: ! ! ! ! ! ! ! Newly purchased commercial-derivative tankers Used commercial-derivative tankers Newly purchased military-derivative tankers Newly designed tankers Unmanned aerial vehicles as tankers Stealthy tankers Fleets comprised of a combination of the above options 40 Defense Science Board Task Force Report on Aerial Refueling Requirements, May 2004, pp. iv-v. 41 Ibid, p. 18. 42 Michael Kennedy et al., “Analysis of Alternatives (AoA) for KC-135 Recapitalization, Executive Summary,” RAND Corporation, 2006, p. 16. 43 44 Ibid. Michael Kennedy et al., “Analysis of Alternatives (AoA) for KC-135 Recapitalization, Executive Summary,” RAND Corporation, 2006, p. 1. CRS-12 ! Commercial sources for air refueling45 RAND’s AOA identified the present value of the full spectrum of costs associated with the various alternatives. While RAND’s AOA considered alternatives with significant passenger and cargo capability, it considered only the costs associated with air refueling. As such, RAND’s AOA did not draw conclusions about the impact of various sized aircraft on ramp space and infrastructure in operational scenarios. Rather, RAND’s AOA deferred both matters to “senior decision maker judgment.”46 The 2006 AOA presented the following conclusions regarding KC-135 recapitalization: ! ! ! ! ! ! ! New commercially-derived tankers of medium to larger size (300,000 to 1,000,000 pound maximum gross takeoff weight) are the most cost-effective alternative. Specifically, the AOA found the Airbus 330 and 340 and the Boeing 747, 767, 777, and 787 all to be viable candidates. Small (e.g., Boeing 737 and Airbus 321) and very large (e.g., Airbus 380) are not cost effective alternatives even in mixed fleets with medium to large sized tankers. Used commercial aircraft are not as cost-effective as buying new commercial aircraft. However, the cost penalty is not high enough to exclude this option under certain circumstances. (Note: this option will be discussed later in this report). New-design tankers are not a cost-effective alternative. Unmanned tankers are not a cost-effective alternative. “Stealthy tankers are significantly more expensive than non-stealthy tankers, although they offer some effectiveness benefits.” The AOA defers to military judgement to determine if the additional capability exists to justify the increased cost “There is no compelling reason for the Air Force to outsource aerial refueling.” (Note: this option will be discussed later in this report.)47 How Many Tankers Does the Air Force Need? Air refueling requirements ultimately derive from the President’s overall national security strategy. Based on the President’s strategy, DOD periodically studies the global threat environment and seeks to identify the military force structure necessary to meet national objectives, and articulates this analysis in the National Military Strategy (NMS) and Quadrennial Defense Review (QDR). Next, in the case of air refueling, DOD examines the status of its fleet and quantifies future air refueling requirements to judge whether current programs are sufficient to support DOD force structure and the President’s strategy. 45 Ibid, pp. 7-8. 46 Ibid, p. 9. 47 Ibid, pp. 12-13. CRS-13 Over the past several years, DOD has conducted three studies that have reached similar conclusions about the required size of the Air Force’s air refueling fleet. In 2001, DOD released the Tanker Requirements Study 2005 that concluded DOD required 500-600 KC-135R equivalents to meet the NMS in a “pre-9/11” context. During the midst of the Air Force’s tanker lease controversy, a Defense Science Board (DSB) task force examined air refueling requirements in May of 2004 with a focus of assessing the urgency of initiating KC-135 recapitalization. In June 2004, DOD began its first “post 9/11” review of transportation requirements. The current Mobility Capability Study (MCS) was completed in December 2005 and briefed to Congress in February 2006. National Military Strategy (NMS). The 2004 DSB task force focused on assessing the ability of the Air Force’s tanker fleet to meet the NMS. The NMS defined what is commonly referred to as the “1-4-2-1” strategy by stating, The force must be sized to defend the US homeland while continuing to operate in and from four forward regions to deter aggression and coercion and set conditions for future operations. Even when committed to a limited number of lesser contingencies, the Armed Forces must retain the capability to swiftly defeat adversaries in two overlapping military campaigns. Additionally, when the President calls for an enduring result in one of the two, the force must have the capability and capacity to win decisively.48 Accordingly, the DSB task force found that homeland defense could require “up to 122 KC-135 equivalent tankers ... depending on the number of patrol aircraft aloft.”49 Additionally, the task force identified that “the major driver for future aerial refueling needs is the number and type of nearly simultaneous ‘major’ operations.”50 As such, the task force examined 2003 operations in Iraq as a basis for informing requirements of a “major” operation. What the task force found was that “direct and indirect” tankers operations in Iraq “peaked at 319” aircraft with 182 aircraft “forward deployed” into Central Command’s theater.51 Further, the task force observed that “one can envision major theater campaigns of greater scale and intensity than [Iraq].” The task force, however, did not analyze the efficiency of tankers used to support Iraq operations.52 Table 3 summarizes examples of tankers used during recent operations. 48 “The National Military Strategy of the United States of America,” 2004, p. 4. 49 Defense Science Board Task Force Report on Aerial Refueling Requirements, May 2004, p. 28. 50 Ibid, p. 27. 51 Ibid. 52 Ibid. CRS-14 Table 3. Tankers Used in Recent Operations Conflict Tankers Utilized 1991 Persian Gulf War (Iraq/Kuwait) 306 1998 Balkans/Kosovo 175 2001 Afghanistan 80 2003 Iraq 305/319a Source: CRS compiled from data found in DSB Task Force Report on Aerial Refueling Requirements and GAO-04-349. a. DSB reported 319 while GAO cited 305 tankers for Iraq operations. Based on these studies and assumptions, it has been argued that homeland defense requirements coupled with any two of the aforementioned operations call for an air refueling fleet of at least 500 aircraft as reportedly echoed by the Air Force’s 2005 Tanker Requirement Study. Mobility Capability Study (MCS). According to the unclassified executive summary of the 2005 MCS, the study assessed the capabilities of the current and projected force by providing a range of potential resource requirements for intertheater (strategic) airlift, intra-theater (tactical) airlift, and air refueling fleets. The MCS identified a need for between 520 and 640 air refueling aircraft to provide sufficient capability with acceptable risk.53 By the end of FY2008, the Air Force expects to have between 477 and 514 aircraft (0 to 37 KC-135Es,54 418 KC-135Rs, and 59 KC-10s). Thus, by the end of FY2008, the Air Force will potentially possess an air refueling fleet smaller than the one recommended by the MCS. Some analysts criticized the MCS for its methodology and focus. In September 2005, the Government Accountability Office (GAO) listed a number of shortcomings in methodology for the ongoing MCS.55 A more detailed GAO criticism followed in September 2006 after the final MCS was released.56 In light of the criticism, some have called for DOD or an independent agency to conduct another mobility study to rectify the MCS’s perceived shortcomings. Consequently, Section 1046 of the 2008 53 “Headquarters Air Mobility Command White Paper, KC-X: The Next Mobility Platform, The Need for a Flexible Tanker,” February 28, 2007, p. 4. 54 Section 135, 2008 National Defense Authorization Act allows the Air Force to retire 48 KC-135Es immediately and provides contingent authority to retire the remaining 37 KC135Es provided the KC-X contract has been awarded and any subsequent protests resolved. See H.Rept. 110-477, December 6, 2007, pp. 30-31. 55 Defense Transportation: Opportunities Exist to Enhance the Credibility of the Current and Future Mobility Capabilities Studies, Government Accountability Office, September, 2005. 56 Defense Transportation: Study Limitations Raise Questions About the Adequacy and Completeness of the Mobility Capabilities Study and Report, GAO, September 2006. CRS-15 National Defense Authorization Act (P.L. 110-181) directed DOD to conduct a comprehensive requirements-based study of fixed-wing airlift to include fullspectrum life-cycle costs of operating current KC-135 and KC-10 fleets, while also analyzing the impact of planned KC-X aircraft. This study is required to forecast requirements for 2012, 2018 and 2024 and is due to Congress by January 10, 2009.57 What Will KC-X Cost? On February 29, 2008, the Air Force awarded the KC-X contract to Northrop Grumman. The initial contract is for $1.5 billion to purchase four KC-45s for system design and development and includes five production lot options valued at $10.6 billion to procure an additional 64 aircraft. The Air Force expects the total KC-X program to cost approximately $35 billion.58 What Capabilities Should KC-X Have? Both KC-X competitors have the potential to significantly improve the airlift capability of DOD’s tanker fleet. One issue was how much airlift capability the air refueling fleet should provide. Also, based on growing threats, some argued that new tankers should be equipped with defensive systems. Airlift Capability: Doors and Floors. The Air Force envisions KC-X to be built from the outset with reinforced floors necessary for carrying either passengers or cargo in the fuselage, a cargo door sized to facilitate loading and off-loading, and defensive systems enabling a KC-X to operate in certain threat environments. Even though airlift is a secondary mission for KC-X, many believe the Air Force should continue to buy tankers that posses an airlift capabability. DOD’s Position. Several DOD leaders have pushed for airlift capacity on tankers. Some believe the 2006 QDR signaled support for a passenger and cargo requirement for KC-X as it stated, “the Department [of Defense] is also considering the acquisition of a future KC-X aircraft that will have defensive systems and provide significant cargo carrying capacity while supporting its aerial refueling mission.”59 Further, joint doctrine explains the value of having tankers with airlift capability. “Additionally, all USAF tanker aircraft are capable of performing an airlift role and are used to augment core airlift assets. Under the dual role concept, air refueling aircraft can transport a combination of passengers and cargo while performing air refueling. In some circumstances, it may be more efficient to employ air refueling aircraft strictly in an airlift role. Deploying air refueling units may be tasked to use their organic capacity to transport unit personnel and 57 H.Rept. 110-477, December 6, 2007, pp. 313-316. 58 Transcript, DOD News Briefing with Secretary of the Air Force Michael Wynne, Gen. Duncan McNabb, Sue Payton, and Gen. Arthur Lichte, Arlington, VA, February 29, 2008, online at [http://www.defenselink.mil/transcripts/transcript.aspx?transcriptid=4163]. 59 “Quadrennial Defense Review Report,” February 6, 2006, p. 54. CRS-16 support equipment or passengers and cargo from other units. Air refueling aircraft may also be used to support USTRANSCOM airlift requirements.”60 In April 2006, General Norton Schwartz, who at the time was Commander of U.S. Transportation Command, also expressed a strong preference for a multi-role tanker. “What we need is a multi-mission tanker that can do both boom and basket refueling, that can do passenger lift, some cargo lift, and have defensive systems that allow the airplane to go wherever we need to take it....if we’re going to war with Iran or Korea or over Taiwan or a major scenario, the first 15 to 30 days are going to be air refueling intensive. But what I’m talking about is the global war on terrorism, sir, for the next 15 or 20 or 25 years. That is not an air refueling intensive scenario and that’s why a multi-mission airplane to me makes sense.”61 How Tankers with Airlift Capability Might Be Employed. General Schwartz also expects the KC-X to “mitigate wear and tear on the C-5 and C-17.”62 The following scenario is an example of how a KC-X, with doors, floors, and defensive systems might arguably expand the flexibility of the airlift system. A KCX while flying a scheduled combat air refueling mission, could be subsequently retasked in-flight, land at an airfield located within a threat environment, upload battle casualties, and air evacuate the patients to needed medical care in another theater. This example is sometimes cited to illustrate how a KC-X, with defensive systems not currently found on KC-135s, might provide planners with additional options to execute an unplanned medical evacuation sortie — perhaps while also negating the need to tap a strategic airlift platform. Likewise, this scenario could be applied to the movement of other time-sensitive cargo or passengers. Finally, passenger and cargo capability allows joint commanders the opportunity to deploy aircraft support personnel and associated ground support equipment in tandem with their associated aircraft during aircraft deployment missions.63 By moving the aircraft, crews, support personnel and equipment together, deploying aviation units may be able to achieve operational status more quickly at their destination. Airlift Requirements. The Government Accountability Office (GAO) has criticized DOD for including a passenger and cargo requirement in KC-X without conducting required analyses. As a result, GAO made two recommendations to DOD. First, GAO recommended DOD direct the Air Force to determine, through analysis, if there is a gap, shortfall, or redundancy to justify adding a passenger or cargo capability to KC-X and to present results to the Joint Staff’s Joint 60 Joint Publication 3-17, “Joint Doctrine, Tactics, Techniques, and Procedures for Air Mobility Operations,” August 14, 2002, pp. V-1 and V-2. 61 “Senate Armed Services Subcommittee on Seapower Holds Hearing on FY2007 Budget: Transportation Command.” CQ Congressional Transcripts. April 4, 2006. 62 General Norton A. Schwartz (USAF), Commander, U.S. Transportation Command, Written Statement before the Senate Homeland Security and Governmental Affairs Committee, Federal Financial Management, Government Information, Federal Services, and International Security Subcommittee, September 27, 2007, p. 6. 63 Air Force Doctrine Document 2-6, Air Mobility Operations, March 1, 2006, p. 48. CRS-17 Requirement’s Oversight Council (JROC) for validation. DOD did not concur with this recommendation stating they believed the Air Force had presented sufficient analyses to the JROC to justify the addition of a passenger and cargo capability for KC-X. Second, the GAO recommended that DOD direct the Chairman, Joint Chiefs of Staff to notify the Under Secretary of Defense for Acquisition, Technology and Logistics before certifying the KC-X program to Congress. DOD concurred with this recommendation.64 Further, according the Air Force’s KC-X White Paper, “preliminary results of the in-progress Mobility Capability Study 06 show that tankers are least in demand when airlift assets are stretched most thin during the early deployment phase of a conflict.”65 This may be considered significant to some as the strategic airlift fleet is currently expected to grow to 301 aircraft (190 C-17s and 111 C-5s) — near the bottom of the MCS 05 required range of 292 to 383 strategic airlift aircraft.66 Cost of Airlift Capability. While many support having an airlift capability on the Air Force’s next generation tanker, this capability is not without costs. For example, the 2006 RAND Analysis of Alternatives (AOA) pointed out two potential costs to adding this capability will: ! ! “Require additional structure and systems, which increase the cost of each aircraft.”67 The AOA found that an air refueling fleet where every aircraft was equipped with airlift capability added 6% to total life-cycle costs compared to a fleet where no tankers were equipped with passenger and cargo capability.68 Increase fleet requirements because “the weight of the additional structure and systems means that each aircraft can carry less fuel.”69 Summary of Airlift Analysis. The RAND AOA found that the cost-benefit analysis of adding an airlift capability in future tankers to be “a matter for senior decisionmaker judgment.”70 The amount of airlift ultimately to be provided by the tanker fleet could have important implications for other air mobility programs. Defensive Systems. Defensive systems, such as missile warning devices, radar warning receivers, flares and chaff, facilitate a tanker aircraft’s primary 64 GAO-07-367R, “Defense Acquisitions: Air Force Decision to Include a Passenger and Cargo Capability in Its Replacement Refueling Aircraft Was Made without Required Analysis,” March 6, 2007, p. 17. 65 “Headquarters Air Mobility Command White Paper, KC-X: The Next Mobility Platform, The Need for a Flexible Tanker,” February 28, 2007, p. 6. 66 Ibid, p. 4. 67 Michael Kennedy et al., “Analysis of Alternatives (AoA) for KC-135 Recapitalization, Executive Summary,” RAND Corporation, 2006, p. 9. 68 Ibid, p. 14. 69 Ibid, p. 9. 70 Ibid. CRS-18 mission of in-flight air refueling by potentially enabling the tanker to operate closer to its refueling track, thus, making more fuel available on each mission. Operations in Iraq and Afghanistan have found tankers operating in an increasingly hostile threat environment. For example, the Air Force points out that tankers operating in U.S. Central Command’s theater were fired upon 19 times in FY2006. Additionally, defensive systems also increase a tanker’s capability in its secondary mission of airlift.71 Was the KC-X Competition Fair? In 2006, RAND Corporation concluded an Analysis of Alternatives (AOA) for recapitalizing the Air Force’s KC-135 fleet. RAND found that purchasing new commercially-derived tankers was the most cost-effective means of initially recapitalizing the fleet.72 As a result, the Air Force released a formal request for proposals (RFP) in early 2007.73 The Boeing Company responded to the RFP with the KC-767, a variant of the commercial 767-200, while Northrop Grumman teamed with European Aeronautic Defense and Space Company (EADS) to offer a tanker version of the Airbus 330-200. Request for Proposal. In January 2007, the Air Force released its formal Request for Proposal (RFP) for the KC-X acquisition program. Assistant Secretary of the Air Force, Sue Payton, reportedly emphasized that the Air Force had completed a rigorous review process for KC-X to ensure the RFP mirrors joint warfighting requirements.74 The RFP outlined nine primary key performance parameters: ! ! ! ! ! ! ! ! Air refueling capability Fuel offload and range at least as great as the KC-135 Compliant Communication, Navigation, Surveillance/Air Traffic Management (CNS/ATM) equipment Airlift capability Ability to take on fuel while airborne Sufficient force protection measures Ability to network into the information available in the battle space Survivability measures (defensive systems, Electro-Magnetic Pulse (EMP) hardening, chemical/biological protection, etc.) 71 “Headquarters Air Mobility Command White Paper, KC-X: The Next Mobility Platform, The Need for a Flexible Tanker,” February 28, 2007, p. 3. 72 KC-135 Recapitalization Analysis of Alternatives. Briefing to Congress. January 26-27, 2006. 73 “Air Force Posts KC-X Request for Proposals,” Air Force Print News Today, January 31, 2007, online at [http://www.af.mil/news/story.asp?id=123039360]. 74 “Air Force Posts KC-X Request for Proposals,” Air Force Print News Today, Press Release 070107, January 30, 2007, online at [http://www.af.mil/pressreleases/ story_print.asp?id=123039273]. CRS-19 ! Provisioning for a multi-point refueling system to support Navy and Allied aircraft75 In November 2007, Ms. Payton explained the evaluation criteria that the Air Force used in determining the KC-X competition. The KC-X evaluation factors are: ! ! ! ! ! Factor 1 - Mission Capability. Mission capability includes five subfactors listed in descending order of importance: ! Subfactor 1.1 - Key System Requirements ! Subfactor 1.2 - Subsystem Integration and Software ! Subfactor 1.3 - Product Support ! Subfactor 1.4 - Program Management ! Subfactor 1.5 - Technology Maturity and Demonstration Factor 2 - Proposal Risk Factor 3 - Past Performance Factor 4 - Cost/Price Factor 5 - Integrated Fleet Air Refueling Assessment76 The Air Force considered the first three KC-X evaluation factors of equal importance. The final two factors were considered of equal importance, but less important relative to the first three criterion. Lastly, the Air Force regarded “Factors 1, 2, 3, and 5, when combined, [to be] significantly more important than factor 4.”77 RFP Analysis. There was considerable comment in the media questioning whether the draft (December 2006) of the KC-X request for proposal (RFP) was biased toward the capabilities apparent in Boeing’s KC-767. Close review of this RFP was partially the result of the controversy surrounding the 2001 tanker lease proposal. It is important to note within this context, that the primary consideration in DOD’s overall weapon acquisition system is designed to be meeting warfighter requirements, not what is most profitable to “Company X” or “Company Y.” Northrop Grumman and Airbus reportedly complained that the original KC-X RFP did not adequately address how the Air Force would evaluate the candidate aircraft’s airlift capability. Reportedly, they feared that the Air Force might not weight the score of KC-30’s airlift capabilities in a favorable manner. In the absence of detailed airlift evaluation information, however, Airbus could have offered a smaller aircraft, such as its A300/A310 class, which it might believe corresponded more closely to Air Force requirements.78 Similarly, if Boeing 75 Ibid. 76 USAF slide obtained from “Performance Comes First,” Air Force Association Daily Report, November 21, 2007, online at [http://dailyreport.afa.org/AFA/Reports/ 2007/Month11/Day21/1028factors.htm]. 77 78 Ibid. The last A300/A310 class aircraft were produced in 2007 and the A300/A310 production line was terminated. However, if Airbus believed that a smaller sized tanker was more compatible with Air Force requirements and therefore more competitive than a larger A330(continued...) CRS-20 concluded the Air Force desired a larger aircraft with more airlift capability, it could have conceivably offered the Boeing 777 aircraft or a larger variant of the Boeing 767 design. Reduced demand for defense-unique systems and the resulting consolidation of the defense industrial base has frequently reduced the number of companies available to provide a given defense article, which can adversely affect competition. Therefore, often some compromise between a warfighter’s “perfect world” requirements and real world industrial capabilities is unavoidable. However, substantially modifying warfighter requirements or Key Performance Parameters (KPPs)79 to jibe with what industry wants to offer, may appear to some to reflect an imbalance between requirements and capabilities. As DOD refined its final requirement, most observers saw nothing obvious in the KC-X RFP that would inherently bias the contract award in favor of any platform that could be offered by the competitors. The RFP made clear, however, that the aircraft’s primary mission is refueling DOD and allied aircraft with the flying boom mechanism. Any passenger or cargo carrying capability was deemed a “secondary mission.” Additionally, at the beginning stages of its recapitalization program, the Air Force potentially has great flexibility in pursing the best KC-X match now as requirements for planned programs such as KC-Y and KC-Z can later be adapted to best complement the KC-X selection. Comparing the Competitors. According to many defense analysts, both competitors’ proposals offered key improvements over the KC-135 by including: ! ! ! ! ! Receiver in-flight refueling capability Defensive systems Advanced booms capable of refueling both “boom” and “drogue” receivers on the same mission Improved airlift capacity and utility Wing-mounted pods for hose and drogue systems. However, debate surrounding the competing proposals often focused on differences in size. The following is a brief description of both the Boeing KC-767 and Northrop Grumman KC-30 aircraft submissions along with highlights of some issues frequently raised through the media. Boeing KC-767. Boeing touted its entrant, a version of the Boeing 767-200 as the “right-sized” tanker. Proponents of the KC-767 argue that it is most similar 78 (...continued) class aircraft, Airbus could have taken steps to keep the line available for production. 