Summary

FY2013 defense authorization bill: H.R. 4310, as passed by the House, recommended approving the Administration's request for $1,815.6 million in research and development funding for the Next Generation Aerial Refueling Aircraft program. S. 3254, as passed by the Senate, recommended $1,728.5 million, $87.1 million less than the Administration's requested funding level for KC-X. The FY2013 conference report set funding at $1,738.5 million, $77.1 million less than the Administration's request, citing excess prior-year funds.

Introduction

On February 24, 2011, the Department of Defense (DOD) announced the Boeing Company as the winner of a competition to build 179 new KC-46A aerial refueling tankers for the Air Force, a contract valued at roughly $35 billion.

The KC-Xs, to be procured at a maximum rate of 15 aircraft per year, are to 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 Administration's proposed FY2014 defense budget requested $1,558.6 million in Air Force research and development funding to continue KC-46A development and acquisition.¹

The KC-46A acquisition program is a subject of intense interest because of the dollar value of the contract, the number of jobs it may create, the importance of tanker aircraft to U.S. military operations, and because previous attempts by DOD to move ahead with a KC-X acquisition program over the last several years have led to controversy and ultimately failed. The history of those earlier attempts forms an important part of the context for DOD's KC-X competition, particularly in defining the required capabilities for the KC-46A and designing and conducting a fair and transparent competition.

The issues for Congress in FY2014 are whether to approve, reject, or modify the Air Force's request for FY2014 research and development funding for the KC-46A program, and to evaluate the fairness and transparency of the contract process. Congress' decision on these issues could affect DOD capabilities and funding requirements, and the aircraft manufacturing industrial base.

In January 2013, the Air Force announced the list of candidate bases to host the first tranche of KC-46As. Three bases will be selected from the list; one to host training, and one base each from the active Air Force and Air National Guard to host operational KC-46s.

The training unit and active-duty operating base will begin receiving the KC-46A tankers in fiscal 2016 followed by the Guard base in fiscal 2018. Ultimately, the Air Force will establish 10 main operating bases for the 179 tankers that it plans to buy. ²

According to a Defense Department news release, Altus Air Force Base, Oklahoma, and McConnell Air Force Base, Kansas, are candidate bases for the KC-46A training unit. Altus and McConnell are also candidates to be the first active-duty led KC-46A main operating base, as are Fairchild Air Force Base, Washington, and Grand Forks Air Force Base, North Dakota.

Forbes Air Guard Station, Kansas; Joint-Base McGuire-Dix-Lakehurst, New Jersey; Pease Air Guard Station, New Hampshire; Pittsburgh International Airport Air Guard Station, Pennsylvania; and Rickenbacker Air Guard Station, Ohio, are candidates to be the first Air National Guard led KC-46A main operating base.³

In late 2012, a number of articles and analysts posited that automatic reductions provided for in the Budget Control Act of 2011 (P.L. 112-25), also called "sequestration," might cause the Air Force to default on the KC-46A development contract, because the cuts would reduce funds available to the program below the fixed price negotiated between Boeing and the Department of Defense.

If enough money was cut and the tanker contract is scuttled, the Air Force would have to renegotiate the contract without any certainty it could keep its fixed-price status, said [Maj. Gen. John] Thompson, who took over the tanker acquisition program five weeks ago.

"Depending on how sequestration is implemented, I might have to break my fixed price contract that I got such a good deal on," Thompson said. "I don't want to break my contract and I'm fearful that sequestration may force me to do that."⁴

The sequestration effect on the KC-46A program would have been in addition to the reduction in program funds resulting from the use of a continuing resolution for the FY2013 DOD budget. "DoD planned to spend $1.8 billion on the tanker program in fiscal 2013. However, Congress has failed to pass a new budget, leaving programs funded under a continuing resolution that leaves financial support at 2012 levels. For the KC-46 program, that means making do with just $900 million, or half of what the program office had planned for this year."⁵

The explanatory statement accompanying the conference report on H.R. 933 put funding at $1,738.5 million, a reduction of $77.1 million from the Administration request. At that level, the Air Force "would not need to modify its fixed-price development contract with KC-46-maker Boeing ... Lt. Gen. Charles Davis, the Air Force military deputy for acquisition, said."⁶

In September 2012, the government of Singapore submitted a request for information to begin evaluating the KC-46A as a possible replacement for Singapore's KC-135 tankers.⁷

On May 2, 2013, the Air Force announced that FlightSafety Services had won the competition to provide training devices for the KC-46A. "The company won over Boeing, which is developing the KC-46, Lockheed Martin, CAE and L-3 Link Simulation and Training." ⁸

The deal calls for delivery of the first aircrew training device by February 2016. The $787 million contract contains options for production, training, operations and sustainment, according to an Air Force press statement.⁹

Air Force Major General Christopher Bogdan, the KC-46A program manager, was reassigned to the F-35 program in July 2012. His successor is Major General John F. Thompson.