79 Key Performance Parameters (KPP) are defined as “those attributes or characteristics of a system that are considered critical or essential to the development of an effective military capability and those attributes that make a significant contribution to the key characteristics as defined in the Joint Operations Concept.” Defense Acquisitions University Glossary of Defense Acquisitions Acronyms and Terms, 12th Edition, online at [https://akss.dau.mil/pv/ glossary.aspx]. CRS-21 in size and offload capacity to the KC-135. Further, proponents stated that the KC767’s smaller “footprint” compared to the competing KC-30 might enable it to better utilize potentially limited ramp space in forward operating locations. Additionally, proponents believed the smaller KC-767 to be potentially more fuel efficient due to its lower gross weight leading to less fuel being burned in transit.80 Selected KC-767 aircraft specifications are listed in Appendix D. Northrop Grumman KC-30. Northrop Grumman, on the other hand, believed the KC-30, based on the Airbus 330-200, offered superior value in comparison to the KC-767 because of its larger size. KC-30 proponents espoused the aircraft’s potentially greater fuel offload capability and larger airlift capacity in terms of weight, pallet positions and passengers when compared to the KC-767. As a result, KC-30 proponents believed their aircraft would reduce the number of aircraft required to meet some potential operational scenarios.81 Selected KC-30 aircraft specifications are listed in Appendix E. International Customers. Both competitors have secured international customers. Boeing currently has two international customers for the KC-767 — Italy (4) and Japan (4).82 Likewise, Saudi Arabia (3),83 Australia (5), the United Arab Emirates (3), and the United Kingdom (14) plan to buy the KC-30 from Airbus, a division of EADS.84 While some look to the international orders as a potential signpost for how the Air Force’s KC-X selection should proceed, others will point out that each country has made its selection based on the unique military requirements that face each nation. Likewise, DOD’s requirements may differ considerably from other nations that have recently purchased tanker aircraft. What are the Economic and Trade Effects of KC-X? On February 29, 2008, the Air Force awarded the KC-X contract to Northrop Grumman.85 Some Members of Congress have voiced concerns over the Air Force’s selection of Northrop Grumman. Though a significant portion of the Boeing 767 is manufactured outside of the United States and major components of the A330 come from U.S. suppliers, the partnering of Northrop Grumman with the U.S. subsidiary of a Europe-based aerospace company has raised concerns for some. Issues raised by Members in Congress often draw particular attention to Boeing and Airbus disputes currently before the World Trade Organization (WTO), potential effects on 80 Online at [http://www.boeing.com]. 81 “KC-30 Tanker: Total Air Mobility,” online at [http://www.northropgrumman.com/kc30]. 82 “The Boeing Company: Boeing 767 Military Versions,” Jane’s All The World’s Aircraft, March 14, 2007, online at [http://www.janes.com]. 83 Marcus Weisgerber, “Saudi Arabia to Buy Three Airbus A-330 Multirole Tankers, EADS Says,” Inside the Air Force, January 4, 2008. 84 “Airbus Industrie: Airbus Multirole Tanker Transport (MRTT),” Jane’s All The World’s Aircraft, January 21, 2008, online at [http://www.janes.com]. 85 “Tanker Contract Award Announced,” Air Force Print News, February 29, 2008, online at [http://www.af.mil/news/story.asp?id=123088392]. CRS-22 the U.S. aviation industrial base, and questioning whether the contract met the requirements of the Buy America Act. WTO Dispute. The U.S. government has alleged that Airbus’ parent company, European Aeronautic and Defense Company (EADS), received illegal subsidies from European governments. Likewise, the European Union (EU) has charged that Boeing has received illegal subsidies from the United States. Both disputes are being litigated with the World Trade Organization (WTO).86 Reportedly, a WTO ruling regarding the U.S. government charges against EADS may come by summer2008,87 while the WTO may rule on the EU’s case against Boeing by November 2008.88 However, some have suggested that an initial ruling may not bring final resolution to the dispute due to the complexity of the cases and the potential for further litigation.89 Some in Congress observe that if the WTO dispute is resolved in favor of the U.S. government,90 that the WTO could under some circumstances allow the United States to apply tariffs to goods manufactured by Airbus — goods that would not otherwise be subject to tariffs. Further, some have expressed concern that American taxpayers could potentially be forced to pay increased costs for the KC-45 as a result of potential tariffs levied on Airbus products. In response to this concern while testifying before Congress in March 2008, Under Secretary of Defense for Acquisition, John Young, stated, “WTO rulings cannot be passed along to the Air Force or the Department of Defense as a cost on a contract with the Department of Defense. So if there is a ruling [against EADS] and a penalty, it can’t be passed along to us as a cost.”91 Others have questioned whether the Air Force’s award of the KC-X contract to Northrop Grumman could possibly affect the United State’s leverage in settling the Airbus-Boeing WTO dispute. For example, some in Congress have suggested that the award of a contract of the size of the KC-X program that has the potential to 86 For an overview of the Boeing/Airbus WTO trade dispute, see CRS Report RL34381, European Union — U.S. Trade and Investment Relations: Key Issues, coordinated by Raymond J. Ahearn. 87 “Schwab Says Airbus WTO Case Unaffected by Tanker Decision,” Inside U.S. Trade, March 7, 2008, online at [http://www.insidetrade.com/secure/dsply_nl_txt.asp?f=wto2002. ask&dh=106446419&q=]. 88 Timothy R. Homan, “WTO Rulings Could Fuel Legislative Fight Brewing Over Tanker Contract,” CQ Today, March 6, 2008, p. 3. 89 Robert Herzstein, “Don’t Expect the WTO to Resolve the Boeing-Airbus Dispute,” European Affairs, Spring/Summer 2006, online at [http://www.europeanaffairs.org/ current_issue/2006_spring_summer/2006_spring_summer_08.php4]. 90 Any possible retaliation sanctioned by the WTO could take many months, if not years, to materialize. At this point in time, retaliation is very much hypothetical, as is guessing which sectors or products may potentially be retaliated against. 91 Transcript from the House Armed Services Subcommittee on Air and Land Forces and Subcommittee on Sea and Expeditionary Forces Hold Joint Hearing on the Department of the Navy and Air Force Tactical Aviation Programs, March 11, 2008. CRS-23 benefit a company our government has lodged a complaint against with the WTO could send mixed signals.92 On the other hand, some have suggested that the political controversy surrounding the award of the KC-X contract to a consortium that involves Airbus may increase the likelihood Airbus will attempt to settle its dispute with Boeing outside of the WTO process in an effort to secure support from members of Congress. Further, others have speculated that the potential financial boost that Airbus may enjoy from the KC-X contract could possibly reduce Airbus’s need to rely on what some perceive as aircraft launch assistance subsidies.93 Still other observers see only a remote impact of the KC-X contract on the willingness of either Boeing or Airbus to settle the dispute prior to a WTO ruling. For example, Susan Schwab, U.S. Trade representative, reportedly stated, “the Air Force procurement has no impact on our efforts in Geneva to address the launch aid problem.”94 Some in Congress have suggested that Congress should block contracts from going to foreign companies accused of funding their programs with illegal subsidies.95 However, some analysts counter that the commercial aircraft industry, like the personal computer and automobile industries, has globalized, drawing on the relative strengths of specialized suppliers of components and expertise from around the world. As a result, the two primary manufacturers, Boeing and Airbus, have both outsourced key parts of their production processes to overseas firms.96 Further, some caution that potential trade legislation may “have major repercussions” that may prove harmful to the U.S. industrial base in the long term.97 To illustrate the impact of globalization on the commercial airliner manufacturing industry, a list of subcontractors, corporate parent domiciles and sub-components found on the commercial variants of the Boeing 767 and Airbus 330 is provided in Appendix F. U.S. Industrial Base Implications. Some in Congress are concerned about the implications of awarding the KC-X contract to Northrop Grumman on the United States industrial base. However, during testimony to Congress, Assistant Secretary of the Air Force, Ms. Sue Payton, stated that, “job creation, location of assembly and manufacturing were not part of this evaluation criteria, according to the law” and that “industrial capacity was not part of the evaluation criteria.”98 To some, there are 92 Ibid. 93 “Schwab Says Airbus WTO Case Unaffected by Tanker Decision,” Inside U.S. Trade, March 7, 2008, online at [http://www.insidetrade.com/secure/dsply_nl_txt.asp?f=wto2002. ask&dh=106446419&q=]. 94 Ibid. 95 John M. Donnelly, “Air Force Contract Draws More Fire,” CQ Today, March 4, 2008, pp. 1, 4. 96 Gary Clyde Hufbauer, “Boeing vs. Airbus: Fighting the Last War,” Op-ed in Handelsblatt, June 19, 2007, online at [http://www.petersoninstitute.org/publications/ opeds/ print.cfm?doc=pub&ResearchID=773]. 97 Timothy R. Homan, “WTO Rulings Could Fuel Legislative Fight Brewing Over Tanker Contract,” CQ Today, March 6, 2008, p. 3. 98 Transcript from Hearing on Contract Award for Tanker Replacement Program, Committee (continued...) CRS-24 significant differences between the economic impact of the Boeing and Northrop Grumman proposals. Making an authoritative, “apples-to-apples” comparison on the amount of direct and indirect jobs from either contractor’s proposal is nearly impossible. For example, both companies may have used differing methodology and assumptions in calculating their estimates and estimates are frequently revised. Further, how the contract award may potentially affect the long-term military industrial base is unclear. Boeing’s KC-X plan calls for aircraft assembly to occur at its Everett, Washington plant. Further, Boeing’s proposal would convert the 767 into a tanker at its plant in Wichita, Kansas. Boeing claims that 44,000 American workers from 300 U.S. suppliers would be involved in building the KC-767 Advanced Tanker.99 As of January 1, 2008, Boeing had orders to deliver an additional 52 aircraft in the 767 product line.100 Boeing supporters may contend that losing the KC-X line will result in Boeing’s 767 line becoming unprofitable and subsequently closing. Others may counter that losing the KC-X may allow Boeing to concentrate more heavily on its 787 commercial airliner — an aircraft that Boeing had received 817 orders for as of January 1, 2008.101 Northrop Grumman plans to assemble the KC-45 in a new plant planned for Mobile, Alabama — a move it believes will result in the creation of 2,000 new jobs. Northrop Grumman originally indicated their proposal would result in 25,000 direct and indirect American jobs based a Department of Commerce jobs projection model. More recently, Northrop Grumman raised its job estimate to approximately 48,000 direct and indirect jobs and 230 suppliers from 49 states. Northrop Grumman based the revised estimate on feedback received from suppliers and a Department of Labor formula that projects jobs by specific region.102 Further, EADS announced plans in January 2008 to conduct final assembly of all freighter versions of the Airbus 330200 in Mobile, Alabama — raising the potential for creating new domestic jobs if their candidate were chosen for KC-X.103 Some have estimated a market for 200 Airbus 330-200 freighters over the next 10 years and as of January 2008, Airbus had 98 (...continued) on Appropriations, Subcommittee on Defense, United States House of Representatives, March 5, 2008. 99 Boeing press release, “Boeing KC-767 Tanker Win Would Benefit Arizona Economy,” November 26, 2007. 100 “The Boeing Company: Boeing 767,” Jane’s All the World’s Aircraft, February 15, 2008, online at [http://www.janes.com]. 101 “The Boeing Company: Boeing 787 Dreamliner,” Jane’s All the World’s Aircraft, February 20, 2008, online at [http://www.janes.com]. 102 Press release, “Northrop Grumman Updates Job Projections for Air Force KC-45A Program,” March 11, 2008, online at [http://www.irconnect.com/noc/press/pages/ news_releases.html?d=138001]. 103 Jen DiMascio, “Airbus Vows to Boost Business in Alabama If it Can Make Tankers There,” Defense Daily, Vol. 237, Issue 9, January 15, 2008. CRS-25 orders for approximately 60 aircraft.104 Thus, proponents of Northrop Grumman’s KC-X proposal may believe that the long-term economic benefits of obtaining an Airbus commercial airline production line on U.S. soil are potentially substantial. Buy American Act. Some have questioned whether Northrop Grumman’s proposal satisfies requirements in the Buy American Act105 which requires the federal government to purchase domestically manufactured goods. The statute defines goods to have been domestically manufactured if their components have “substantially all” been mined, produced, or manufactured within the United States. The definition of “substantially all” has been left to the Federal Acquisition Regulations (FAR). In the FAR, a good is considered “domestic” if the cost of domestically produced components exceeds 50% of the value of the whole article.106 One way a KC-X contractor could potentially satisfy requirements of the Buy American Act is by having 50% or more of total cost of their proposed aircraft produced in the United States. Reportedly, approximately 85% of Boeing’s KC-X proposal would be manufactured in the United States.107 Further, Northrop Grumman claims that “at least 58 percent” of its proposal will be comprised of products manufactured by American companies.108 Based on those calculations, both proposed aircraft would appear to satisfy Buy American Act requirements. What Is the Impact of Boeing’s Protest? Throughout the KC-X competition, there has been a great deal of speculation in the media that the award of the KC-X contract would be followed by a bid protest. Competitors are allowed to protest the award of government contracts to the Government Accountability Office.109 Air Force officials debriefed both Boeing and Northrop Grumman officials on how their respective bids were scored in March 104 “Airbus 330,” Jane’s All the World’s Aircraft,” February 19, 2008, online at [http://www.janes.com]. 105 For more information, see CRS Report 97-765, The Buy American Act: Requiring Government Purchases to Come from Domestic Sources, by John R. Luckey. 106 FAR § 25.101. Members have occasionally attempted to codify a definition of “substantially all.” The most recent example is S. 581, introduced in the Senate by Senator Russell D. Feingold on February 14, 2007. The bill would have accepted goods as domestically produced “if the cost of the domestic components of such articles, materials, or supplies exceeds 75 percent of the total cost of all components of such articles, materials, or supplies.” 107 Eric Rosenburg, “Boeing Duels for Tanker Deal,” Seattle Post-Intelligencer, September 30, 2007, online at [http://seattlepi.nwsource.com/business/333751_tanker01.html]. 108 “Northrop Grumman’s KC-45 Tanker: Making the Right Choice,” January 25, 2007, online at [http://www.northropgrumman.com/kc45/benefits/choice.html]. 109 For more information on “Protest” process see GAO-06-797SP, “Bid Protest at GAO: A Descriptive Guide,” Eighth Edition, 2006. CRS-26 2008. On March 11, 2008, Boeing protested the Air Force’s decision to the GAO.110 On March 26, 2008, both the Air Force and Northrop Grumman separately filed motions for the GAO to dismiss portions of Boeing’s protest;111 however, the GAO rejected these motions.112 Work on the KC-45A stopped while the GAO considered the protest.113 Boeing’s protest is based on a perception that the Air Force used a flawed process in the KC-X selection process. For example, in a press release detailing Boeing’s rationale for protesting, Boeing stated: It is clear that frequent and often unstated changes during the course of the competition — including manipulation of evaluation criteria and application of unstated and unsupported priorities among the key system requirements — resulted in selection of an aircraft that was radically different from that sought by the Air Force.114 Further, Boeing stated that both teams received identical ratings across the five evaluation areas in the KC-X competition. Boeing claims that the Air Force’s treatment of both Boeing’s cost estimates and Boeing’s past experience of building Air Force tankers, if scored differently, could have affected the outcome of the source selection.115 In response to Boeing’s protest the an Air Force press release stated: Proposals from both offerors were evaluated thoroughly in accordance with the criteria set forth in the Request for Proposals. The proposal from the winning offeror is the one Air Force officials believe will provide the best value to the American taxpayer and to the warfighter. Air Force members followed a carefully structured process, designed to provide transparency, maintain integrity and promote fair competition. Air Force members and the offerors had hundreds of formal exchanges regarding the proposals throughout the evaluation process. Air Force officials provided all offerors with continuous feedback through discussions on the strengths and weaknesses of their proposals. Several 110 Boeing News Release, “Boeing Protests U.S. Air Force Tanker Contract Award,” March 11, 2008, online at [http://www.boeing.com/ids/globaltanker/news/2008/q1/080311b_ nr.html]. 111 Andrea Shalal-Esa, “Air Force, Northrop Ask GAO to Dismiss Boeing Protest,” Reuters, March 26, 2008. 112 Susanna Ray and Edmond Lococo, “Northrop Loses Effort to Dismiss Boeing Protest,” Bloomberg News, April 2, 2008, online at [http://www.bloomberg.com/apps/news?pid= newsarchive&sid=a2hruo2xpyFQ]. 113 Sean Reily, “Air Force Keeps Tanker Freeze,” Mobile Press-Register, March 18, 2008, online at [http://www.al.com/press-register/stories/index.ssf?/base/news/120583171412090. xml&coll=3]. 114 Boeing Company News Release, “Boeing Protests U.S. Air Force Tanker Contract Award,” March 11, 2008, online at [http://www.boeing.com/news/releases/2008/q1/ 080311b_nr.html]. 115 Ibid. CRS-27 independent reviews assessed the process as sound and thorough.116 Even before the Air Force awarded the KC-X contract to Northrop Grumman, Force leaders openly worried that any potential protest could result in KC-X program delays. For example, recently the Air Force’s acquisition deputy, Lt. Gen. Donald Hoffman, expressed concern that FY2008 dollars could be put at risk by a protest. However, Congress could potentially remedy this situation by shifting the money to the Air Force’s Tanker Transfer Fund — an account Congress established that essentially allows the Air Force flexibility to later designate the year and account for KC-X expenditures.117 Former Air Force Chief of Staff, Gen. T. Michael Moseley, publically voiced his concern with a possible protest stating, “look what’s happened to us with the [CSAR-X] helicopter. We lost $800 million in this protest and lost over a year and a half of operational time because of not being able to field an airplane.”118 However, defense contractors have a statutory right to protest contract decisions. To many, this right provides both transparency and fairness to the government’s acquisition process. Why Did the GAO Sustain the Protest? On June 18, 2008, the GAO announced that it had completed its examination of DOD’s decision to award Northrop Grumman the KC-X contract (for 80 aircraft) and found that Boeing’s complaint had merit.119 GAO’s managing associate general counsel for procurement law, Michael R. Golden, stated: Our review of the record led us to conclude that the Air Force made a number of significant errors that could have affected the outcome of what was a close competition between Boeing and Northrop Grumman. We therefore sustain Boeing’s protest. We also denied a number of Boeing’s challenges to the award to Northrop Grumman, because we found that the record did not provide us with the basis to conclude that the agency had violated the legal requirements with respect to those challenges. The GAO recommended that discussions between the government and the bidders be resumed, that bidders be given the opportunity to submit revised proposals, and that the Air Force make a new decision based on this additional input. 116 “Air Force Officials Respond to Boeing Protest,” Air Force Print News Today, March 12, 2008, online at [http://www.af.mil/news/story_print.asp?id=123089878]. 117 Marcus Weisgerber, “Hoffman: Industry KC-X Tanker Protest Could Put Funding at Risk,” Inside the Air Force, February 22, 2008. 118 David A. Fulghum, “Moselely Looks Forward to Getting First New Tankers,” Aerospace Daily & Defense Report, February 29, 2008, p.2. 119 GAO, “Statement Regarding the Bid Protest Decision Resolving the Aerial Refueling Tanker Protest By The Boeing Company B-311344 et al.,” Government Accountability Office (Washington, D.C.), June 18, 2008. Available on the World Wide Web at [http://www.gao.gov/press/boeingstmt.pdf]. CRS-28 The Air Force is not statutorily obliged to heed GAO’s recommendations but must respond to them within 60 days (August 17, 2008).120 The GAO made clear that it was not passing judgement on the relative merits of the proposed aircraft. Instead, the GAO assessed whether the Air Force complied with statutory and regulatory requirements in evaluating the competing bids. GAO cited seven specific reasons for sustaining portions of the Boeing protest, which are summarized below: 1. The Air Force evaluation did not follow the prioritization of technical requirements specified in its own solicitation. Nor did it give credit to the Boeing proposal for satisfying the greater number of non-mandatory technical criteria, though the solicitation expressly requested this. 2. The Air Force used the degree to which the Northrop Grumman bid exceeded a specific key performance objective as an important discriminator between proposals, despite the solicitation’s provision stating that this would not be the case. 3. Solicitation required that proposed tankers be able to refuel all fixed-wing, tanker-compatible Air Force aircraft using existing Air Force procedures. The protest record did not support the Air Force’s determination that the Northrop Grumman proposal did so. 4. Air Force discussions with each of the bidding companies were unequal and misleading. Boeing was told that it had fully satisfied a key operational utility parameter, yet the Air Force later determined that the Boeing proposal only partially met the requirement. The Air Force continued its discussion with Northrop Grumman on the same key parameter without informing Boeing that its assessment had changed. 5. Northrop Grumman refused to agree to a specific solicitation requirement regarding the development of Air Force maintenance capability within a specified period. The Air Force unreasonably assessed this to be an “administrative oversight” and awarded the contract improperly in light of this exception to a material solicitation requirement. 6. The Air Force unreasonably evaluated the military construction (hangers, runways, parking aprons, etc.) required to sustain each of the proposed aircraft. During the protest proceedings, the Air Force conceded that calculations properly performed would have resulted in a most probable 120 GAO also recommended that the Air Force consider amending its proposal solicitation before engaging the companies in the discussions, that it reimburse Boeing for the cost of filing and pursuing the protest, and that it terminate the existing contract with Northrop Grumman if Boeing’s proposal is ultimately selected. CRS-29 life cycle cost for the Boeing offer lower than that for the Northrop Grumman proposal.121 7. The Air Force improperly adjusted upward Boeing’s estimate of the non-recurring (i.e., one-time) engineering portion of its most probable life cycle cost value. The Air Force would have been able to do so had it found the cost to be unreasonably low, but it did not. Additionally, the cost model used by the Air Force to adjust this cost estimate was unreasonable. Because the 69-page GAO decision contains sensitive proprietary and source selection information, it was issued under a protective order and is not available to the public. The GAO has directed counsel for the parties to identify information that cannot be publicly released so that a redacted version may be released and posted on the agency’s website ([http://www.gao.gov]). GAO typically releases a redacted public version of a protected decision within two to three weeks after it is issued.122 Can DOD Split the Tanker Contract Between the Competitors? Some suggested that the Air Force should split its KC-X acquisition program between Boeing and Northrop Grumman. Although the Air Force has awarded a contract to acquire the first 68 KC-45s to Northrop Grumman, some may believe future KC-X contracts, or potentially the expected KC-Y and KC-Z follow-on acquisition programs, should be competitively sourced. RAND’s analysis of alternatives found that, “a mixed [Air Force tanker] fleet ... has comparable cost-effectiveness, so there is no reason to exclude a priori an Airbus-Boeing mixed buy on cost-effectiveness grounds.”123 Others, including 66 Members of Congress, have indicated they believe that “the Air Force’s “winner take all” KC-X competition remains the most cost-effective approach to initiating modernization of the tanker fleet.”124 Further, some have suggested that the idea of a split buy was promoted by the Northrop Grumman team as a hedge against potentially losing the KC-X deal.125 121 Life cycle cost refers to the total cost of owning, operating, maintaining, and disposing of a given asset. It is often referred to as “cradle-to-grave” cost. Life cycle costs are calculated within a range, from lowest to highest. The “most probable” cost is the one calculated to have the statistically highest probability of being true. 122 For additional information on the GAO bid protest decision process, see Bid Protests at GAO: a Descriptive Guide, Eighth Ed., 2006 (GAO-06-797SP), available on the World Wide Web at [http://www.gao.gov/decisions/bidpro/bid/d06797sp.pdf]. 123 Michael Kennedy et al., “Analysis of Alternatives (AoA) for KC-135 Recapitalization, Executive Summary,” RAND Corporation, 2006, p. 12. 124 Letter from Members of the House of Representatives to Secretary of the Air Force Michael Wynne, October 2, 2007, online at [http://www.insidedefense.com/ secure/data_extra/pdf6/dplus2007_3355_1.pdf]. 125 Demetri Sevastopulo, “U.S. Air Force Will Not Split Tanker Contract,” Financial Times, (continued...) CRS-30 Arguments Favoring a Split Buy.126 A leading proponent of “split buy” KC-X acquisition is Dr. Jacques Gansler, a former Under Secretary of Defense for Acquisition, Technology and Logistics during the Clinton Administration. Dr. Gansler has termed his proposal as “Competitive Dual Sourcing” — a concept that would have Boeing and Northrop Grumman compete annually/periodically — as often as DOD were to reopen bidding — for portions of the KC-X acquisition. Dr. Gansler believes that “Competitive Dual Sourcing” is a particularly good fit for the KC-X program as both competing aircraft already have established worldwide logistics networks. Dr. Gansler’s analysis is based on comparisons of the cost growth for ten DOD aircraft programs developed without production competition to the cost of seven commercial aircraft produced in a competitive environment. He found the ten single-source DOD acquisition programs had an average cost increase of 46 percent, while the average of the seven competitively produced commercial airliners had an average cost decrease of 16% over the life of the program. When analyzing potential savings for the KC-X program, Dr. Gansler, assumed a purchase of 100 new tankers with a base price of $125 million dollars and a 75/25 split favoring the best-value candidate.127 Based on these assumptions, he found a competitively sourced tanker acquisition would potentially generate $7.7 billion in cost savings compared to a single source tanker program provided the cost growth averages of the single-source and competitively sourced aircraft programs examined earlier in his study were repeated in the KC-X program.128 Some may counter that Dr. Gansler’s study does not definitively conclude dual-sourcing will garner savings or that the magnitude of potential savings would outweigh operational costs, thus resulting in a lower life-cycle cost for DOD. However, proponents may counter that the quantity of the Air Force’s projected KC-X purchase — 179 aircraft compared to 100 aircraft in Dr. Gansler’s study — could potentially yield greater savings than those found in the study. Arguments Against a Split Buy.129 Opponents have expressed opposition to a split buy acquisition strategy for a variety of reasons. Secretary of the Air Force 125 (...continued) August 6, 2007. 126 Many of the arguments in favor of a split-buy are consistent with arguments for the JSF F-136 Alternate Engine. For more information on this program, see CRS Report RL33390, Proposed Termination of Joint Strike Fighter (JSF) F136 Alternate Engine, by Anthony Murch and Christopher Bolkcom. 127 Dr. Gansler’s analysis considered a 75/25 split to be illustrative and found other splits such as 60/40, etc. could be expected to produce similar savings. 128 Jacques S. Gansler and William Lucyshyn, “Competition in the USAF Tanker Replacement Program,” presentation slides, June 12, 2006, slides 18-19, 24, 35, and 40. 129 Many argued that DOD should have split the award of the Joint Strike Fighter (JSF) program between the competitors. DOD chose instead to award the contract to a single team. Many of the arguments for this decision are consistent with arguments against a split purchase of tankers. For more information, see CRS Report RL31360, Joint Strike Fighter (JSF): Potential National Security Questions Pertaining to a Single Production Line, by Christopher Bolkcom and Daniel Else. CRS-31 Michael Wynne reportedly believes the Air Force lacks funding to buy tankers in sufficient numbers to justify a split arrangement as he stated, “the cost of that would be prohibitive, unless there was sufficient funding to essentially buy between 24 and 30 [annually].”130 One analyst cited the cost of maintaining separate supply chains and dual training programs for aircrew and mechanics when he stated, “dual sourcing is a bad idea that would waste billions.”131 In addition to the costs of operating an air refueling fleet comprised of potentially four aircraft (KC-10, KC-135, KC-30 and KC-767) some in Congress believe a split purchase would add needless operational complexity. Those that hold this view believe the planned fleet — consisting of three tanker aircraft types — will already provide flexibility. Further, some have noted the Air Force plans at least two additional tanker competitions (KC-Y and KC-Z) in the future.132 To some, these potential future programs offer avenues to reopen competition in the future. Further, a senior Air Force official reportedly told members of Congress that shifting to a split-buy acquisition strategy would result in a contract delay of 12 to 18 months while doubling development costs to $4 billion.133 Where Might KC-X Aircraft Be Based? Aircraft basing decisions are often based on operational considerations, available infrastructure, and environmental impact among other concerns. In January 2008, the Air Force released an “Air Force Roadmap” for each of it major mission areas. The Roadmap lists the following as potential bases “being considered” for new KC-X aircraft: Altus AFB, OK; Andrews AFB, MD; Bangor International Airport, ME; Birmingham International Airport, AL; Edwards AFB, CA; Eielson AFB, AK; Forbes Field, KA; Grand Forks AFB, ND; Grissom Air Reserve Base, IN; Hickam AFB, HI; Lincoln Municipal Airport, NE; MacDill AFB, FL; March Air Reserve Base, CA; McConnell AFB, KS; McGhee Tyson Airport, TN; McGuire AFB, NJ; Pease Air National Guard Base, NH; Phoenix Sky Harbor International Airport, AZ; Pittsburgh International Airport, PA; Rickenbacker International Airport, OH; Salt Lake City International Airport, UT; Scott AFB, IL; Selfridge Air National Guard Base, MI; Seymour Johnson AFB, NC; Sioux Gateway Airport, IA; and Tinker AFB, OK.134 130 Andrea Shalal-Esa, “U.S. Air Force Sees Single Tanker Winner,” Reuters, December 4, 2007. 131 George Talbot, “Lawmakers: Don’t Split Tanker Contract; Boeing Supporters — 14 Senators and 48 Representatives — Write to Air Force,” Mobile Press-Register, October 13, 2007. 132 Letter from Senators to Secretary of the Air Force Michael Wynne, October 10, 2007, online at [http://www.insidedefense.com/secure/data_extra/pdf6/dplus2007_3355_2.pdf]. 133 Andrea Shalal-Esa, “Split Buy of U.S. Tankers Could Save Billions - Study,” Reuters, August 3, 2007. 134 “Air Force Roadmap,” online at [http://www.af.mil/library/airforceroadmap/globalreach. asp]. CRS-32 More recently, Air Force Chief of Staff, Gen. T. Michael Moseley, reportedly said that he expects the first KC-45 to go to Edwards AFB, CA, for operational testing. He anticipates the next few aircraft to be assigned to Altus AFB, OK, the current training base for KC-135s, where pilots and boom operators will validate the training syllabi for the KC-45. Gen. Moseley reportedly stated that the first operational KC-45s will go to one of four bases — Fairchild AFB, WA; Grand Forks AFB, ND; MacDill AFB, FL; or McConnell AFB, KA.135 Potential Options to Augment KC-X Recapitalization RAND’s 2006 Analysis of Alternative’s (AOA) concluded that purchasing new, commercial off-the-shelf aircraft to recapitalize DOD’s tanker fleet is the least expensive option for recapitalizing the KC-135 fleet from a life-cycle cost perspective — a view widely shared among defense analysts. However, this course of action is also capital intensive in the near-term when compared with other potential courses of action. Considering other budget pressures faced by DOD, it might be infeasible to purchase 500 new tanker aircraft. At least three options could be pursued to augment the KC-X program: ! ! ! Buy and convert surplus commercial airliners into military tankers Re-engine some fraction of the KC-135E fleet Develop commercial Fee-For-Service aerial refueling (FFS AR) Convert Used Commercial Aircraft into Tankers The Air Force has argued against purchasing surplus commercial aircraft and converting them into military tankers. However, RAND’s AOA appears to agree with the earlier DSB study — although with distinct caveats — that purchasing used aircraft may merit additional study. RAND’s AOA found that purchasing used aircraft as tankers is “generally not as cost effective” (as purchasing new aircraft), but “...close enough in estimated cost to not exclude it from competition.”136 Some have suggested that surplus DC-10 aircraft, in particular, might offer attractive means of acquiring air refueling capabilities for less money up-front.137 Those that hold this view point out the Air Force already operates the similar KC-10 — a commercial derivative that “retains 88 percent systems commonality with the DC-10.”138 Thus, significant additional investments may not be required in operations, maintenance, and supply if surplus DC-10s were procured and converted 135 David A. Fulghum, “Moselely Looks Forward to Getting First New Tankers,” Aerospace Daily & Defense Report, February 29, 2008, p.2. 136 Ibid, p. 12. 137 Defense Science Board Task Force Report on Aerial Refueling Requirements, May 2004, p. 36. 138 USAF Fact Sheet, KC-10 Extender, September 2006, online at [http://www.af.mil/ factsheets/factsheet.asp?id=109]. CRS-33 into Air Force tankers. Likewise, some may suggest that surplus aircraft of the design selected in the KC-X competition may also be worthy of future consideration. Both of these options would seem to assuage Air Force concerns of adding additional aircraft types to the air refueling fleet. While it is unlikely that a large portion of the Air Force’s air refueling fleet could be recapitalized with used commercial aircraft, proponents of this alternative may believe that even a small number of used aircraft could potentially free scarce budget dollars for other DOD priorities. Some have questioned the feasibility of this approach. A 2004 Government Accountability Office (GAO) study pointed out that there can be a wide variance in the amount of use the Air Force could expect from used commercial aircraft — some are relatively new with low flying hours while others are older with high flying hours.139 The GAO also questioned whether owners would be willing to sell the Air Force available suitable aircraft.140 Further, each potential used aircraft may require a unique cost analysis based on airframe service life remaining and the cost of equipping the aircraft to match like-model airplanes already operating in the Air Force’s fleet. Additionally, given Air Force opposition to “split-buy” proposals, it is unlikely the Air Force would support bringing additional aircraft types into its inventory due to the associated costs for maintenance, spare parts, and crew training. A factor of potential significance that has arisen subsequent to most of the independent studies cited in this report is the rising operating costs due to increased jet fuel prices. This is of particular importance with older, less fuel-efficient aircraft. According to the International Air Transport Association, the average cost of a barrel of jet fuel rose from $34.70 in 2003 to $81.90 in 2006.141 As a result, Northwest Airlines — the last major U.S. passenger airline to operate the DC-10 — announced it would accelerate retirement of its DC-10 fleet.142 In January 2007, Northwest removed the DC-10 from scheduled service replacing it with new airliners expected to provide fuel savings of 35 percent.143 Since the Northwest retired its last DC-10, jet fuel prices have risen 62% to $116.00 per barrel in February 2008.144 Thus, some may question the economic merits of converting older airliners into tankers for the Air Force. 139 Military Aircraft: DOD Needs to Determine Its Aerial Refueling Aircraft Requirements, GAO-04-349, Washington, D.C., June 2004, p. 27. 140 Ibid. 141 “IATA Economic Briefing: Airline Fuel and Labour Cost Share,” International Air Transport Association, June 2007, p. 1, online at [http://www.iata.org/NR/rdonlyres/ 4A49F6DA-2B12-48A9-A283-E035AEA5D165/0/Airline_Labour_Cost_Share.pdf]. 142 Perry Flint, Air Transport World’s Daily News, June 29, 2006, online at [http://www.atwonline.com/news/other.html?issueDate=6/29/2006]. 143 Press Release, “Northwest Brings Customer Comforts of Airbus A330 Aircraft to Twin Cities-Honolulu route: Airline Completes Retirement of DC-10 Fleet After 34 Years of Service,” Minneapolis, January 8, 2007, online at [http://www.nwa.com/corpinfo/newsc/ 2007/pr010820071733.html]. 144 “Jet Fuel Price Monitor,” International Air Transport Association, February 15, 2008, online at [http://www.iata.org/whatwedo/economics/fuel_monitor/index.htm]. CRS-34 Retire or Re-engine KC-135Es Some have suggested modernizing the KC-135E models into more capable “R” models as an approach to recapitalizing the KC-135 fleet. In contrast, Air Force officials have consistently expressed a desire to retire the “E” model fleet. Both RAND and the DSB made observations about the KC-135 that may be useful in informing decisions about the KC-135E fleet. Viability of the KC-135E Fleet. In a 2001 study the Air Force concluded that the KC-135E fleet is “structurally viable until 2040.”145 A 2005 Air Force Study estimated — with numerous caveats — that KC-135E aircraft upgraded to the “R” configuration would remain viable until 2030.146 Further, the 2004 DSB Task force pointed out that the engine struts that attach KC-135E-model engines to the aircraft’s wing are at the end of their service life. The close proximity of the strut to the engine subjects the struts to high temperatures and corrosive environments. If the KC-135Es were to be retained, but not re-engined, a major structural repair would have to be accomplished.147 Recapturing Modernization Costs. RAND’s AOA did not rule out reengining some KC-135Es. However, the AOA determined conversion would only bolster overall fleet effectiveness by about 2 percent. The study also found that reengining “E” models was “not a favorable return on investment unless operated into late 2030s.”148 Air Force leadership believes that dollars necessary to modernize the “E” models are better spent on KC-X. For example, former Secretary of the Air Force, Michael Wynne testified to Congress in October 2007 that, “One thing that’s for sure is that we have 44-year- old tankers. One thing for sure is that some of those tankers will go to age 75 before we can retire them, simply because of affordability — that we cannot afford the rate of growth. Even if we were to award today, we can forecast that they would be 75 years old. Our plan is to go ahead and put that program into action — retire the KC-135Es with the accession of the KC-X. And our plan then is to essentially prolong the best of the KC-135Rs until we can fully replace and amortize those. The KC-10s as well will look like they’re going to span and work for another 20 to 25 years.”149 145 KC-135 Economic Service Life Study. Technical Report. February 9, 2001. 146 KC-135 Assessment Report. Air Force Fleet Viability Board. September 2005. 147 Defense Science Board Task Force Report on Aerial Refueling Requirements, May 2004, pp. iv-v. 148 Michael Kennedy et al., “Analysis of Alternatives (AoA) for KC-135 Recapitalization, Executive Summary,” RAND Corporation, 2006, p. 15. 149 House Armed Services Committee Holds Hearing on Air Force Strategic Initiatives, October 24, 2007. CRS-35 Legislative Action. The 2004 National Defense Authorization Act (NDAA) allowed the Air Force to retire 12 KC-135Es.150 However, both the 2005 and 2006 NDAAs prohibited the Air Force from retiring KC-135Es.151 The 2007 NDAA allowed the Air Force to retire no more than 29 KC-135Es in FY2007 while stipulating that all “E” models retired after September 30, 2006 be stored in a manner that would allow their later recall.152 The 2008 NDAA allowed the Air Force to retire an additional 48 aircraft and provided conditional authority to retire the remaining 37 KC-135Es upon award of the KC-X contract and after any subsequent protests are settled favorably.153 Fee-For-Service Air Refueling Fee-for-Service air refueling (FFS AR) is a potential program where the Air Force may outsource a portion of its air refueling requirements to a defense contractor. Both the 2004 DSB task force and the 2006 RAND AOA addressed FFS AR although some may question the assumptions RAND’s analysis was based upon. Additionally, some Air Force officials have questioned how much potential interest there may be in the commercial sector to provide the necessary capital investment required to develop a fleet of aircraft with air refueling capability.154 Currently, there is one commercial FFS AR operator, and the United Kingdom’s Royal Air Force is planning to recapitalize it’s aging tanker fleet with a type of FFS AR program. The Air Force has been publically supportive of studying FFS AR, but cautious based on concerns FFS AR may divert funds from its KC-X.155 The 2008 National Defense Authorization Act stipulated that DOD must further study the FFS AR concept. What Independent Studies Say. The 2004 DSB task force recommended that the Air Force consider “arranging for contractors to provide some of the aerial refueling needs.”156 In contrast, RAND’s AOA concluded, “There is no compelling reason for the Air Force to outsource aerial refueling, that is, to purchase aerial-refueling capability from private companies instead of providing it organically.”157 150 H.Rept. 108-354, Section 134, Conference Report to Accompany H.R. 1588, p. 23. 151 H.Rept. 108-767, Section 131, Conference Report to Accompany H.R. 4200, p. 19 and H.Rept. 109-360, Section 132, Conference Report to Accompany H.R. 1815, p. 28. 152 H.Rept. 109-702, Section 135, Conference Report to Accompany H.R. 5122, p. 33. 153 H.Rept. 110-477, Section 135, Conference Report to Accompany H.R. 1585, pp. 30-31. 154 “Filler’ Up,” Defense Daily, February 19, 2008, Volume 237, Issue 32. 155 Caitlin Harrington, “USAF Pushes for ‘Fee-For-Service’ Aerial Refueling Programme,” Jane’s Defence Weekly, October 31, 2007, online at [http://www.janes.com]. 156 Defense Science Board Task Force Report on Aerial Refueling Requirements, May 2004, p. ix. 157 Michael Kennedy et al., “Analysis of Alternatives (AoA) for KC-135 Recapitalization, Executive Summary,” RAND Corporation, 2006, p. 13. CRS-36 RAND’s AOA reached this conclusion based on two underlying assumptions. First, the AOA assumed that “all tanker aircraft must carry a common wartime set of equipment ... be capable of carrying out wartime missions,” and “be capable of sustaining the high operational tempo associated with wartime.”158 Thus, the AOA found that based on these requirements, there was “no demonstrable large-scale cost savings associated with tanker outsourcing.”159 Second, the AOA believed that the fact that contract tanker operators could also use their aircraft to generate revenue through the commercial marketplace (e.g., flying cargo flights) while the Air Force is prohibited from serving commercial markets distorted side-by-side comparisons of FFS AR with organic air refueling assets. Counter Arguments to RAND’s Assumptions. Proponents of FFS AR may point out that while commercial air carriers may have limitations from participating in combat, they can still make a contribution during wartime. For example, United States Transportation Command has access to a large number of commercial airliners during contingencies through the Civil Reserve Air Fleet (CRAF).160 Just as CRAF airliners are able to supplement DOD’s organic airlift capabilities during surge wartime operations, there may be air refueling contributions FFS AR partners can make during wartime as well. For example, perhaps FFS AR contractors could help keep training pipelines open, refuel homeland defense aircraft, or facilitate deployment across transoceanic air bridges — all missions organic tankers would need to perform during wartime, but missions that would not likely expose civilians to combat. CRAF partners, often receive a portion of DOD’s contract airlift business in exchange for their participation in the program. Further, CRAF partners remain active in the commercial marketplace. In the same way a FFS AR contractor may desire to configure the fuselage of their tankers to carry cargo, thus, giving FFS AR the ability to pursue both government and commercial contracts. FFS AR Examples. Currently, Omega Air Refueling Services operates two converted Boeing 707s as a FFS AR carrier servicing the U.S. Navy. Omega also expects to add a converted DC-10 in 2008.161 Reportedly, Omega would like to perform FFS AR for the Air Force as well.162 The United Kingdom’s Royal Air Force (RAF) recently signed a $26 million, 27-year contract with Air Tanker to meet its future air refueling needs through a type of FFS AR program known as the Future Strategic Tanker Aircraft (FSTA) program.163 In 2004, Air Tanker, a consortium of companies including the VT 158 Ibid. 159 Ibid. 160 For more on CRAF see CRS Report RL33692, Civil Reserve Air Fleet (CRAF), by William Knight and Christopher Bolkcom. 161 [http://www.omegaairrefueling.com]. 162 Caitlin Harrington, “USAF Pushes for ‘Fee-For-Service’ Aerial Refueling Programme,” Jane’s Defence Weekly, October 31, 2007, online at [http://www.janes.com]. 