Aerial refueling aircraft—commonly called tankers—provide in-flight refueling services to bombers, fighters, airlifters, surveillance aircraft, and other types of aircraft flown by the U.S. military. 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.

The Air Force operates the U.S. long-range tanker fleet, the subject of this report. The Navy and Marine Corps also operate shorter-range tankers in support of tactical missions.

KC-135 Stratotanker

It will cost the Air Force up to $6 billion per year late in the next decade to maintain its aging fleet of KC-135 tankers, according to a senior service official…

The cost of maintaining the Stratotankers will continue to rise as the next-generation KC-X tanker program continues to slip, Air Mobility Command chief Gen. Arthur Lichte said during a briefing today.¹³

KC-10 Extender

The Air Force's fleet of large tankers also includes about 59 KC-10 Extender aerial refueling aircraft, the first of which entered service in 1981.¹⁴ The KC-10 is a much larger aircraft than the KC-135 or the KC-46A.

DOD envisages replacing the KC-135 fleet in three stages. The 179 new KC-46As would replace roughly one-third of the KC-135 fleet. Tankers to be procured in the second and third stages would be designated KC-Ys (envisioned as a KC-46A continuation or follow-on) and KC-Zs (a probable replacement for the KC-10 fleet).

A March 2013 GAO report states that the procurement cost of 179 KC-Xs could be about $34 billion,¹⁵ or an average of about $190 million per aircraft. The KC-46 is being acquired using a fixed-price incentive development contract with firm-fixed and not-to-exceed pricing or production. This contract structure effectively limits the total cost borne by taxpayers, with most of the cost growth risk placed on the contractor.

The KC-46 program utilizes a fixed-price incentive development contract. The target value is $4.4 billion, with government liability limited for costs over $4.9 billion.

Boeing sources confirmed that arrangement on Wednesday, saying if the costs fall in the $3.9 billion to $4.9 billion "delta," the Air Force would pay 60 percent and Boeing 40 percent. That is the contract structure and cost arrangement accepted by the Air Force, the Boeing sources said, noting the service weighed this against cost projections for the same scenario offered by Airbus's EADS.¹⁶

The tanker's estimated development costs are currently around $900 million higher than the February 2011 contract award value, but the USAF is liable for only about $500 million of this total. The remaining $400 million is Boeing's responsibility.¹⁷

[T]he contract has a mechanism to vary production rates. For example, in years three, four and five, the USAF has the option of buying between nine and 18 jets and would still get good prices, (program executive officer Maj. Gen Christopher) Bogdan says.¹⁸

In testimony before the House Armed Services Committee Subcommittee on Seapower and Projection Forces, the then-Air Force acquisition executive stated:

VAN BUREN: Well, the contract that we currently have runs through 2016 for EMD. We'll have a preliminary design review in 2012, critical design review in '13, build the aircraft, first flight of the 767-2C in 2014. And...

AKIN: So the first flight's 2014. OK. And then?

VAN BUREN: Roughly three years from contract award. And then we'll have the full-up KC-46 first flight at the end of 2014.¹⁹

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."²⁰

The Air Force testified in May 2013 that:

Replacing one-third of the 50 year-old KC-135 aerial refueling tanker fleet with the KC-46A is our top Air Force acquisition priority. The KC-46A program will ensure that our Nation retains a tanker fleet able to provide crucial air refueling capacity worldwide for decades to come. In FY14, we programmed $1.6 billion dollars for the manufacture of four developmental aircraft. The initial flights of the KC46A test aircraft are scheduled to begin in FY14. The program is currently executing as planned, and we are on track to receive 18 operational aircraft by late FY17. Until the KC-46A reaches full operational capability, we are resourcing critical modernization of the KC-10 and KC-135 tanker fleets. ²¹

Boeing's initial plan for the KC-46A called for 767s to be assembled at the Boeing plant in Everett, WA, and be converted into tankers at Boeing's plant in Wichita, KS. Boeing claimed that "nationwide, the NewGen Tanker program will support approximately 50,000 total U.S. jobs with Boeing and more than 800 suppliers in more than 40 states."²² Subsequently, Boeing decided to close the Wichita facility and instead complete the tankers in Everett, WA.