163 Tim Hepner and Golnar Motevalli, “Britain Signs Air Tanker Deal,” Reuters, March 27, (continued...) CRS-37 Group, European Aeronautic Defense and Space Company (EADS), and RollsRoyce, was selected to manage the FSTA program using the passenger version of the Airbus 330-200.164 FSTA is a private-finance initiative whereby the RAF will pay on a “tanker-for-hire” basis subject to agreed upon minimum usage rates.165 When the planes are not being used by the RAF, Air Tanker would be able to offer them for hire, presumably as transports, in commercial markets.166 However, obtaining financing for the FSTA program was problematic. Service entry is now expected in 2011 for the first of 14 leased aircraft.167 Crewing of the planes has also been viewed by some as controversial. Plans call for flying the planes with a core group of RAF pilots while supplementing those crews with Air Tanker pilots that will be required to maintain “reserve” status with the RAF. This arrangement is expected to provide sufficient RAF aircrew to fill normal peacetime requirements as well as a group of pilots that can fly in either civilian or military status as requirements dictate.168 Legislative Action. The 2008 National Defense Authorization Act (NDAA) directs the Air Force to conduct a pilot program of at least five years to evaluate the feasibility of FFS AR (P.L. 110-181). The evaluation requires the Air Force to assess FFS AR across a broad range of mission sets to include testing support, training support to receiver aircraft, homeland defense, deployment support, air bridge support, aeromedical evacuation and emergency air refueling while integrating FFS AR into Air Mobility Command’s day-to-day operations. Further Congress has required the Air Force to submit an annual report to Congressional defense committees highlighting key operational metrics and assessing the impact of FFS AR on the Air Force’s flying hour program and aircrew training. Finally, the 2008 NDAA requires the Comptroller General’s office to conduct an annual review with recommendations for improvement of the Air Force’s FFS AR pilot program as well as a final analysis of the pilot program upon program completion (P.L. 110-181).169 Reportedly, the Air Force plans to release a request for information to gauge industry interest and cost projections for the required FFS AR pilot program.170 163 (...continued) 2008. 164 “Airbuse A330 - EADS KC-330 Tanker/Transport,” Jane’s Aircraft Upgrades, August 17, 2007, online at [http://www.janes.com]. 165 Keri Smith, “Air Tanker Remains Confident FSTA is on Track,”Jane’s Defence Weekly, October 31, 2007, online at [http://www.janes.com]. 166 Nick Cook, “Tanker PFI is a Pathfinder for Procurement,” Jane’s International Defence Review, January, 1, 2003, online at [http://www.janes.com]. 167 Tim Hepner and Golnar Motevalli, “Britain Signs Air Tanker Deal,” Reuters, March 27, 2008. 168 Nick Cook, “Tanker PFI is a Pathfinder for Procurement,” Jane’s International Defence Review, January, 1, 2003, online at [http://www.janes.com]. 169 H.Rept. 110-477, Section 1081, Conference Report to Accompany H.R. 1585, pp. 335336. 170 “Filler’ Up,” Defense Daily, February 19, 2008, Volume 237, Issue 32. CRS-38 Appendix A. Previous Issue for Congress One issue of significant interest to earlier sessions of Congress involved the controversy that surrounded earlier DOD attempts to replace some KC-135s using a proposed lease program Modernization Controversy Modernizing or replacing the Air Force tanker fleet has been a point of contention for more than a decade. In 1996, the General Accounting Office (GAO) asserted that the long-term viability of the KC-135 fleet was questionable and advocated expeditiously studying replacement options. DOD countered that KC-135 airframe hours were low and that the Air Force could sustain the fleet for another 35 years.171 In 2001, the Air Force reported that the KC-135 fleet would incur “significant cost increases” between 2001 and 2040, but “no economic crisis is on the horizon...there appears to be no run-away cost-growth,” and “the fleet is structurally viable to 2040.”172 At that time, the Air Force position on tanker modernization was to conduct an analysis of alternatives (AOA) to determine the optimal replacement option for KC-135s. It would begin recapitalization in the 2012 time frame to meet KC-135 retirement by 2040 when the Air Force expects the KC-135 to reach the end of its service life. Section 8159 of the FY2002 National Defense Appropriations Act (P.L. 107-117) authorized the Air Force to lease 100 Boeing KC-767 aircraft to replace some of the oldest and least capable KC-135s — the “E-models.” This proposal proved controversial because section 8159 appeared to depart from traditional acquisition processes and weaken congressional oversight. The Government Accountability Office also concluded that a lease would cost more than procuring the aircraft.173 Further, many found Air Force arguments in favor of the lease to contradict its position of just a year prior. Congress debated the proposed lease in four hearings, culminating with a pair of Senate hearings in September 2003.174 Subsequently, alleged and admitted ethical violations by government and industry representatives involved in the lease proposal added to the controversy. The FY2004 Defense Authorization Act (P.L. 108-136, Sec.135) forged a compromise between opponents and proponents of the KC-767 by giving the Air Force permission to lease 20 tanker aircraft and purchase an additional 80 aircraft. Section 134 of this act prohibited the Air Force from retiring in FY2004 more than 12 KC-135Es. In September 2004, the Air Force announced it had grounded 29 KC135Es due to safety concerns. Conferees also mandated that the Air Force conduct 171 GAO/NSIAD-96-160. 172 “KC-135 Economic Service Life Study,” Technical Report F34601-96-C-0111, February 9, 2001. 173 Neil P. Curtan, Military Aircraft: Observations on the Proposed Lease of Aerial Refueling Aircraft by the Air Force, GAO-03-1143T, Washington, D.C., September 3, 2003. 174 See CRS Report RL32056, The Air Force KC-767 Tanker Lease Proposal: Key Issues for Congress, coordinated by Christopher Bolkcom. CRS-39 an air refueling AOA and that an independent assessment be conducted on the condition of the KC-135E fleet. On February 1, 2004, former Deputy Secretary of Defense Paul Wolfowitz requested that the Defense Science Board (DSB) conduct the independent analysis of the KC-135E fleet, and on February 24, 2004, former acting Undersecretary of Defense for Acquisition Michael Wynne directed the Air Force to conduct an aerial refueling AOA. Although it had the statutory authority to proceed, DOD did not request any funds for FY2005 to lease 20 aircraft or procure 80 aircraft. Defense Department leaders instead deferred executing either action until the completion of the DSB report, and an internal investigation by the DOD Inspector General (IG) on potential improprieties by Boeing Company executives and whether these activities negatively effected the tanker lease program. On April 20, 2004, Darleen A. Druyan, the former lead Air Force negotiator on the tanker lease program, pleaded guilty to one charge of criminal conspiracy. Ms. Druyan admitted to secretly negotiating an executive job with the Boeing company while still overseeing the $23 billion deal between the Air Force and Boeing.175 Lease supporters argued that Ms. Druyan was a single “bad apple” and that her actions did not negate the KC-767’s merits. Reportedly In February 2005, however, the DOD IG found that Air Force Secretary James Roche misused his office when he lobbied the Office of Management and Budget (OMB) to support the lease concept.176 The IG’s final report found that four other senior DOD officials were guilty of evading OMB and DOD acquisition regulations that are designed to demonstrate best business practices and to provide accountability. The DOD IG found that senior DOD officials knowingly misrepresented the state of the KC-135 fleet and air refueling requirements.177 175 R. Merle, “Ex-Pentagon Official Admits Job Deal,” Washington Post, April 21, 2004. 176 R. Jeffrey Smith, “Roche Cited for 2 Ethics Violations,” Washington Post, February 10, 2005. 177 Management Accountability Review of the Boeing KC-767A Tanker Program, Office of the Inspector General of the Department of Defense, OIG-2004-171, May 13, 2005. CRS-40 Appendix B. KC-135R System Description Power plant: Wingspan: Length: Height: Passengers Cargo Pallets Maximum Fuel Capacity Four CFM International CFM-56 turbofans 130 feet, 10 inches 136 feet, 3 inches 41 feet, 8 inches 54 6 200,000 pounds Source: USAF Fact Sheet, KC-135 Stratotanker, online at [http://www.af.mil/factsheets/factsheet. asp?id=110] and The Air Force Handbook: 2007. Figure 3. KC-135 Refueling Air Force Fighters Source: USAF photo by SSgt Suzanne Day. CRS-41 Appendix C. KC-10 System Description Power plant: Wingspan: Length: Height: Passengers Cargo Pallets Maximum Fuel Capacity Three General Electric CF6-50C2 turbofans 165 feet, 4.5 inches 181 feet, 7 inches 58 feet, 1 inch 75 27 356,000 pounds Source: USAF Fact Sheet, KC-10 Extender, [http://www.af.mil/factsheets/factsheet.asp?id=109]. September, 2006, Figure 4. KC-10 Refueling Air Force Fighters Source: USAF photo. online at CRS-42 Appendix D. KC-767 System Description Wingspan: Length: Height: Passengers Cargo Pallets Patients Maximum Fuel Capacity 156 feet, 1 inch 159 feet, 2 inches 52 feet 190 19 97 for aeromedical evacuation more than 200,000 pounds Source: The Boeing Company online at [http://www.boeing.com/ids/globaltanker/usaf/KC_767/specs. html]. Figure 5. Artist Impression of KC-767 Source: Jane’s All The World’s Aircraft at [http://www.janes.com]. CRS-43 Appendix E. KC-30 System Description Wingspan: Length: Height: Passengers Cargo Pallets Patients Maximum Fuel Capacity 197 feet, 10 inches 192 feet, 11 inches 57 feet, 1 inch 226 32 108 for aeromedical evacuation 245,000 pounds Source: Northrop Grumman, pamphlet, “KC-30 Tanker: Total Air Mobility.” Figure 6. Artist Impression of KC-30 Source: Jane’s All The World’s Aircraft at [http://www.janes.com] CRS-44 Appendix F. Key Suppliers for Commercial Variants of the Boeing 767 and Airbus 330 Table 4: Suppliers and Corporate Parent Domiciles for Components Incorporated into the Boeing 767 Supplier Aero Vodochody Parent Country Czech Republic Component(s) airframe parts (for BAE Systems) Alenia Italy wing control surfaces, flaps and leadingedge slats, wingtips, elevators, fin rudder, nose radome Avcorp Canada front and rear spar stiffeners, floor grid details and assemblies, aft strut fairings Boeing Canada Canada fixed trailing edge panels, composite wing-to-body fairings, engine strut fairings Bombardier (Learjet) Canada wing trailing edge support structures Bombardier (Canadair) Canada rear fuselage, pressure bulkhead Daido Steel Japan steel sheets Embraer Brazil flap supports Fuji Japan wing fairings, main landing gear doors Fujukawa Aluminum Japan forgings and extensions GKN Aerospace (Westland Aerospace, formerly BP Chemicals; with Lucas Aertspace Cargo Systems) United Kingdom flap track fairings Goodrich (Cleveland Pneumatic) United States main landing gear Hitco Carbon Composites United States flap track fairings IPTN Indonesia Kaman Aerospace United States Kawasaki Heavy Industries Japan Korean Aerospace (Samsung) Republic of Korea flaps, keel beams (for Mitsubishi) wing trailing edges center-fuselage body panels, exit hatches, wing in-spar ribs wing trailing edges CRS-45 Parent Country Component(s) LMI Aerospace United States skins, wing panels, floor beams, curtain tracks Lunn Industries (Alcore) United States leading edge slat core assemblies (for ASTA) Menasco Aerospace United States nose landing gear unit Supplier Mitsubishi Heavy Industries Japan rear fuselage body panels, stringers, passenger and cargo doors, dorsal fin Nihon Kokuki (Nippi) Japan wing in-spar ribs, various structural components for Mitsubishi PPG Industries Shin Meiwa United States landing light lens assemblies, cockpit windows Japan tailplane trailing edges (for Northrop Gumman/Vought) Source: Teal Group Note: Commercial variants powered by engines manufactured by either General Electric, Pratt & Whitney, or Rolls Royce. Table 5: Suppliers and Corporate Parent Domiciles for Components Incorporated into the Airbus 330/350178 Supplier Parent Domicile Advanced Technology and Research (ATR) Corp. United States graphite epoxy underwing fairings (for Aerostructures Corp.) Aerostructures Corp. (Now Vought) United States inner spoilers/airbrakes, center spar, upper wing skin panels, inner and outer wingbox leading edge assemblies (for BAE), outer flaps, flap track shrouds, spoiler parts (for DASA-EADS) AHF-Ducommun United States leading edge wing skins United States main gear doors, floor support structure, pressurization bulkhead between passenger cabin, main landing gear compartment (for Aérospatiale-EADS) Boeing (Aerospace Technologies of Australia) 178 Component(s) The Airbus 350 is a planned model that will be similar in size to the Airbus 330. It was originally expected to be a derivative of the Airbus 330, but is now expected to be a new design aircraft. CRS-46 Parent Domicile Component(s) Bombardier (Canadair) Canada leading edge wing assemblies, nose gear bay and doors, nose bottom fuselage, rear sealed frame, ventral beam, pressurized lateral floor, aft pressure bulkhead (for Aérospatiale-EADS), inboard front spar assembly (for BAE) BTR Aerospace Canada main landing gear fairings Supplier CC Industries United States Ciba-Geigy Corp. Federal Republic of Germany Dowty Aerospace Canada Canada Dowty Rotol (with Cleveland Pneumatic) outer rear spar, main landing gear support, ribs (for BAE) HTA/6376 prepreg on wings center landing gear United Kingdom design and manufacture of main landing gear Fairchild Dornier Federal Republic of Germany fuselage and wing components, interior panels Fischer Advanced Composite Components Federal Republic of Germany interior components (for DASA-EADS) GKN Aerospace (formerly BP Advanced Materials) United Kingdom General Engineering Unknown side stay fairing Hawker de Havilland, Australia Australia wingtips, winglets, wing root fillet, ribs (for BAE) Heath Techna Aerospace IPTN United States Indonesia composite panels (for BAE) composite components (for BAE) flap track carriages, sheet metal parts (for BAE) Korean Aerospace Industries (Daewoo) Republic of Korea wing components Korean Air (with Silat) Republic of Korea upper fuselage panels of Section 15 (for Aérospatiale-EADS) Marion Composites United States flap track fairings (for Aerostructures Corp.) Marvin Group United States large ribs (for BAE) CRS-47 Supplier Parent Domicile Component(s) Messier-HispanoBugatti France nose landing gear, wheels and brakes (option) Mitsubishi Heavy Industries Japan cargo doors PPG Industries United States cockpit windows RTI International Metals United States titanium on A350 SABCA Belgium tailcones (for DASA) Shin Meiwa Japan wing fairings Socea France rear upper panels of center fuselage section SOCATA France composite belly fairing SONACA Belgium Xian Aircraft Co. (AVIC-1) Peoples Republic of China full-span leading edge slats, slat tracks avionics access doors Source: Teal Group Note: Commercial variants of both aircraft types are powered by engines manufactured by either General Electric, Pratt & Whitney, or Rolls Royce.Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress Ronald O'Rourke Specialist in Naval Affairs July 30, 2009 Congressional Research Service 7-5700 www.crs.gov RL34398 CRS Report for Congress Prepared for Members and Committees of Congress Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress Summary The Administration’s proposed FY2010 defense budget requests $439.6 million in Air Force research and development funding to begin a new program for acquiring new 179 KC-X aerial refueling tankers. The 179 KC-Xs, which could be procured at an annual rate of 12 to 18 aircraft and cost roughly $200 million each, would replace roughly one-third of the Air Force’s aging fleet of KC-135 aerial refueling tankers. The Air Force and the U.S. Transportation Command state that replacing the KC-135s is their highest recapitalization priority. The two expected competitors for the KC-X program are Boeing, which is expected to offer a KC-X based on the Boeing 767 or Boeing 777 commercial airliner, and an industry team consisting of Northrop Grumman and the European Aeronautic Defense and Space Company (EADS—the parent company of Airbus), which is expected to offer a KC-X based on the Airbus A330 commercial airliner. A Boeing KC-X would be assembled in Seattle, while a Northrop/EADS KC-X would be assembled in Mobile, AL. The administration’s proposed new KC-X program follows previous unsuccessful attempts by the Department of Defense (DOD) to implement a KC-X acquisition program for replacing the KC135s. The history of those earlier attempts forms an important part of the context for the Administration’s proposed new KC-X program, particularly in terms of defining the capabilities that are needed in the KC-X and designing and conducting a fair competition between aircraft offered by Boeing and Northrop/EADS. The issue for Congress in FY2010 is whether to approve, reject, or modify the Administration’s request for FY2010 research and development funding for the new KC-X program, and whether to take any action to define the acquisition strategy for the new KC-X program. Key acquisitionstrategy issues include whether to procure one KC-X design or two, and (if only one design is to be procured, as the Administration prefers), how to structure and conduct the competition for determining the winning design. The House and Senate Armed Services Committees, in their markups of the FY2009 defense authorization bill (H.R. 2647/S. 1390), both recommend approving the Administration’s request for $439.6 million in research and development funding for the KC-X program. Section 1044 of H.R. 2647 would repeal Section 1081 of the FY2008 defense authorization act (H.R. 4986/P.L. 110-181 of January 28, 2008), which directed the Secretary of the Air Force to conduct a pilot program of at least five years’ duration to assess the feasibility and advisability of utilizing commercial fee-for-service air refueling tanker aircraft for Air Force operations. Section 1058 of S. 1390 would amend Section 1081 of the FY2008 defense authorization act (H.R. 4986/P.L. 110-181 of January 28, 2008), to make changes intended to facilitate the implementation of a fee-for-service air refueling support pilot program. Congressional Research Service Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress Contents Introduction ................................................................................................................................1 Background ................................................................................................................................1 Roles and Missions of Aerial Refueling Aircraft....................................................................1 Current Fleet of Large Aerial Refueling Aircraft....................................................................2 KC-135 Stratotanker .......................................................................................................2 KC-10 Extender ..............................................................................................................3 Earlier Attempts at a KC-X Program to Replace the KC-135s................................................3 Leasing Authority of 2002...............................................................................................4 Leasing and Purchasing Authority of 2003 ......................................................................4 Developments in 2004 and 2005 .....................................................................................4 RAND Study of 2006......................................................................................................5 KC-X Competition of 2007-2008 ....................................................................................5 Administration’s Proposed New KC-X Acquisition Program .................................................6 FY2010 Funding Request................................................................................................6 Number of Aircraft Contemplated ...................................................................................6 Potential Cost of Program ...............................................................................................6 Administration Plan: Competition for a Single Design.....................................................7 Expected Competitors .....................................................................................................7 DOD Statements on KC-X as a High Priority ..................................................................7 Industrial Base ......................................................................................................................8 Employment Effects as Asserted for 2007-2008 Competition ..........................................8 Domestic Content as Discussed in 2007-2008 Competition .............................................9 FY2009 Legislative Provisions..............................................................................................9 Issues for Congress ................................................................................................................... 10 Build One Design Or Two? ................................................................................................. 11 Summary of Arguments ................................................................................................ 11 Potential Intermediate Alternative Building One Design at Two Sites ............................ 13 Terms for a Competition...................................................................................................... 13 Lowest Price vs. Best Value .......................................................................................... 13 Performance Requirements and Evaluation Factors ....................................................... 14 Air Force or OSD Management of Competition............................................................. 16 Legislative Activity for FY2010 ................................................................................................ 16 FY2010 Funding Request.................................................................................................... 16 FY2010 Defense Authorization Bill (H.R. 2647/S. 1390) .................................................... 16 House ........................................................................................................................... 16 Senate........................................................................................................................... 18 Tables Table D-1. Boeing 767 Suppliers............................................................................................... 28 Table D-2. Airbus 330/350 Suppliers......................................................................................... 29 Congressional Research Service Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress Appendixes Appendix A. Section 8159 of FY2002 Defense Appropriations Act ........................................... 20 Appendix B. Section 135 of FY2004 Defense Authorization Act ............................................... 22 Appendix C. KC-X Competition of 2007-2008.......................................................................... 24 Appendix D. Boeing 767 and Airbus 330 Suppliers ................................................................... 28 Appendix E. Potential Longevity of KC-135 Fleet..................................................................... 31 Contacts Author Contact Information ...................................................................................................... 34 Acknowledgments .................................................................................................................... 34 Congressional Research Service Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress Introduction The Administration’s proposed FY2010 defense budget requests $439.6 million in Air Force research and development funding to begin a new program for acquiring new 179 KC-X aerial refueling tankers.1 The 179 KC-Xs, which could be procured at an annual rate of 12 to 18 aircraft and cost roughly $200 million each, would replace roughly one-third of the Air Force’s aging fleet of KC-135 aerial refueling tankers. The Air Force and the U.S. Transportation Command state that replacing the KC-135s is their highest recapitalization priority. The two expected competitors for the KC-X program are Boeing, which is expected to offer a KC-X based on the Boeing 767 or Boeing 777 commercial airliner, and an industry team consisting of Northrop Grumman and the European Aeronautic Defense and Space Company (EADS—the parent company of Airbus), which is expected to offer a KC-X based on the Airbus A330 commercial airliner. A Boeing KC-X would be assembled in Seattle, while a Northrop/EADS KC-X would be assembled in Mobile, AL. The administration’s proposed new KC-X program follows previous unsuccessful attempts by the Department of Defense (DOD) to implement a KC-X acquisition program for replacing the KC135s. The history of those earlier attempts forms an important part of the context for the Administration’s proposed new KC-X program, particularly in terms of defining the capabilities that are needed in the KC-X and designing and conducting a fair competition between aircraft offered by Boeing and Northrop/EADS. The issue for Congress in FY2010 is whether to approve, reject, or modify the Administration’s request for FY2010 research and development funding for the new KC-X program, and whether to take any action to define the acquisition strategy for the new KC-X program. Key acquisitionstrategy issues include whether to procure one KC-X design or two, and (if only one design is to be procured, as the Administration prefers), how to structure and conduct the competition for determining the winning design. Congress’ decision on this issue could affect DOD capabilities and funding requirements, and the aircraft manufacturing industrial base. Background Roles and Missions of Aerial Refueling Aircraft Aerial refueling aircraft—commonly called tankers—provide in-flight refueling services to bombers, fighters, strike fighters, airlift aircraft, surveillance aircraft, and other types of aircraft flown by the Air Force, Navy, and Marine Corps. Tankers enable other aircraft to deploy quickly to distant theaters of operation, and to remain in the air longer while operating in those theaters. Aerial refueling capability is a critical component of the U.S. military’s ability to project power overseas and to operate military aircraft in theater with maximum effectiveness. 1 In the designation KC-X, C means a cargo-type aircraft, K means that the aircraft is specifically an aerial refueling tanker, and X means the design of the aircraft has not been determined. Congressional Research Service 1 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress Current Fleet of Large Aerial Refueling Aircraft KC-135 Stratotanker The Air Force’s current fleet of large tankers consists mostly of KC-135 Stratotankers. The Air Force states that, as of September 2008, a total of 453 KC-135s were in the inventory of the Air Force (182 aircraft), the Air National Guard (206 aircraft), and the Air Force Reserve (65 aircraft).2 Somewhat confusingly, the Air Force also states that the service’s Air Mobility Command (AMC) as of September 2008 managed an inventory of more than 481 Stratotankers, including 294 flown by the Air National Guard and Air Force Reserve in support of AMC missions.3 The commander of the U.S. Transportation Command, in February 2009 testimony to Congress, mentioned a figure of 415 KC-135s.4 The Air Force states that: The KC-135 Stratotanker provides the core aerial refueling capability for the United States Air Force and has excelled in this role for more than 50 years. This unique asset enhances the Air Force’s capability to accomplish its primary missions of Global Reach and Global Power. It also provides aerial refueling support to Air Force, Navy and Marine Corps and allied nation aircraft. The KC-135 is also capable of transporting litter and ambulatory patients using patient support pallets during aeromedical evacuations.5 The KC-135s are among the oldest of the Air Force’s aircraft. The first production KC-135 was delivered to the Air Force in 1957, and the final one was delivered in 1965.6 DOD and Air Force documents for FY2010 state variously that average age of the KC-135 fleet in 2009 is more than 45 years,7 47 years,8 48 years,9 or more than 48 years.10 The aircraft have received various 2 Air Force Fact sheet on the KC-135, available online at http://www.af.mil/information/factsheets/factsheet.asp?fsID= 110. The fact sheet was accessed by CRS on July 29, 2009, at which time it carried a date of September 2008. 3 Air Force Fact sheet on the KC-135, available online at http://www.af.mil/information/factsheets/factsheet.asp?fsID= 110. The fact sheet was accessed by CRS on July 29, 2009, at which time it carried a date of September 2008. 4 Statement of General Duncan J. McNabb, USAF Commander, United States Transportation Command, Before the House Armed Services Air & Land Forces and Seapower & Expeditionary Forces Subcommittees [Hearing] On the State of the Command, February 25, 2009, p. 6. 5 Air Force Fact sheet on the KC-135, available online at http://www.af.mil/information/factsheets/factsheet.asp?fsID= 110. The fact sheet was accessed by CRS on July 29, 2009, at which time it carried a date of September 2008. 6 A total of 732 KC-135s were delivered to the Air Force. 7 See, for example, Department of Defense, Fiscal Year 2010 Budget Request, Summary Justification, May 2009, p. 150, or United States Air Force, FY 2010 Budget Overview, SAF/FMB, May 2009, p. 48. 8 See, for example, Department of Defense, Fiscal Year 2010 Budget Request, Summary Justification, May 2009, p. 116. 9 See, for example, Department of the Air Force, Fiscal Year (FY) 2010 Budget Estimates, Research , Development, Test and Evaluation (RDY&E) Descriptive Summaries, Volume II, Budget Activities 4 – 6, May 2009, Exhibit R-2, RDT&E Budget Item Justification, [PE]0605221F, KC-X, Next Generation Aerial Refueling Aircraft, page 1 of 8 (page 559 of the overall document). 10 See, for example, Department of the Air Force, Presentation to the House Armed Services Committee Subcommittee on Air and Land Forces, United States House of Representatives, Combined Statement of: Lieutenant General Daniel J. Darnell, Air Force Deputy Chief Of Staff For Air, Space and Information Operations, Plans And Requirements (AF/A3/5) Lieutenant General Mark D. Shackelford, Military Deputy, Office of the Assistant Secretary of the Air Force for Acquisition (SAF/AQ) Lieutenant General Raymond E. Johns, Jr., Air Force Deputy Chief of Staff for Strategic Plans And Programs (AF/A8), May 20, 2009, p. 17. Congressional Research Service 2 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress upgrades and modifications over the years, including new engines.11 For a discussion of the potential longevity of the KC-135 fleet, see Appendix E. KC-10 Extender The Air Force as of September 2008 also operated 59 KC-10 Extender aerial refueling aircraft. The KC-10s are much younger than the KC-135s—the first KC-10 entered service in 1981.12 Earlier Attempts at a KC-X Program to Replace the KC-135s The advanced age of the KC-135 fleet, and what to do about it, has been a matter of concern for policymakers since at least 1996.13 The Obama Administration’s proposed new KC-X program follows previous unsuccessful attempts by DOD to implement a KC-X acquisition program for replacing the KC-135s. The history of those earlier attempts, summarized below, forms an important part of the context for the Administration’s proposed new KC-X program, particularly 11 Air Force Fact sheet on the KC-135, available online at http://www.af.mil/information/factsheets/factsheet.asp?fsID= 110. The fact sheet was accessed by CRS on July 29, 2009, at which time it carried a date of September 2008. The fact sheet states that: Of the original KC-135A's, more than 415 have been modified with new CFM-56 engines produced by CFMInternational. The re-engined tanker, designated either the KC-135R or KC-135T, can offload 50 percent more fuel, is 25 percent more fuel efficient, costs 25 percent less to operate and is 96 percent quieter than the KC-135A. Under another modification program, 157 Air Force Reserve and Air National Guard tankers were re-engined with the TF-33-PW-102 engines. The re-engined tanker, designated the KC-135E, is 14 percent more fuel efficient than the KC-135A and can offload 20 percent more fuel. Through the years, the KC-135 has been altered to do other jobs ranging from flying command post missions to reconnaissance. RC-135s are used for special reconnaissance and Air Force Materiel Command’s NKC-135A’s are flown in test programs. Air Combat Command operates the OC-135 as an observation platform in compliance with the Open Skies Treaty. The KC-135R/T model aircraft continue to undergo life-cycle upgrades to expand its capabilities and improve its reliability. Among these are improved communications, navigation, auto-pilot and surveillance equipment to meet future civil air traffic control needs. 12 Air Force fact sheet on the KC-135, available online at http://www.af.mil/information/factsheets/factsheet.asp?id= 109. ]. The fact sheet was accessed by CRS on July 29, 2009, at which time it carried a date of September 2008. The fact sheet states that: The KC-10 Extender is an Air Mobility Command advanced tanker and cargo aircraft designed to provide increased global mobility for U.S. armed forces. Although the KC-l0’s primary mission is aerial refueling, it can combine the tasks of a tanker and cargo aircraft by refueling fighters and simultaneously carry the fighter support personnel and equipment on overseas deployments. The KC-10 is also capable of transporting litter and ambulatory patients using patient support pallets during aeromedical evacuations. The KC-10 can transport up to 75 people and nearly 170,000 pounds (76,560 kilograms) of cargo a distance of about 4,400 miles (7,040 kilometers) unrefueled. In addition to KC-135s and KC-10s, the Air Force, Marine Corps, and Navy operate additional smaller refueling aircraft. The Air Force uses modified C-130s to refuel Air Force special operations and combat search and rescue helicopters. The Marine Corps uses modified C-130s to refuel Marine helicopters and fighters. Some Navy aircraft have been configured to give them a secondary capability to refuel other Navy or Marine Corps aircraft in flight. 13 In 1996, the General Accounting Office (now the Government Accountability Office) asserted that the long-term viability of the KC-135 fleet was questionable and advocated expeditiously studying replacement options. (General Accounting Office, U.S. Combat Airpower[:]Aging Refueling Aircraft Are Costly to Maintain and Operate, GAO/NSIAD-06-160, August 1996.) DOD countered at the time that KC-135 airframe hours were low and that the Air Force could sustain the fleet for another 35 years. Congressional Research Service 3 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress in terms of defining the capabilities that are needed in the KC-X and designing and conducting a fair competition between aircraft offered by Boeing and Northrop/EADS. Leasing Authority of 2002 In response to concerns about the aging KC-135 fleet, Section 8159 of the FY2002 defense appropriations act (H.R. 3338/P.L. 107-117 of January 10, 2002) authorized the Air Force to lease up to 100 Boeing 767s (and also up to four Boeing 737s) for not more than 10 years. The leased 767s were to be modified into aerial refueling tankers and used as replacements for KC-135Es— the oldest and least capable KC-135s. For the text of Section 8159, see Appendix A. The leasing arrangement authorized by Section 8159 became a matter of debate, in part because it appeared to depart from traditional acquisition processes and, some observers argued, had the potential for weakening congressional oversight of tanker acquisition. The General Accounting Office (now the Government Accountability Office) concluded that a lease would cost more than procuring the aircraft.14 Other observers argued that Air Force arguments in favor of the lease contradicted the service’s position of just a year prior regarding the urgency for replacing the KC135s.15 Congress examined the leasing arrangement in four hearings, culminating with two Senate committee hearings in September 2003.16 Leasing and Purchasing Authority of 2003 Section 135 of the FY2004 defense authorization act (H.R. 1588/P.L. 108-136 of November 24, 2003) legislated a compromise between leasing proponents and opponents by authorizing the Secretary of the Air Force to lease up to 20 tankers, and to use a multiyear procurement (MYP) arrangement beginning as early as FY2004 to procure up to 80 tankers using incremental funding. Section 135 also required the Secretary of Defense to conduct a study to identify alternative means for maintaining and providing training for leased or purchased tankers. For the text of Section 135, see Appendix B. Another provision of the act—Section 134—prohibited the Air Force from retiring more than 12 KC-135Es in FY2004. Developments in 2004 and 2005 On February 1, 2004, Deputy Secretary of Defense Paul Wolfowitz requested that the Defense Science Board (DSB) conduct an independent analysis of the KC-135E fleet. On February 24, 2004, acting Undersecretary of Defense for Acquisition Michael Wynne directed the Air Force to 14 General Accounting Office, Military Aircraft[:] Observations on the Air Force’s Plan to Lease Aerial Refueling Aircraft, Statement of Neal P. Curtin, Director, Defense Capabilities and Management, Testimony before the Committee on Commerce, Science, and Transportation, United States Senate, GAO-031143T, September 3, 2003, 22 pp. 15 In 2001, the Air Force reported that the KC-135 fleet would incur “significant cost increases” between 2001 and 2040, but that “no economic crisis is on the horizon ... there appears to be no run-away cost-growth,” and that “the fleet is structurally viable to 2040.” (KC-135 Economic Service Life Study, Technical Report F34601-96-C-0111, February 9, 2001.) At that time, the Air Force position on tanker modernization was to conduct an analysis of alternatives (AOA) to determine the optimal replacement option for KC-135s. The service would begin recapitalization in the 2012 time frame to meet KC-135 retirement by 2040, when the Air Force expected the KC-135 to reach the end of its service life. 16 For a discussion, see CRS Report RL32056, The Air Force KC-767 Tanker Lease Proposal: Key Issues For Congress, by Christopher Bolkcom. Congressional Research Service 4 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress conduct an aerial refueling AOA. DOD deferred using the authority granted in Section 135 until the completion of both the DSB report and an internal investigation by the DOD Inspector General (IG) on potential improprieties by Boeing Company executives.17 RAND Study of 2006 In 2006, RAND Corporation concluded an Analysis of Alternatives (AOA) for recapitalizing the Air Force’s KC-135 fleet. The AOA concluded that purchasing new commercially-derived tankers was the most cost-effective means of initially recapitalizing the fleet. 18 KC-X Competition of 2007-2008 Consistent with the findings of the 2006 RAND report, the Air Force in early 2007 released a formal request for proposals (RFP) for the procurement of 179 new KC-X tankers.19 Boeing responded to the RFP with the KC-767—a tanker variant of the Boeing 767-200 commercial airliner. A team consisting of Northrop Grumman and EADS responded to the RFP with the KC30 (later called the KC-45)—a tanker version of the Airbus 330-200 commercial airliner. A March 2009 GAO report summarizes subsequent events: On February 29, 2008, the Air Force selected a consortium consisting of Northrop Grumman and the European Aeronautic Defense and Space Company (EADS)—the parent company of Airbus—over Boeing to build the KC-X tankers. In March 2008, Boeing filed a bid protest with GAO. On June 18, 2008, GAO sustained Boeing’s protest and, consistent with that decision, recommended that the Air Force reopen discussions with the offerors, obtain revised proposals, re-evaluate the revised proposals, and make a new source selection decision. In July 2008, the Secretary of Defense stated that there would be a new solicitation requesting revised proposals from industry, and the Undersecretary of Defense for Acquisition, Technology and Logistics would replace the Air Force as the source selection authority. DOD expected to award the new contract by December 31, 2008. However, on September 10, 2008, the Secretary announced his decision to terminate the second competition noting there was not enough time for DOD to complete a competition that would be viewed as fair and competitive in such a highly-charged environment by January 2009, when the next administration would take office. He stated that rather than handing the next administration an incomplete and possibly contested process, the next team should review the military requirements objectively and craft a new acquisition strategy. Further, he added 17 On April 20, 2004, Darleen A. Druyan, the former lead Air Force negotiator on the tanker lease proposal, pleaded guilty to one charge of criminal conspiracy. Ms. Druyan admitted to secretly negotiating an executive job with the Boeing company while still overseeing the $23 billion leasing arrangement between the Air Force and Boeing.( R. Merle, “Ex-Pentagon Official Admits Job Deal,” Washington Post, April 21, 2004.) Lease supporters argued that Ms. Druyan was a single “bad apple” and that her actions did not negate the merits of leasing Boeing 767s for use as tankers. In February 2005, however, the DOD IG reportedly concluded that Air Force Secretary James Roche misused his office when he lobbied the Office of Management and Budget (OMB) to support the lease concept. (R. Jeffrey Smith, “Roche Cited for 2 Ethics Violations,” Washington Post, February 10, 2005.) The IG’s final report concluded that four other senior DOD officials were guilty of evading Office of Management and Budget (OMB) and DOD acquisition regulations that are designed to demonstrate best business practices and to provide accountability. The DOD IG found that senior DOD officials knowingly misrepresented the state of the KC-135 fleet and air refueling requirements.( Department of Defense, Office of the Inspector General, Management Accountability Review of the Boeing KC-767A Tanker Program, OIG-2004-171, May 13, 2005.) 18 KC-135 Recapitalization Analysis of Alternatives. Briefing to Congress, January 26-27, 2006. 19 “Air Force Posts KC-X Request for Proposals,” Air Force Print News Today, January 31, 2007, online at http://www.af.mil/news/story.asp?id=123039360. Congressional Research Service 5 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress that DOD plans to continue funding the program in the fiscal year 2010 through 2015 budget. The Chief of Staff of the Air Force stated that a new KC-X competition could take the new administration between 8 months and 4 years to complete.20 For additional discussion of the RFP, Boeing’s protest, and GAO’s ruling on Boeing’s protest, see Appendix C. Administration’s Proposed New KC-X Acquisition Program FY2010 Funding Request The Administration’s proposed FY2010 defense budget requests $439.6 million in Air Force research and development funding to begin a new program for acquiring new 179 KC-X aerial refueling tankers.21 Number of Aircraft Contemplated The proposed new KC-X program envisages replacing the KC-135 fleet in three stages, of which the 179 new KC-Xs would represent the first stage, replacing roughly one-third of the KC-135 fleet. The replacement tankers to be procured in second and third stages of the effort would be designated KC-Ys and KC-Zs. Potential Cost of Program A March 2009 GAO report states that the procurement cost of 179 KC-Xs could be about $35 billion,22 or an average of about $195 million per aircraft. The Air Force testified in May 2009 that it has budgeted about $3.5 billion per year for a projected procurement rate of 12 to 18 aircraft per year,23 which would equate to an average cost of about $195 million to $290 million per aircraft. GAO states that, when the projected KC-Ys and KC-Zs are added in, the KC-135 replacement effort “is expected to involve the procurement of about 600 aircraft over 40 years at a cost that could exceed $100 billion,”24 or an average cost of roughly $170 million per aircraft. 20 Government Accountability Office, Defense Acquisitions[:] Assessments of Selected Weapon Programs, GAO-09326SP, March 2009, p. 156. 21 The requested funding is found in the Air Force’s research development, test and evaluation (RDT&E) account in PE (i.e., program element, meaning line item) 0605221F, KC-X, Next Generation Aerial Refueling Aircraft. 22 Government Accountability Office, Defense Acquisitions[:] Assessments of Selected Weapon Programs, GAO-09326SP, March 2009, p. 156. 23 Department of the Air Force, Presentation to the House Armed Services Committee Subcommittee on Air and Land Forces, United States House of Representatives, Combined Statement of: Lieutenant General Daniel J. Darnell, Air Force Deputy Chief Of Staff For Air, Space and Information Operations, Plans And Requirements (AF/A3/5) Lieutenant General Mark D. Shackelford, Military Deputy, Office of the Assistant Secretary of the Air Force for Acquisition (SAF/AQ) Lieutenant General Raymond E. Johns, Jr., Air Force Deputy Chief of Staff for Strategic Plans And Programs (AF/A8), May 20, 2009, p. 17 24 Government Accountability Office, Defense Acquisitions[:] Assessments of Selected Weapon Programs, GAO-09326SP, March 2009, p. 156. Congressional Research Service 6 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress Administration Plan: Competition for a Single Design The Administration wants to build a single KC-X design, and wants to conduct a competition to select that design. The Air Force testified in May 2009 that: The Air Force and the Department of Defense have been considering options for conducting a new source selection since the previous competition was terminated by the Secretary of Defense in September 2008. It is the Air Force’s desire to begin the competition in Summer 2009 and award a contract in early 2010.25 On July 27, 2009, it was reported that: The Pentagon has notified prospective bidders that the long-awaited draft request for proposals for the U.S. Air Force’s KC-135 replacement competition is now planned for release in mid-September—with a formal draft likely to follow in October. If this schedule holds, selection of the winning replacement refueling tanker design could be in mid-2010. That is roughly a six-month slip from earlier plans for the program.26 Expected Competitors Boeing is expected to offer a KC-X based on either the Boeing 767 or Boeing 777, while the Northrop/EADS team is expected to offer a KC-X based on the Airbus A330. DOD Statements on KC-X as a High Priority DOD states that “with the average age of the [KC-135] inventory over 45 years old, a new Tanker has become an operational necessity as well as a financially prudent decision to meet refueling requirements.”27 The U.S. Transportation Command testified in February 2009 that: My number one recapitalization priority is replacing the fleet of 415 Eisenhower-era KC135s with a new platform to preserve a unique asymmetric advantage for our nation. The KC-X with multipoint refueling allowing same sortie service to Air Force, Navy, Marine and coalition aircraft will address the significant risk we are currently carrying in air capacity and address further capability risks associated with an airframe that is almost 50 years old - and will be over 80 years old by the time we recapitalize all of them. The ability to carry cargo and operate forward with defensive systems will be a game changer when the aircraft is not needed as a tanker. Further delays in replacing this aircraft will add significant risk to our ability to rapidly project combat power to support the nation and our allies. It is imperative to expedite a smart, steady reinvestment program.28 25 Department of the Air Force, Presentation to the House Armed Services Committee Subcommittee on Air and Land Forces, United States House of Representatives, Combined Statement of: Lieutenant General Daniel J. Darnell, Air Force Deputy Chief Of Staff For Air, Space and Information Operations, Plans And Requirements (AF/A3/5) Lieutenant General Mark D. Shackelford, Military Deputy, Office of the Assistant Secretary of the Air Force for Acquisition (SAF/AQ) Lieutenant General Raymond E. Johns, Jr., Air Force Deputy Chief of Staff for Strategic Plans And Programs (AF/A8), May 20, 2009, p. 17. 