With regard to the change, Major General Christopher Bogdan, then the KC-46A program manager, said:

Without a doubt, closing Wichita is a change to the plan, and any change on a program like this is going to introduce some uncertainty and some risk... And so, quite frankly, we are going to hold them accountable to make sure that the risks don't manifest themselves. To do that I've got to make sure they have plans in place and we are involved in the oversight of that move … under the same cost structure, under the same schedule with the same requirements.²³

The most recent failed attempt to acquire KC-X was a competition between Boeing and a team of Northrop Grumman and EADS that resulted in DOD awarding a contract to Northrop/EADS in February 2008. Boeing protested that award, and in June 2008, the Government Accountability Office (GAO) sustained Boeing's protest, agreeing with Boeing that the competition was conducted in a flawed manner.²⁴ GAO's ruling prompted DOD to cancel the 2008 KC-X competition and temporarily take control of the KC-X acquisition away from the Air Force. The Bush Administration decided to defer the next attempt at a KC-X acquisition program to the Obama Administration.

According to DOD, key features of the KC-X competition strategy—which are taken from the briefing slides and transcript, respectively) of the September 24, 2009, DOD news briefing at which the proposed strategy was announced—included the following:

• The proposed KC-X competition strategy, known more formally as the Source Selection Strategy, was devised jointly by the Office of the Secretary of Defense (OSD) and the Air Force and was approved by the Secretary of Defense.
• The Air Force will be the Source Selection Authority (SSA) for the competition, as announced by the Secretary of Defense on September 16, 2009.
• DOD intends to select a sole winner for the KC-X competition; DOD does not intend to split the KC-X program between the two bidders.
• The competition will be evaluated on a best-value (rather than lowest-cost) basis that will take both price and non-price factors into account. The evaluation will include mandatory and non-mandatory/trade space capabilities, acquisition price, warfighting effectiveness, and day-to-day efficiency.
• The competition will differ in many details from the 2007-2008 competition and does not constitute a re-run of the 2007-2008 competition. DOD states that, among other things, the selection criteria to be used in the new competition are more precise and less subjective than those used in the 2007-2008 competition.
• The contracts to be awarded are to be fixed-price type contracts. The winning bidder will receive a fixed-price incentive fee contract with a ceiling for the Engineering and Manufacturing Development (EMD) phase of the program, which includes the first four aircraft. A firm fixed-price (FFP) contract will be used for the next 64 aircraft (production lots 1 through 5). A not-to-exceed contract will be used for the final 111 aircraft (lots 6 through 13). An FFP contract will be used for five years of initial contractor support.
• Following the release of the final RFP, bidders will have about 75 days to prepare and submit their bid. The government will evaluate the bids for about 120 days, and prepare a contract award over a subsequent period of about 30 days. DOD anticipates awarding the contract in the summer of 2010 (since revised to January 2011).
• The first KC-X is projected to be delivered in 2015, and Initial Operating Capability (IOC) for the KC-X is scheduled for 2017. Delivery of all 179 KC-Xs will occur over a period of more than 15 years. As KC-Xs are integrated into the fleet, the Air Force intends to begin evaluating its future tanker needs and begin work on the KC-Y program.

On December 1, 2009, Wes Bush, the president and chief executive officer of Northrop Grumman, sent a letter to Under Secretary Carter stating that unless the draft RFP were substantially revised, Northrop Grumman would decline to bid in the KC-X competition. A press report that day stated:

Northrop Grumman Corp., the third- largest U.S. defense company, said it won't bid for the $35 billion Air Force refueling tanker program unless the draft request for proposals is changed, citing "financial burdens."

The Pentagon has declined to amend the request and didn't plan to "substantially" address Northrop's concerns, Chief Executive Officer Wes Bush wrote in a Dec. 1 letter to Pentagon acquisition chief Ashton Carter. "As a result, I must regrettably inform you that, absent a responsive set of changes in the final RFP, Northrop Grumman has determined that it cannot submit a bid," he wrote.

Northrop and partner European Aeronautic Defence & Space Co. were vying against Boeing Co. to build the refueling tankers. The competition was restarted in September after Boeing successfully protested the award to Northrop and EADS last year.

The Pentagon's request shows a "clear preference" for a smaller tanker than the modified Airbus A330 that Northrop plans to offer, and continuing to compete for the tankers would impose "contractual and financial burdens on the company that we simply cannot accept," Bush wrote in the letter.