26 “Tanker RFP,” Aerospace Daily & Defense Report, July 27, 2009: 1. See also Amy Butler, “Draft Tanker RFP Slips Into Fall,” Aerospace Daily & Defense Report, July 16, 2009: 1-2; and David Morgan, “Pentagon Eyes September For Next Step In Aerial Tanker,” Reuters.com, July 15, 2009. 27 Department of Defense, Fiscal Year 2010 Budget Request, Summary Justification, May 2009, p. 1-50. 28 Statement of General Duncan J. McNabb, USAF, Commander, United States Transportation Command, Before the (continued...) Congressional Research Service 7 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress The Air Force testified in May 2009 that: The KC-X remains the Air Force’s highest procurement and recapitalization priority. Air refueling is critical to the entire Joint and Coalition team’s ability to project combat power around the world. The current fleet of Eisenhower-era KC-135s averages over 48 years old. KC-X tankers will provide increased aircraft availability, more adaptable technology, more flexible employment options, and greater overall capability than the current fleet of KC135R/T tankers. The KC-X will be able to refuel receptacle and probe-equipped aircraft on every mission and to receive fuel in-flight plus carry cargo, passengers, & conduct aeromedical evacuation. The KC-X will also be equipped with defensive systems to enhance its utility to the warfighter. The KC-X program is based on a planned purchase of 179 aircraft and is the first of up to three recapitalization programs to replace the entire legacy fleet. The Air Force has budgeted approximately $3.5 billion per year for a projected annual production rate of 12-18 aircraft. But even with this level of investment, it will take several decades to replace the 400+ KC135s. Given the age of the fleet and the time required to recapitalize, it is absolutely critical for the Air Force to move forward now on this program.29 Industrial Base Employment Effects as Asserted for 2007-2008 Competition Boeing’s plan for the 2007-2008 KC-X competition called for 767s to be assembled at the Boeing plant in Everett, WA and be converted into tankers (KC-767s) at Boeing’s plant in Wichita, KS. Boeing claimed that 44,000 U.S. workers from 300 U.S. suppliers would be involved in building the KC-767.30 The Northrop/EADS plan for the 2007-2008 KC-X competition called for assembling its KC-X (originally called the KC-30, and later the KC-45) at a new plant planned for Mobile, AL. Northrop/EADS stated that assembling KC-Xs there would create 2,000 new jobs. Northrop originally stated that its proposal would result in 25,000 direct and indirect U.S. jobs—a calculation that Northrop/EADS stated was based a Department of Commerce employment model. Subsequently, Northrop raised its job estimate to approximately 48,000 direct and indirect jobs and 230 suppliers from 49 states. Northrop based the revised estimate on feedback received from suppliers and a Department of Labor employment model.31 In January 2008, EADS (...continued) House Armed Services Air & Land Forces and Seapower & Expeditionary Forces Subcommittees [Hearing] On the State of the Command, February 25, 2009, pp 6-7. 29 Department of the Air Force, Presentation to the House Armed Services Committee Subcommittee on Air and Land Forces, United States House of Representatives, Combined Statement of: Lieutenant General Daniel J. Darnell, Air Force Deputy Chief Of Staff For Air, Space and Information Operations, Plans And Requirements (AF/A3/5) Lieutenant General Mark D. Shackelford, Military Deputy, Office of the Assistant Secretary of the Air Force for Acquisition (SAF/AQ) Lieutenant General Raymond E. Johns, Jr., Air Force Deputy Chief of Staff for Strategic Plans And Programs (AF/A8), May 20, 2009, p. 17. 30 Boeing press release, “Boeing KC-767 Tanker Win Would Benefit Arizona Economy,” November 26, 2007. 31 Press release, “Northrop Grumman Updates Job Projections for Air Force KC-45A Program,” March 11, 2008, available online at http://www.irconnect.com/noc/press/pages/news_releases.html?d=138001. Congressional Research Service 8 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress announced that it would conduct final assembly of all commercial freighter versions of the Airbus 330-200 at the Mobile, AL, facility, increasing the potential number of new jobs that would be created at Mobile if the Northrop/EADS KC-X were selected. 32 Domestic Content as Discussed in 2007-2008 Competition In the 2007-2008 KC-X competition, some observers questioned whether the Northrop/EADS proposal satisfied requirements in the Buy American Act, which requires the federal government to purchase domestically manufactured goods. The statute defines goods to have been domestically manufactured if their components have “substantially all” been mined, produced, or manufactured within the United States. 33 The definition of “substantially all” has been left to the Federal Acquisition Regulations (FAR). In the FAR, a good is considered “domestic” if the cost of domestically produced components exceeds 50% of the value of the whole article. 34 One way a KC-X contractor could potentially satisfy requirements of the Buy American Act is by having 50% or more of total cost of their proposed aircraft produced in the United States. Reportedly, approximately 85% of Boeing’s KC-X in the 2007-2008 competition would have been manufactured in the United States.35 Northrop/EADS stated that “at least 58 percent” of its proposal in the 2007-2008 KC-X competition would be comprised of products manufactured by U.S.36 For a listing of Boeing 767 and Airbus A330 suppliers, see Appendix D. FY2009 Legislative Provisions The FY2009 defense authorization act (S. 3001/P.L. 110-417 of October 14, 2008) contained three provisions relating to Air Force tanker aircraft: • Section 131 amended an earlier provision—Section 135(b) of the FY2007 defense authorization act (H.R. 5122/P.L. 109-364 of October 17, 2006)—to require the Air Force to maintain at least 74 of the KC-135Es that are retired by the Air Force after September 30, 2006, in a condition that would allow recall of that aircraft to future service in the Air Force Reserve, Air National Guard, or active forces aerial refueling force structure. (Section 135(b) had originally required that each KC-135E retired after September 30, 2006, be maintained in such a condition.) • Section 132 repealed Section 135 of the FY2004 defense authorization act (H.R. 1588/P.L. 108-136 of November 24, 2003)—the provision discussed earlier (see 32 Jen DiMascio, “Airbus Vows to Boost Business in Alabama If it Can Make Tankers There,” Defense Daily, January 15, 2008. Some observers have estimated a market for 200 Airbus 330-200 freighters over the next 10 years. As of January 2008, Airbus had orders for approximately 60 aircraft. (“Airbus 330,” Jane’s All the World’s Aircraft, February 19, 2008, available online at http://www.janes.com.) 33 For more information on the Buy American Act, see CRS Report 97-765, The Buy American Act: Requiring Government Procurements to Come from Domestic Sources, by John R. Luckey. 34 FAR § 25.101. 35 Eric Rosenburg, “Boeing Duels for Tanker Deal,” Seattle Post-Intelligencer, September 30, 2007, available online at http://seattlepi.nwsource.com/business/333751_tanker01.html. 36 “Northrop Grumman’s KC-45 Tanker: Making the Right Choice,” January 25, 2007, available online at http://www.northropgrumman.com/kc45/benefits/choice.html. Congressional Research Service 9 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress “Leasing and Purchasing Authority of 2003”) that authorized the Secretary of the Air Force to lease up to 20 tankers, and to use a multiyear procurement (MYP) arrangement beginning as early as FY2004 to procure up to 80 tankers using incremental funding. • Section 133 required the Secretary of Defense to submit a report to the congressional defense committees by March 1, 2009, regarding the KC-X competition was terminated on September 10, 2008. The text of Section 133 is as follows: SEC. 133. REPORTS ON KC-(X) TANKER AIRCRAFT REQUIREMENTS. (a) Report Required- Not later than March 1, 2009, the Secretary of Defense shall submit to the congressional defense committees a report regarding the competition for the KC-(X) tanker aircraft that was terminated on September 10, 2008. The report shall include the following: (1) An examination of original requirements for the KC-(X) tanker aircraft, including an explanation for the use of the KC-135R tanker aircraft as the baseline for the KC-(X) tanker aircraft. (2) A summary of commercial derivative or commercial off-the-shelf aircraft available as potential aerial refueling platforms using aerial refueling capabilities (such as range, offload at range, and passenger and cargo capacity) in each of the following ranges: (A) Maximum gross take-off weight that is less than 300,000 pounds. (B) Maximum gross take-off weight in the range from 301,000 pounds maximum gross takeoff weight to 550,000 pound maximum gross take-off weight. (C) Maximum gross take-off weight in the range from 551,000 pounds maximum gross takeoff weight to 1,000,000 pound maximum gross take-off weight. (D) Maximum gross take-off weight that is greater than 1,000,000 pounds. (b) Reassessment Required- The Secretary of Defense shall reassess the requirements for aerial refueling that were validated by the Joint Requirements Oversight Council on December 27, 2006. Not later than 30 days after the reassessment, the Secretary shall submit to the congressional defense committees a report containing the complete results of the reassessment. Issues for Congress The issue for Congress in FY2010 is whether to approve, reject, or modify the Administration’s request for FY2010 research and development funding for the new KC-X program, and whether to take any action to define the acquisition strategy for the new KC-X program. Key acquisitionstrategy issues include whether to procure one KC-X design or two, and (if only one design is to be procured, as the Administration prefers), how to structure and conduct the competition for determining the winning design. Congressional Research Service 10 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress Build One Design Or Two? The Administration wants to build only one KC-X design. Some observers, including some Members of Congress, have expressed interest building two designs (i.e., both a Boeing and Northrop/EADS design). Summary of Arguments The Administration and other supporters of building a single design could argue one or more of the following: • Building two designs would increase KC-X development costs by requiring the development of two aircraft, increase KC-X procurement costs by splitting the production learning curve for the program between two sources, and increase KC-X life-cycle operating and support costs by requiring the Air Force to maintain two sets of KC-X training, maintenance, and support, facilities. Air Force Secretary Michael Donley testified to the Senate Appropriations Committee on June 4, 2009, that procuring two KC-X designs would nearly double the program’s estimated $35 billion procurement cost.37 If two KC-X designs are built, the Air Force for some time will bear the costs of operating four different types of tankers—KC-135s, KC-10s, and the two KC-X designs. • KC-X procurement costs will be constrained (and KC-X production quality and schedule adherence will be maintained) with production of a single design because the KC-X builder will understand that its performance in building KCXs will influence DOD thinking on whether to use that firm to build KC-Ys and KC-Zs, or to execute other DOD acquisition programs. Since tankers are based on commercial airliners, building a single KC-X design now will not prevent DOD from holding an effective competition in future years for KC-Ys and KCZs. • DOD cannot afford to procure more than about 18 KC-Xs per year without reducing funding for other defense programs, so producing a second KC-X design for the purpose of being able to produce more than 18 KC-Xs per year is not important. • DOD has learned lessons from the 2007-2008 KC-X competition, and consequently will be able to structure and conduct a new KC-X competition that is fair to both sides and whose result, if challenged, will be upheld by GAO. Supporters of building two designs could argue one or more of the following: • Building two designs would permit annual competition in the production of KCXs, which will constrain KC-X procurement costs (and ensure production quality and schedule adherence) more effectively than using single source to produce all KC-Xs. 38 The Navy is contemplating continued production of its two Littoral 37 See, for example, Marina Malenic, “Air Force Says Tanker Split But Would Nearly Double Program Cost,” Defense Daily, June 5, 2009: 1-2. 38 Among those who make this argument is Jacques Gansler, who served as Under Secretary of Defense for Acquisition, Technology and Logistics during the Clinton Administration, believes competitive dual sourcing is a good (continued...) Congressional Research Service 11 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress Combat Ship (LCS) designs in part for this reason.39 The 2006 RAND analysis of alternatives for the KC-X found that, “a mixed [Air Force tanker] fleet ... has (...continued) fit for the KC-X program, since both competing aircraft already have established worldwide logistics networks. Gansler in 2006 compared cost growth for ten DOD aircraft programs developed without production competition to the cost of seven commercial aircraft produced in a competitive environment. He found that the ten single-source DOD acquisition programs had an average cost increase of 46%, while the seven competitively produced commercial airliners had an average cost decrease of 16% over the life of the program. For the KC-X program, Gansler assumed a purchase of 100 new tankers with a base price of $125 million dollars and a 75/25 split favoring the best-value candidate. (Gansler’s analysis considered a 75/25 split to be illustrative and found other splits such as 60/40, etc. could be expected to produce similar savings.) Based on these assumptions, he found a competitively sourced tanker acquisition would potentially generate $7.7 billion in cost savings compared to a single-source tanker program, provided the cost growth averages of the single-source and competitively sourced aircraft programs examined earlier in his study were repeated in the KC-X program. (Jacques S. Gansler and William Lucyshyn, “Competition in the USAF Tanker Replacement Program,” presentation slides, June 12, 2006, slides 18-19, 24, 35, and 40.) John Lehman, who was Secretary of the Navy during the Reagan Administration and is a strong supporter of using competition in procurement, cited Gansler’s study in a June 8, 2009, opinion column advocating the use of competition in the KC-X program. The column also stated: One such opportunity [for improving defense acquisition] is the current competition to replace the 45-year-old U.S. Air Force tanker fleet. This is a source selection between Boeing and Northrop Grumman conducted to award another 40 years of competition-free monopoly to the winner of the beauty contest. Under these Pentagon rules, the contestants are judged on which can produce the best fantasy about how low their prices will be in future decades, free of competition, producing their wondrous but still unbuilt airplane.... The air tanker program is a perfect candidate to return to the competitive cost control of yore. Bureaucrats will argue against it for the following reasons: • With a planned buy of only 179 it is not big enough to split. No. The Navy got huge benefits from competing frigates, destroyers, cruisers and submarines with total numbers far lower than the tanker. • Split competition requires freezing designs and fixed-price contracts, which prevents change orders. Yes. • Operating and maintaining two types of aircraft is more difficult and costly than one. No. The Air Force proved that wrong when they made the case for expeditionary air wings now successfully operating five or more different aircraft types. • The two candidates, the A330 and B767 derivatives, are too different to compete apples to apples. No. It is easy to normalize range/payload/etc. to compete fairly every year with different airplanes. • Managing two contractors is more work than one. Yes. In such a common-sense procurement, the government gets huge benefits: Just as in the “Toyota culture” of constant innovation, the two contractors will be under constant pressure to improve ideas and productivity, knowing their competitor is doing the same, and the price can be expected to drop each year. In past successful split programs, the final design was locked, so the contractors could bid fixedprice. As technology advanced, there were block upgrades after two to five years where the design specifications were modified to incorporate innovations; the new design was frozen again until the next block upgrade. (John Lehman, “When 2 Is Cheaper Than 1,” DefenseNews.com, June 8, 2009.) For more on the LCS program, see CRS Report RL33741, Navy Littoral Combat Ship (LCS) Program: Background, Oversight Issues, and Options for Congress, by Ronald O'Rourke 39 Congressional Research Service 12 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress comparable cost-effectiveness, so there is no reason to exclude a priori an AirbusBoeing mixed buy on cost-effectiveness grounds.”40 • Producing two KC-X designs will enhance DOD’s potential for using competition in the future for the procurement of KC-Ys and KC-Zs, • Building two designs would make possible a combined annual KC-X production rate at the Boeing and Northrop/EADS facilities of up to 36 aircraft per year, which would permit the Air Force to replace KC-135s more quickly, reducing the risk that KC-135s might reach the end of their service lives before they are replaced, and reducing more quickly KC-135 maintenance costs. • In light of past difficulties in structuring and conducting a KC-X competition that is fair to both sides, building both designs would permit the KC-X program to proceed more expeditiously. Potential Intermediate Alternative Building One Design at Two Sites An alternative to building one design or two would be to have the two competitors build a single design—an approach that the Navy uses for the production of surface combatants and attack submarines. Under this approach, DOD would select a single design to build (either the Boeing design or the Northrop/EADS design), and that design would be built by both Boeing and Northrop/EADS. Advocates could argue that this approach would avoid the added development and operation and support costs associated with building two designs, and that if each KC-X were produced jointly by Boeing and Northrop/EADS (similar to how each Virginia-class attack submarine is built jointly by General Dynamics and Northrop),41 it could avoid some of the added costs of splitting the production learning curve between two sites. Advocates could also argue that having both firms build a single design would provide a potential for building up to 36 KC-Xs per year, should policymakers determine that such a rate is affordable. 42 Terms for a Competition If a single KC-X design is to be built, an additional issue for Congress is how DOD should structure and conduct the competition so as to ensure that it fair to both sides and will withstand any protest by the losing bidder. Lowest Price vs. Best Value One issue is whether DOD should select the winning design on the basis of lowest cost (and technically acceptable) or best value. The question is significant because some observers believe that a selection based on lowest cost might be more likely to favor one design, while a selection based on best value might be more likely to favor another. Advocates of a competition based on 40 Michael Kennedy et al., Analysis of Alternatives (AoA) for KC-135 Recapitalization, Executive Summary, RAND Corporation, 2006, p. 12. 41 For a discussion of the joint production approach for Virginnia-class attack submarines, see CRS Report RL32418, Navy Attack Submarine Procurement: Background and Issues for Congress, by Ronald O'Rourke 42 For an article discussing the possibility of building one KC-X design at multiple sites, see John M. Doyle, “Rep. Taylor Suggests Multiple Tanker Assembly Sites,” Aerospace Daily & Defense Report,” May 20, 2009: 5. Congressional Research Service 13 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress lowest cost might argue that it would be easier to design and implement, and easier to defend in the event of a protest.43 Advocates of a competition based on best value might argue that it would have a higher likelihood of taking into account considerations that are not strictly cost related, but nevertheless important to meeting Air Force requirements for its future tanker fleet Performance Requirements and Evaluation Factors An additional question regarding the terms of the competition concerns the performance requirements for the KC-X and the evaluation factors that will be used in the KC-X competition. A March 6, 2009, news report stated: The restart of the Air Force next-generation tanker competition took a major step forward last week when the Joint Requirements Oversight Council revalidated the program’s requirements, according to defense officials. 43 A May 1, 2009, news article that provided a perspective in favor of basing the decision on lowest cost stated: The Pentagon should set price above bonus capabilities when selecting a winner in the $35 billion competition to build a new fleet of aerial-refueling aircraft, the military’s former top acquisition official said this week in his last hours on the job. Meeting with reporters on his last day on the job—April 27—Pentagon acquisition chief John Young said this method would generate less controversy and be less burdensome on taxpayers. Young’s successor, Ashton Carter, took the oath of office later that day. “The government could possibly go and successfully have a best-value competition on tanker, but not with 800 requirements, almost all of which are tradeable,” Young said during the April 27 meeting at the Pentagon. “To successfully do that, the government is going to have to articulate ... a smaller set of requirements and be crystal clear about the relative priorities of those requirements.” Last fall, a military official laid out two courses of action the Pentagon could take when awarding a contract. The first is called “lowest price, technically acceptable,” and the second, “best value.” The first strategy requires a bidder to meet a number of threshold requirements. If those benchmarks are met, the final decision is made based on price. The second strategy requires bidders to meet the threshold requirements and a number of supporting requirements. The decision is made by who meets the most secondary requirements. Since last fall, Air Force requirements and acquisition officials have been working to whittle down the massive list of tanker requirements. A lack of clarity in the lengthy list is what ultimately led the Government Accountability Office to sustain a protest filed by Boeing, which lost the competition to Northrop Grumman-EADS in February 2008. In March, Inside the Air Force reported that the service had nearly halved the number of “evaluation elements” it will use when evaluating proposals for the KC-X tanker. “I think the government can successfully go down that route and succeed, but there’s no question it could be controversial,” Young said this week. If both competitors meet the desired requirements, the Pentagon should ultimately choose the less expensive proposal, he said. “If they are technically acceptable—[and] meet the requirements—ask people for their best price to meet those requirements and pick [a winner] that way,” Young said. “That gets the best deal for the taxpayer. “I’m struggling to see what the downside of that is,” he continued. “I think, given the clearly demonstrated propensity for controversy in this space, you may have to go to those strategies.” Taking his views a step further, Young said he penned a memo to acquisition officials noting this best-price strategy could prove useful when evaluating future competitions. In some cases, the Pentagon is paying more for capabilities it does not need. “Once I have something that meets my articulated, prioritized technical requirements, I ought to go get the best price for the taxpayer,” he said. “What is the downside to that?” (Marcus Weisgerber, “Young Claims USAF Should Make Price Top Factor In KC-X Competition,” Inside the Air Force, May 1, 2009.) Congressional Research Service 14 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress The JROC—chaired by Vice Chairman of the Joint Chiefs of Staff Marine Corps Gen. James Cartwright—discussed the KC-135 tanker replacement program during a Feb. 26 meeting at the Pentagon, according to sources. At press time (March 5), a JROC memorandum had not been signed, according to one defense official. The JROC must validate a requirement before a major, high-budget program enters the acquisition phase. “The requirement didn’t change,” Air Mobility Command chief Gen. Arthur Lichte told reporters last week when speaking about the tanker competition, not the JROC meeting.... Over the last few months, AMC requirements officials have been refining a list of more than 800 sub-requirements that were part of the original request for proposals “We’ve gone back over and scrubbed them so as to make sure that, when we put a requirement out there, we didn’t make too many sub-requirements,” Lichte said at the same conference in Florida. “We want to make sure we’re specific where we need to be specific [and] consolidate some of those requirements,” he said during a Feb. 26 briefing. For instance, “if we wanted defensive systems, we could describe that in maybe 25 different requirements,” Lichte said, noting a cleaned -up version could instead state the new tanker needs a Large Aircraft Infrared Countermeasure system. “I think we’ve got [the requirements] to the right level and now we’re waiting for OSD to make the final decision and to go forward with whatever acquisition strategy that we’re going to have,” he said. 44 A March 20, 2009, news report stated: The Air Force has simplified the evaluation factors it plans to use when it re-examines bids for the KC-X next-generation tanker replacement program, according to service officials. This comes as Defense Secretary Robert Gates this week reaffirmed his position against buying two different aerial refueling aircraft. Service officials hope trimming more than 800 “evaluation elements” will “clarify and condense” the new request for proposals, making it “more understandable to solicitors,” one service official said this week. “We’re somewhere around half of the evaluation elements that we had before,” the official said. “I think industry will find a much clearer depiction of what it is we’re asking for, but the basic requirements have not changed.” Air Force officials briefed the Joint Requirements Oversight Council late last month on the service’s process for clarifying and condensing evaluation factors, according to the official. The panel reaffirmed the fundamental next-generation tanker requirements as stated in the analysis of alternatives and capabilities development document remain sound. “Nothing has fundamentally changed,” the official said. 44 Marcus Weisgerber, “JROC Revalidates Air Force KC-X Tanker Program Requirements,” Inside the Air Force, March 6, 2009. Congressional Research Service 15 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress At press time (March 19), the group has not issued a JROC memorandum.45 Air Force or OSD Management of Competition An additional question is whether the KC-X competition will be managed by the Air Force or by the Office of the Secretary of Defense. 46 Legislative Activity for FY2010 FY2010 Funding Request The Administration’s proposed FY2010 defense budget requests $439.6 million in Air Force research and development funding to begin a new program for acquiring new 179 KC-X aerial refueling tankers. The requested funding is found in the Air Force’s research development, test and evaluation (RDT&E) account in PE (i.e., program element, meaning line item) 0605221F, KC-X, Next Generation Aerial Refueling Aircraft. FY2010 Defense Authorization Bill (H.R. 2647/S. 1390) House The House Armed Services Committee, in its report (H.Rept. 111-166 of June 18, 2009) on H.R. 2647, recommends approving the Administration’s request for $439.6 million in research and development funding for the KC-X program. (Page 190, line 88) The committee’s report states: KC–X The committee notes that the KC–X program is planned to replace the Department of the Air Force’s KC–135 aerial refueling tanker fleet, which now has an average aircraft age of 47 years. The committee also notes that the KC–X program has been subject to delays resulting from contractor protests to the Government Accountability Office, and believes that further delay in the acquisition of the KC–X aerial refueling tanker could jeopardize Department of Defense requirements for global mobility. Accordingly, the committee strongly urges the Department to include the necessary funds in its Future Years Defense Program to rapidly conduct source selection and to award a KC–X aerial refueling tanker contract as expeditiously as possible. (Pages 100-101) The report also states: KC–X tanker replacement program 45 Marcus Weisgerber, “Air Force Simplifies KC-X Evaluation Factors That Will Appear In RFP,” Inside the Air Force, March 20, 2009. 46 For an article discussing the issue of who will manage the KC-X competition, see Amy Butler, “USAF Could Lose Oversight Of Next Tanker Duel,” Aerospace Daily & Defense Report, May 18, 2009: 4. Congressional Research Service 16 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress The committee believes that the Department of Defense should implement measures to ensure competition throughout the lifecycle of the KC–X tanker replacement program to ensure that the program delivers the best capability to the warfighter and the best value to the U.S. Government. Accordingly, the committee urges the Secretary of Defense to utilize as many of the competitive measures specified in subsection (b) of section 202 of the Weapon Systems Acquisition Reform Act of 2009 (Public Law 111–23) as is practicable when developing the acquisition strategy and source selection plan. The committee notes that the intent of section 202 is to require the Secretary of Defense to plan for persistent competition to control program costs and improve the reliability of the KC–X tanker acquired by the Department throughout the program’s lifecycle, including development, procurement, and sustainment. (Page 203) Section 1032 of H.R. 2647 requires Secretary of Defense shall submit to the congressional defense committees a report on the force structure findings of the 2010 Quadrennial Defense Review (QDR). The report is to include the analyses used to determine and support the findings on force structure, and description of any changes from the previous quadrennial defense review to the minimum military requirements for major military capabilities. Regarding Section 1032, the committee’s report states: The committee expects that the analyses submitted will include details on all elements of the force structure discussed in the QDR report, and particularly the following:... (3) A description of the factors that informed decisions regarding aerial refueling aircraft force structure, including: the modeling, simulations, and analyses used to determine the number and type of aerial refueling aircraft necessary to meet the national defense strategy; the force sizing constructs used including peak demand; the number and type of aerial refueling aircraft necessary to meet the national security objective; the changes made, and supporting rationale for the changes made, to the aerial refueling aircraft force structure from that proposed in MCS–05; and the operational risks associated with the planned aerial refueling aircraft fleet, based on requirements of combatant commanders, and measures planned to address those risks;... (Page 388) Section 1044 of H.R. 2647 would repeal Section 1081 of the FY2008 defense authorization act (H.R. 4986/P.L. 110-181 of January 28, 2008), which directed the Secretary of the Air Force to conduct a pilot program of at least five years’ duration to assess the feasibility and advisability of utilizing commercial fee-for-service air refueling tanker aircraft for Air Force operations. Regarding Section 1044, the committee’s report states: The committee is aware that the Air Force has conducted initial analysis to develop the program structure for the pilot program, based on two diverse options, and has received feedback from potential providers in the aviation industry. However, based on its review of data gathered to date, the committee is concerned that the pilot program will be a costly alternative with little operational benefit and is not in the best interest of the Air Force. (Page 391) The committee’s report also states: Fee for Service Refueling The budget request contained $10.0 million for a fee-for-service refueling pilot program. The committee recommends eliminating the funds for the pilot program. Congressional Research Service 17 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress A provision is included elsewhere in this title [Section 1044] that would repeal the requirement to conduct a fee-for-service pilot program. (Page 284; see also page 282 for the recommended line-item reduction) Senate Division D of S. 1390 as reported by the Senate Armed Services Committee (S.Rept. 111-35 of July 2, 2009) presents the detailed line-item funding tables that in previous years have been included in the Senate Armed Services Committee’s report on the defense authorization bill. Division D recommends approving the Administration’s request for $439.6 million in research and development funding for the KC-X program. (Page 687 of the printed bill, line 88) The committee’s report states: KC–X tanker replacement program The committee regards the need to modernize the current fleet of KC–135 aerial refueling tanker aircraft as a vital national security priority and supports the KC-X tanker recapitalization program, as well as efforts by the Air Force both to maintain the existing fleet and augment capability with aerial fee-for-service, if it proves cost-effective under the pending pilot program. Given the troubled history of the program, the committee expects that the Department of Defense will pursue a process of procuring replacement tankers that will ensure that the joint warfighter receives the best capability at the best price. The committee believes that this can only be achieved by an acquisition strategy that does not pre-determine the outcome of the competition and a competition that is fair and open. In addition, the committee believes that, in accordance with the principles of the Weapon Systems Acquisition Reform Act of 2009 (Public Law 111–23) and as a means of improving contractor performance, the Department of Defense must ensure that the acquisition strategy of the KC–X program includes measures that ensure competition, or the option of competition, throughout the life cycle of the program, where appropriate and cost-effective. (Page 99) Section 1058 of S. 1390 would amend Section 1081 of the FY2008 defense authorization act (H.R. 4986/P.L. 110-181 of January 28, 2008), which directed the Secretary of the Air Force to conduct a pilot program of at least five years’ duration to assess the feasibility and advisability of utilizing commercial fee-for-service air refueling tanker aircraft for Air Force operations. The committee’s report states: The committee recommends a provision [Section 1058] that would provide an exemption to the 5–year limitation on multiyear contracts and make other minor changes to enable the Air Force to implement a fee-for-service air refueling support pilot program. Section 1081 of the National Defense Authorization Act for Fiscal Year 2008 (Public Law 110–181) directed the Secretary of the Air Force to conduct a pilot program to assess the feasibility and advisability of utilizing commercial fee-for-service air refueling tanker aircraft for Air Force operations. The Air Force has been working with the private sector to implement this pilot program. The Air Force has informed the committee that results from their formal request for information process indicate that a multiyear contract that exceeds the current 5-year limit would be necessary to promote adequate competition and reduce program costs. The Air Force needs to have authority to make commitments for the 8-year pilot program in order to issue a request for proposal. The Air Force also needs to be able to offer carriers insurance coverage Congressional Research Service 18 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress similar to that provided to civil reserve air fleet (CRAF) program partners. This provision would provide the Air Force with those authorities. (Page 179) The text of Section 1058 is as follows: SEC. 1058. MULTIYEAR CONTRACTS UNDER PILOT PROGRAM ON COMMERCIAL FEE-FOR-SERVICE AIR REFUELING SUPPORT FOR THE AIR FORCE. (a) Multiyear Contracts Authorized- The Secretary of the Air Force may enter into one or more multiyear contracts, beginning with the fiscal year 2011 program year, for purposes of conducting the pilot program on utilizing commercial fee-for-service air refueling tanker aircraft for Air Force operations required by section 1081 of the National Defense Authorization Act for Fiscal Year 2008 (P.L. 110-181; 122 Stat. 335). (b) Compliance With Law Applicable to Multiyear Contracts- Any contract entered into under subsection (a) shall be entered into in accordance with the provisions of section 2306c of title 10, United States Code, except that— (1) the term of the contract may not be more than 8 years; (2) notwithstanding subsection 2306c(b) of title 10, United States Code, the authority under subsection 2306c(a) of title 10, United States Code, shall apply to the fee-for-service air refueling pilot program; (3) the contract may contain a clause setting forth a cancellation ceiling in excess of $100,000,000; and (4) the contract may provide for an unfunded contingent liability in excess of $20,000,000. (c) Compliance With Law Applicable to Service Contracts- A contract entered into under subsection (a) shall be entered into in accordance with the provisions of section 2401 of title 10, United States Code, except that— (1) the Secretary shall not be required to certify to the congressional defense committees that the contract is the most cost-effective means of obtaining commercial fee-for-service air refueling tanker aircraft for Air Force operations; and (2) the Secretary shall not be required to certify to the congressional defense committees that there is no alternative for meeting urgent operational requirements other than making the contract. (d) Limitation on Amount- The amount of a contract under subsection (a) may not exceed $999,999,999. (e) Provision of Government Insurance- A commercial air operator contracting with the Department of Defense under the pilot program referred to in subsection (a) shall be eligible to receive government provided insurance pursuant to chapter 443 of title 49, United States Code, if commercial insurance is unavailable on reasonable terms and conditions. Congressional Research Service 19 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress Appendix A. Section 8159 of FY2002 Defense Appropriations Act The text of section 8159 of the FY2002 defense appropriations act (H.R. 3338/P.L. 107-117 of January 10, 2002) is as follows: SEC. 8159. MULTI-YEAR AIRCRAFT LEASE PILOT PROGRAM. (a) The Secretary of the Air Force may, from funds provided in this Act or any future appropriations Act, establish and make payments on a multi-year pilot program for leasing general purpose Boeing 767 aircraft and Boeing 737 aircraft in commercial configuration. (b) Sections 2401 and 2401a of title 10, United States Code, shall not apply to any aircraft lease authorized by this section. (c) Under the aircraft lease Pilot Program authorized by this section: (1) The Secretary may include terms and conditions in lease agreements that are customary in aircraft leases by a non-Government lessor to a non-Government lessee, but only those that are not inconsistent with any of the terms and conditions mandated herein. (2) The term of any individual lease agreement into which the Secretary enters under this section shall not exceed 10 years, inclusive of any options to renew or extend the initial lease term. (3) The Secretary may provide for special payments in a lessor if the Secretary terminates or cancels the lease prior to the expiration of its term. Such special payments shall not exceed an amount equal to the value of 1 year’s lease payment under the lease. (4) Subchapter IV of chapter 15 of title 31, United States Code shall apply to the lease transactions under this section, except that the limitation in section 1553(b)(2) shall not apply. (5) The Secretary shall lease aircraft under terms and conditions consistent with this section and consistent with the criteria for an operating lease as defined in OMB Circular A-11, as in effect at the time of the lease. (6) Lease arrangements authorized by this section may not commence until: (A) The Secretary submits a report to the congressional defense committees outlining the plans for implementing the Pilot Program. The report shall describe the terms and conditions of proposed contracts and describe the expected savings, if any, comparing total costs, including operation, support, acquisition, and financing, of the lease, including modification, with the outright purchase of the aircraft as modified. (B) A period of not less than 30 calendar days has elapsed after submitting the report. (7) Not later than 1 year after the date on which the first aircraft is delivered under this Pilot Program, and yearly thereafter on the anniversary of the first delivery, the Secretary shall submit a report to the congressional defense committees describing the status of the Pilot Program. The Report will be based on at least 6 months of experience in operating the Pilot Program. Congressional Research Service 20 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress (8) The Air Force shall accept delivery of the aircraft in a general purpose configuration. (9) At the conclusion of the lease term, each aircraft obtained under that lease may be returned to the contractor in the same configuration in which the aircraft was delivered. (10) The present value of the total payments over the duration of each lease entered into under this authority shall not exceed 90 percent of the fair market value of the aircraft obtained under that lease. (d) No lease entered into under this authority shall provide for— (1) the modification of the general purpose aircraft from the commercial configuration, unless and until separate authority for such conversion is enacted and only to the extent budget authority is provided in advance in appropriations Acts for that purpose; or (2) the purchase of the aircraft by, or the transfer of ownership to, the Air Force. (e) The authority granted to the Secretary of the Air Force by this section is separate from and in addition to, and shall not be construed to impair or otherwise affect, the authority of the Secretary to procure transportation or enter into leases under a provision of law other than this section. (f) The authority provided under this section may be used to lease not more than a total of 100 Boeing 767 aircraft and 4 Boeing 737 aircraft for the purposes specified herein. Congressional Research Service 21 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress Appendix B. Section 135 of FY2004 Defense Authorization Act The text of Section 135 of the FY2004 defense authorization act ((H.R. 1588/P.L. 108-136 of November 24, 2003) is as follows: SEC. 135. PROCUREMENT OF TANKER AIRCRAFT. (a) LEASED AIRCRAFT- The Secretary of the Air Force may lease no more than 20 tanker aircraft under the multiyear aircraft lease pilot program referred to in subsection (d). (b) MULTIYEAR PROCUREMENT AUTHORITY- (1) Beginning with the fiscal year 2004 program year, the Secretary of the Air Force may, in accordance with section 2306b of title 10, United States Code, enter into a multiyear contract for the purchase of tanker aircraft necessary to meet the requirements of the Air Force for which leasing of tanker aircraft is provided for under the multiyear aircraft lease pilot program but for which the number of tanker aircraft leased under the authority of subsection (a) is insufficient. (2) The total number of tanker aircraft purchased through a multiyear contract under this subsection may not exceed 80. (3) Notwithstanding subsection (k) of section 2306b of title 10, United States Code, a contract under this subsection may be for any period not in excess of 10 program years. (4) A multiyear contract under this subsection may be initiated or continued for any fiscal year for which sufficient funds are available to pay the costs of such contract for that fiscal year, without regard to whether funds are available to pay the costs of such contract for any subsequent fiscal year. Such contract shall provide, however, that performance under the contract during the subsequent year or years of the contract is contingent upon the appropriation of funds and shall also provide for a cancellation payment to be made to the contractor if such appropriations are not made. (c) STUDY OF LONG-TERM TANKER AIRCRAFT MAINTENANCE AND TRAINING REQUIREMENTS- (1) The Secretary of Defense shall carry out a study to identify alternative means for meeting the long-term requirements of the Air Force for— (A) the maintenance of tanker aircraft leased under the multiyear aircraft lease pilot program or purchased under subsection (b); and (B) training in the operation of tanker aircraft leased under the multiyear aircraft lease pilot program or purchased under subsection (b). (2) Not later than April 1, 2004, the Secretary of Defense shall submit a report on the results of the study to the congressional defense committees. (d) MULTIYEAR AIRCRAFT LEASE PILOT PROGRAM DEFINED- In this section, the term `multiyear aircraft lease pilot program’ means the aerial refueling aircraft program authorized under section 8159 of the Department of Defense Appropriations Act, 2002 (division A of P.L. 107-117; 115 Stat. 2284). (e) SENSE OF CONGRESS- It is the sense of Congress that, in budgeting for a program to acquire new tanker aircraft for the Air Force, the President should ensure that sufficient Congressional Research Service 22 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress budgetary resources are provided to the Department of Defense to fully execute the program and to further ensure that all other critical defense programs are fully and properly funded. Congressional Research Service 23 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress Appendix C. KC-X Competition of 2007-2008 This appendix provides additional information and discussion on the KC-X competition of 20072008. Request for Proposal In January 2007, the Air Force released its formal RFP for the KC-X acquisition program. Assistant Secretary of the Air Force Sue Payton reportedly emphasized that the Air Force had completed a rigorous review process for KC-X to ensure the RFP mirrors joint war-fighting requirements. 47 The RFP outlined nine primary key performance parameters: • Air refueling capability • Fuel offload and range at least as great as the KC-135 • Compliant Communication, Navigation, Surveillance/Air Traffic Management (CNS/ATM) equipment • Airlift capability • Ability to take on fuel while airborne • Sufficient force protection measures • Ability to network into the information available in the battle space • Survivability measures (defensive systems, Electro-Magnetic Pulse (EMP) hardening, chemical/biological protection, etc.) • Provisioning for a multi-point refueling system to support Navy and Allied aircraft48 In November 2007, Ms. Payton explained the evaluation criteria that the Air Force used in determining the KC-X competition. The KC-X evaluation factors are: • • Factor 1—Mission Capability. Mission capability includes five subfactors listed in descending order of importance: • Subfactor 1.1—Key System Requirements • Subfactor 1.2—Subsystem Integration and Software • Subfactor 1.3—Product Support • Subfactor 1.4—Program Management • Subfactor 1.5—Technology Maturity and Demonstration Factor 2—Proposal Risk 47 “Air Force Posts KC-X Request for Proposals,” Air Force Print News Today, Press Release 070107, January 30, 2007, online at http://www.af.mil/pressreleases/story_print.asp?id=123039273. 48 Ibid. Congressional Research Service 24 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress • Factor 3—Past Performance • Factor 4—Cost/Price • Factor 5—Integrated Fleet Air Refueling Assessment49 The Air Force considered the first three KC-X evaluation factors of equal importance. The final two factors were considered of equal importance, but less important relative to the first three criterion. Lastly, the Air Force regarded “Factors 1, 2, 3, and 5, when combined, [to be] significantly more important than factor 4.”50 Boeing Protest Air Force officials debriefed both Boeing and Northrop officials on how their respective bids were scored in March 2008. On March 11, 2008, Boeing protested the Air Force’s decision to the GAO. 51 On March 26, 2008, both the Air Force and Northrop separately filed motions for the GAO to dismiss portions of Boeing’s protest.52 GAO rejected these motions. 53 Work on the KC45A stopped while the GAO considered the protest.54 Boeing’s protest was based on a perception that the Air Force used a flawed process in the KC-X selection process. For example, in a press release detailing Boeing’s rationale for protesting, Boeing stated: It is clear that frequent and often unstated changes during the course of the competition— including manipulation of evaluation criteria and application of unstated and unsupported priorities among the key system requirements—resulted in selection of an aircraft that was radically different from that sought by the Air Force.55 Boeing stated that both teams received identical ratings across the five evaluation areas in the KC-X competition. Boeing claimed that the Air Force’s treatment of both Boeing’s cost estimates and Boeing’s past experience of building Air Force tankers, if scored differently, could have affected the outcome of the source selection.56 In response to Boeing’s protest, an Air Force press release stated: Proposals from both offerors were evaluated thoroughly in accordance with the criteria set forth in the Request for Proposals. The proposal from the winning offeror is the one Air Force officials believe will provide the best value to the American taxpayer and to the 49 USAF slide obtained from “Performance Comes First,” Air Force Association Daily Report, November 21, 2007, online at http://dailyreport.afa.org/AFA/Reports/2007/Month11/Day21/1028factors.htm. 50 Ibid. 51 Boeing News Release, “Boeing Protests U.S. Air Force Tanker Contract Award,” March 11, 2008, online at http://www.boeing.com/ids/globaltanker/news/2008/q1/080311b_nr.html. 52 Andrea Shalal-Esa, “Air Force, Northrop Ask GAO to Dismiss Boeing Protest,” Reuters, March 26, 2008. 53 Susanna Ray and Edmond Lococo, “Northrop Loses Effort to Dismiss Boeing Protest,” Bloomberg News, April 2, 2008, online at http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a2hruo2xpyFQ. 54 Sean Reily, “Air Force Keeps Tanker Freeze,” Mobile Press-Register, March 18, 2008, online at http://www.al.com/ press-register/stories/index.ssf?/base/news/120583171412090. xml&coll=3. 55 Boeing Company News Release, “Boeing Protests U.S. Air Force Tanker Contract Award,” March 11, 2008, online at http://www.boeing.com/news/releases/2008/q1/ 080311b_nr.html. 56 Ibid. Congressional Research Service 25 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress warfighter. Air Force members followed a carefully structured process, designed to provide transparency, maintain integrity and promote fair competition. Air Force members and the offerors had hundreds of formal exchanges regarding the proposals throughout the evaluation process. Air Force officials provided all offerors with continuous feedback through discussions on the strengths and weaknesses of their proposals. Several independent reviews assessed the process as sound and thorough.57 GAO Ruling on Protest On June 18, 2008, the GAO announced that it had completed its examination of DOD’s decision to award Northrop the KC-X contract (for 80 aircraft) and found that Boeing’s complaint had merit.58 GAO’s managing associate general counsel for procurement law, Michael R. Golden, stated: Our review of the record led us to conclude that the Air Force made a number of significant errors that could have affected the outcome of what was a close competition between Boeing and Northrop Grumman. We therefore sustain Boeing’s protest. We also denied a number of Boeing’s challenges to the award to Northrop Grumman, because we found that the record did not provide us with the basis to conclude that the agency had violated the legal requirements with respect to those challenges. GAO recommended that discussions between the government and the bidders be resumed, that bidders be given the opportunity to submit revised proposals, and that the Air Force make a new decision based on this additional input. The Air Force is not statutorily obliged to heed GAO’s recommendations but must respond to them within 60 days (i.e., by August 17, 2008).59 GAO made clear that it was not passing judgment on the relative merits of the proposed aircraft. Instead, GAO stated that it assessed whether the Air Force complied with statutory and regulatory requirements in evaluating the competing bids. GAO cited seven specific reasons for sustaining portions of the Boeing protest, which are summarized below: 1. The Air Force evaluation did not follow the prioritization of technical requirements specified in its own solicitation. Nor did it give credit to the Boeing proposal for satisfying the greater number of nonmandatory technical criteria, though the solicitation expressly requested this. 2. The Air Force used the degree to which the Northrop Grumman bid exceeded a specific key performance objective as an important discriminator between proposals, despite the solicitation’s provision stating that this would not be the case. 3. Solicitation required that proposed tankers be able to refuel all fixed-wing, tanker-compatible Air Force aircraft using existing Air Force procedures. The protest record did not support the Air Force’s determination that the Northrop Grumman proposal did so. 4. Air Force discussions with each of the bidding companies were unequal and misleading. Boeing was told that it had fully satisfied a key operational utility parameter, yet the Air Force later determined that the 57 “Air Force Officials Respond to Boeing Protest,” Air Force Print News Today, March 12, 2008, online at http://www.af.mil/news/story_print.asp?id=123089878. 58 GAO, “Statement Regarding the Bid Protest Decision Resolving the Aerial Refueling Tanker Protest By The Boeing Company B-311344 et al.,” Government Accountability Office (Washington, D.C.), June 18, 2008. Available on the World Wide Web at http://www.gao.gov/press/boeingstmt.pdf. 59 GAO also recommended that the Air Force consider amending its proposal solicitation before engaging the companies in the discussions, that it reimburse Boeing for the cost of filing and pursuing the protest, and that it terminate the existing contract with Northrop Grumman if Boeing’s proposal is ultimately selected. Congressional Research Service 26 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress Boeing proposal only partially met the requirement. The Air Force continued its discussion with Northrop Grumman on the same key parameter without informing Boeing that its assessment had changed. 5. Northrop Grumman refused to agree to a specific solicitation requirement regarding the development of Air Force maintenance capability within a specified period. The Air Force unreasonably assessed this to be an “administrative oversight” and awarded the contract improperly in light of this exception to a material solicitation requirement. 6. The Air Force unreasonably evaluated the military construction (hangers, runways, parking aprons, etc.) required to sustain each of the proposed aircraft. During the protest proceedings, the Air Force conceded that calculations properly performed would have resulted in a most probable life cycle cost for the Boeing offer lower than that for the Northrop Grumman proposal.60 7. The Air Force improperly adjusted upward Boeing’s estimate of the non-recurring (i.e., one-time) engineering portion of its most probable life cycle cost value. The Air Force would have been able to do so had it found the cost to be unreasonably low, but it did not. Additionally, the cost model used by the Air Force to adjust this cost estimate was unreasonable. 60 Life cycle cost refers to the total cost of owning, operating, maintaining, and disposing of a given asset. It is often referred to as “cradle-to-grave” cost. Life cycle costs are calculated within a range, from lowest to highest. The “most probable” cost is the one calculated to have the statistically highest probability of being true. Congressional Research Service 27 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress Appendix D. Boeing 767 and Airbus 330 Suppliers Table D-1. Boeing 767 Suppliers Supplier Aero Vodochody Parent Country Czech Republic Alenia Italy Avcorp Canada Boeing Canada Canada Bombardier (Learjet) Bombardier (Canadair) Daido Steel Embraer Fuji Fujukawa Aluminum GKN Aerospace (Westland Aerospace, formerly BP Chemicals; with Lucas Aertspace Cargo Systems) Goodrich (Cleveland Pneumatic) Hitco Carbon Composites IPTN Kaman Aerospace Kawasaki Heavy Industries Korean Aerospace (Samsung) LMI Aerospace Lunn Industries (Alcore) Menasco Aerospace Mitsubishi Heavy Industries Nihon Kokuki (Nippi) PPG Industries Shin Meiwa Canada Canada Japan Brazil Japan Japan Component(s) airframe parts (for BAE Systems) wing control surfaces, flaps and leading-edge slats, wingtips, elevators, fin rudder, nose radome front and rear spar stiffeners, floor grid details and assemblies, aft strut fairings fixed trailing edge panels, composite wing-to-body fairings, engine strut fairings wing trailing edge support structures rear fuselage, pressure bulkhead steel sheets flap supports wing fairings, main landing gear doors forgings and extensions United Kingdom flap track fairings United States main landing gear United States flap track fairings Indonesia United States flaps, keel beams (for Mitsubishi) wing trailing edges Japan Republic of Korea United States United States United States Japan Japan United States Japan center-fuselage body panels, exit hatches, wing in-spar ribs wing trailing edges skins, wing panels, floor beams, curtain tracks leading edge slat core assemblies (for ASTA) nose landing gear unit rear fuselage body panels, stringers, passenger and cargo doors, dorsal fin wing in-spar ribs, various structural components for Mitsubishi landing light lens assemblies, cockpit windows tailplane trailing edges (for Northrop Gumman/Vought) Source: Teal Group Note: Commercial variants powered by engines manufactured by either General Electric, Pratt & Whitney, or Rolls Royce. Congressional Research Service 28 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress Table D-2. Airbus 330/350 Suppliers61 Supplier Parent Domicile Component(s) Advanced Technology and Research (ATR) Corp. United States graphite epoxy underwing fairings (for Aerostructures Corp.) Aerostructures Corp. (Now Vought) United States inner spoilers/airbrakes, center spar, upper wing skin panels, inner and outer wingbox leading edge assemblies (for BAE), outer flaps, flap track shrouds, spoiler parts (for DASAEADS) AHF-Ducommun United States leading edge wing skins Boeing (Aerospace Technologies of Australia) United States main gear doors, floor support structure, pressurization bulkhead between passenger cabin, main landing gear compartment (for Aérospatiale-EADS) Bombardier (Canadair) Canada leading edge wing assemblies, nose gear bay and doors, nose bottom fuselage, rear sealed frame, ventral beam, pressurized lateral floor, aft pressure bulkhead (for Aérospatiale-EADS), inboard front spar assembly (for BAE) BTR Aerospace Canada main landing gear fairings CC Industries United States Ciba-Geigy Corp. Federal Republic of Germany Dowty Aerospace Canada Canada Dowty Rotol (with Cleveland Pneumatic) United Kingdom outer rear spar, main landing gear support, ribs (for BAE) HTA/6376 prepreg on wings center landing gear design and manufacture of main landing gear Fairchild Dornier Federal Republic of Germany fuselage and wing components, interior panels Fischer Advanced Composite Components Federal Republic of Germany interior components (for DASA-EADS) GKN Aerospace (formerly BP Advanced Materials) United Kingdom composite panels (for BAE) General Engineering Unknown side stay fairing Hawker de Havilland, Australia Australia wingtips, winglets, wing root fillet, ribs (for BAE) Heath Techna Aerospace United States IPTN Indonesia composite components (for BAE) flap track carriages, sheet metal parts (for BAE) Korean Aerospace Industries (Daewoo) Republic of Korea wing components Korean Air (with Silat) Republic of Korea upper fuselage panels of Section 15 (for Aérospatiale-EADS) Marion Composites United States flap track fairings (for Aerostructures Corp.) 61 The Airbus 350 is a planned model that will be similar in size to the Airbus 330. It was originally expected to be a derivative of the Airbus 330, but is now expected to be a new design aircraft. Congressional Research Service 29 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress Supplier Marvin Group Parent Domicile United States Component(s) large ribs (for BAE) Messier-Hispano-Bugatti France nose landing gear, wheels and brakes (option) Mitsubishi Heavy Industries Japan cargo doors PPG Industries United States cockpit windows RTI International Metals United States titanium on A350 SABCA Belgium tailcones (for DASA) Shin Meiwa Japan wing fairings Socea France rear upper panels of center fuselage section SOCATA France composite belly fairing SONACA Belgium full-span leading edge slats, slat tracks Xian Aircraft Co. (AVIC1) Peoples Republic of China avionics access doors Source: Teal Group Note: Commercial variants of both aircraft types are powered by engines manufactured by either General Electric, Pratt & Whitney, or Rolls Royce. Congressional Research Service 30 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress Appendix E. Potential Longevity of KC-135 Fleet 2004 DSB Report and 2006 RAND Analysis A 2004 Defense Science Board (DSB) task force report examined, among other things, the potential longevity of the KC-135 fleet.62 The 2006 RAND Analysis of Alternatives (AOA) on aerial refueling also examined the technical condition of the KC-135 fleet. The DSB report stated that airframe service life, corrosion, and maintenance costs factors would potentially determine the KC-135s operational life expectancy. Each of these factors is discussed briefly below. Airframe Service Life KC-135s, along with their associated B-52 bombers, were originally purchased to give the United States a strategic nuclear strike capability. As a result, both fleets of airplanes spent a significant amount of time during the Cold War on ground alert. Consequently, in 2004, the average KC-135 airframe had flown only about 17,000 hours of an estimated service life of 36,000 hours (KC135E) or 39,000 hours (KC-135R). On this basis, the DSB report concluded that KC-135 airframes were viable until 2040 at “current usage rates.”63 The 2006 RAND AOA similarly concluded that the KC-135 fleet “can operate into the 2040s,” but not without risks.64 Corrosion The 2004 DSB report concluded that corrosion did not pose an “imminent catastrophic threat to the KC-135 fleet” and that the Air Force’s maintenance practices were postured “to deal with corrosion and other aging problems,”65 but also stated: However, because the KC-135s are true first generation turbojet aircraft designed only 50 years from the time man first began to fly, concerns regarding the ability to continue operating these aircraft indefinitely are intuitively well founded.66 Maintenance Costs A 2004 GAO report stated that KC-135 flying hour costs increased in real (i.e., inflation-adjusted) terms by 29% between 1996 and 2002.67 The DSB report agreed that KC-135 maintenance costs had increased significantly, but found that they had leveled off due to Air Force changes in KC62 63 Defense Science Board Task Force Report on Aerial Refueling Requirements, May 2004, p. iv. Ibid. 64 Michael Kennedy et al., Analysis of Alternatives (AoA) for KC-135 Recapitalization, Executive Summary, RAND Corporation, 2006, pp. 15-16. 65 Defense Science Board Task Force Report on Aerial Refueling Requirements, May 2004, p. iv. 66 Ibid., p. 17. 67 General Accounting Office, Military Aircraft[:] DOD needs to Determine Its Aerial Refueling Requirements, GAO04-439, June 2004, p. 13. Congressional Research Service 31 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress 135 depot processes. The DSB report forecasted modest growth in maintenance costs in the future.68 Risks Of Flying Older Aircraft Some observers express about potential problems that may arise in flying 50- to 80-year-old tankers that could possibly ground the entire KC-135 fleet. The DSB report examined the issue and concluded that “although grounding is possible, the task force assesses the probability as no more likely than that of any other aircraft in the inventory of the Services.”69 The 2006 RAND analysis expressed a belief that it is possible that KC-135s will be able to operate into the 2040s, but the report expressed a lack of confidence that KC-135s could continue to be operated that long without risks of major maintenance cost increases, poor fleet availability, or possible fleetwide grounding. The RAND analysis concluded that “the nation does not currently have sufficient knowledge about the state of the KC-135 fleet to project its technical condition over the next several decades with high confidence.”70 The analysis recommended more thorough scientific and technical study of the KC-135 to provide a more reliable basis for future assessments of the condition of the KC-135 fleet. 71 2009 News Reports on 2001 DOD Study A March 13, 2009 news report on a 2001 DOD study on the KC-135 fleet stated: The cost of maintaining geriatric KC-135 Stratotankers into the 2040s will likely increase nearly 50 percent over the next 30 years to account for major structural and engine improvements needed simply to keep the venerable aircraft flying, according to documents obtained by Inside the Air Force. The overall annual maintenance will rise from $2.1 billion in fiscal year 2001 to $3 billion in 2040, according to the KC-135 Economic Service Life Study. In all, it will cost the Air Force more than $103 billion to operate and maintain Stratotankers between 2001 and 2040— almost triple the cost of buying nearly 200 new KC-X refuelers, according to the report, which makes its projections using calendar year 2000 dollar amounts.... This is the first time the results of the 2001 study have been reported in full, although some details have been referenced in a number of Congressional Research Service reports. The study was conducted before the major boom in tanker missions following the Sept. 11, 2001, terrorist attacks. Since then, tanker missions have increased dramatically to support combat operations in Afghanistan and Iraq, in addition to refueling fighter jets that constantly patrol the skies over the United States as part of Operation Noble Eagle. Air Force Materiel Command chief Gen. Arthur Lichte said he stands behind the 2001 study, claiming its predictions have been “right on the mark.” 68 69 Defense Science Board Task Force Report on Aerial Refueling Requirements, May 2004, pp. iv-v. Ibid, p. 18. 70 Michael Kennedy et al., “Analysis of Alternatives (AoA) for KC-135 Recapitalization, Executive Summary,” RAND Corporation, 2006, p. 16. 71 Ibid. Congressional Research Service 32 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress “We have pretty high confidence that the things that [the study] suggested to do in the outyears will come true,” Lichte said during a Feb. 26 briefing with reporters at a conference in Florida. While the “structural integrity of the KC-135 fleet remains strong,” costs associated with maintaining that level of integrity will contribute to the nearly $1 billion jump in in maintenance costs. In 2001, structure-related upkeep costs were reported at $321 million. That specific maintenance will increase to $1.1 billion annually in 2040, according to the report. Overhauling the R-model tanker’s General Electric F108 engines over the next 30 years is expected to jump from $13 million to $66 million, the report states. All KC-135s will need to have their outer skin replaced beginning in 2018 due to corrosion, according to the report and Lichte.... “Depot level airframe and engine maintenance are the primary cost divers to sustain the KC135 fleet through 2040,” the report states.72 A March 6, 2009, news report stated: Many of the Air Force’s geriatric, Eisenhower-era KC-135 tanker aircraft fleet will have to have their “skin” replaced beginning around 2018, according to the top general in charge of Air Mobility Command. “There was an independent study ... that starts to look at ... the 2018 time frame and beyond—you need to start thinking about re-skinning the aircraft, the fuselage itself in the back” of the plane, Gen. Arthur Lichte said in a Feb. 26 briefing with reporters. The study was conducted in 2000 and published in February 2001. Over the years, corrosion has built up where rivets hold the skin to the frame of the aircraft. Thus, the service will likely need to begin improvements late in the decade, he said, noting the study has been “right on the mark” with all of its other predictions. “We have pretty high confidence that the things that [the study] suggested to do in the outyears will come true as well,” Lichte said. The revelation comes as the Air Force awaits word from the Office of the Secretary of Defense on when to restart the service’s KC-X next-generation tanker competition. The Air Force has scrubbed its requirements for the aircraft so that they will be presented in a clearer fashion, according to Lichte.... In February 2005, then-Pentagon acquisition chief Michael Wynne asked for a paper detailing what technical and maintenance issues still needed to be addressed that are not part of a major KC-135 aircraft re-engine effort. A group of subject matter experts was then assembled to project future maintenance needs out to 2050. The study revealed 44 KC-135 repair issues. 72 Marcus Weisgerber, “Report: KC-135 Maintenance Could Reach $3 Billion Per Year By 2040,” Inside the Air Force, March 13, 2009. Congressional Research Service 33 Air Force KC-X Tanker Aircraft Program: Background and Issues for Congress “This was a qualitative assessment that relied on engineering judgment, experience and historical data to estimate future sustainment needs,” according to documents provided by AMC. Today it costs $7 million for each KC-135 aircraft that goes through the maintenance depot every five years, according to Lichte. The service sends about 72 planes through the depot each year. “If you can get rid of those [KC-]135s sooner, or have fewer to put through that time period of re-skinning, then you save some money,” he said. In addition to new skin, the study found the planes will all need new wiring in the 2020s and 2030s. Also in the 2030s, a large portion of the depot maintenance remains unknown, according to the documents.73 Author Contact Information Ronald O'Rourke Specialist in Naval Affairs rorourke@crs.loc.gov, 7-7610 Acknowledgments The current version of this report incorporates passages from the January 9, 2009 version. The January 9, 2009, version was the final version written by Christopher Bolkcom, Specialist in Military Aviation, who died on May 1, 2009. 73 Marcus Weisgerber, “Air Force Will Likely Need to Re-Skin Its KC-135 In The 2018 Time Frame,” Inside the Air Force, March 6, 2009. Ellipses as in original. Congressional Research Service 34