"The Department regrets that Northrop Grumman and Airbus have taken themselves out of the tanker competition and hope they will return when the final request for proposals is issued," Pentagon spokesman Bryan Whitman said in an e-mail. "The Department wants competition but cannot compel the two airplane makers to compete."…

Both competitors "have suggested changes to the request for proposals that would favor their offering," Whitman wrote in the e-mail. "But the Department cannot and will not change the warfighter requirements for the tanker to give advantage to either competitor."²⁵

The final KC-X RFP was issued on February 24, 2010. Overall, the final requirements for the KC-X aircraft appeared to have changed little from those in the draft RFP. One requirement was eliminated (bringing the total to 372), and none added. The financial structure of the proposed contract, however, changed substantially.

Issue

Draft RFP

Final RFP

Microwave Landing System

Required

Not required

Large Aircraft Infrared Countermeasures

Contractor to procure and include in price

Government will furnish

Contract type

Development phase: Fixed-price with incentive fee.

Development phase unchanged.

Production lots 1-2 unchanged.

Production lots 3-5: Firm fixed price, with 5% inflation trigger for price adjustment.

Production lots 3-5: Not to Exceed, with 2.5% inflation trigger.

Production lots 6-13: Not to Exceed, with 5% trigger.

Production lots 6-13: Not to Exceed, with 1% trigger.

Contractor support: Firm fixed price.

Contractor support unchanged.

Mission modeling

IFARA (Integrated Fleet Air Refueling Assessment) model used to determine operational suitability.

Alert quick-start

Did not specify temperatures at which power carts were allowed for environmental control.

Established a range of temperatures for which power carts could be allowed for both heating and cooling the aircraft.

Fuel burn

Penalty if actual fuel use exceeds contractor's proposal.

Incentive if fuel use is less than contractor's proposal.

Proposal due date

60 days

75 days

Source: CRS analysis.

After evaluating the final RFP, on March 8, 2010, the Northrop/EADS team withdrew from the competition.²⁶

DOD then extended the bid deadline by 60 days, to July 9, 2010.²⁷ Subsequently, on April 20, 2010, EADS announced that its North American division would enter the competition on its own.²⁸

The Administration's proposed FY2013 defense budget requested $1,815.6 million in Air Force research and development funding to continue KC-46A development and acquisition.²⁹

The House Armed Services Committee, in its report accompanying H.R. 4310, recommended funding the Next Generation Aerial Refueling Aircraft program at $1,815.6 million, the requested level.

The Senate Armed Services Committee, in its report accompanying S. 3254,³⁰ recommended funding the Next Generation Aerial Refueling Aircraft program at $1,728.5 million, $87.1 million below the requested level, with the following explanation:

Next generation aerial refueling aircraft

The budget request included $1,815.6 million to continue development of the KC–46A, the next-generation aerial refueling aircraft.

The program office received fiscal year 2010 and fiscal year 2011 Tanker Replacement Transfer Fund (TRTF) funds in fiscal year 2011 that provided $135.0 million more research, development, test, and evaluation (RDT&E) funding than the Air Force believed it needed during that period. The Department of the Air Force applied $47.9 million of the $135.0 million to small business innovation research activities, leaving $87.1 million of the $135.0 million in excess fiscal year 2011 funding available to cover fiscal year 2012 activities. Since Congress already provided full funding of the fiscal year 2012 requirement, the Department could apply $87.1 million in fiscal year 2012 funds against fiscal year 2013 funding requirements. Therefore, the committee recommends a reduction of $87.1 million in the budget request for the KC–46A EMD program.

The House Appropriations Committee, in its report accompanying H.R. 5856, recommended funding the Next Generation Aerial Refueling Aircraft program at $1,815.6 million, the requested level. It directed submission of reports on program cost growth, stating:

KC–46A

The Committee directs the Secretary of the Air Force to continue to submit quarterly reports on any KC–46A contract modifications with a cost greater than or equal to $5,000,000, as directed by the explanatory statement accompanying the Consolidated Appropriations Act, 2012.

The Senate Appropriations Committee, in its report accompanying H.R. 5856, recommended funding the Next Generation Aerial Refueling Aircraft program at $1,738.5 million, $77.1 million below the requested level, for "Air Force identified forward financing."

FY2013 appropriations levels were ultimately established by H.R. 933, the Consolidated and Further Continuing Appropriations Act, 2013. The explanatory statement accompanying the conference report on H.R. 933 put funding at $1,738.5 million.³¹

The Administration's proposed FY2012 defense budget requested $877.0 million in Air Force research and development funding to begin the KC-46A acquisition.³²

As passed by the House, H.R. 1540 recommended $849.9 million in funding for the Next Generation Aerial Refueling Aircraft program, a reduction of $27.2 million from the Administration's request, The bill also included a requirement to report on changes in the KC-46A acquisition program:

SEC. 241. ANNUAL COMPTROLLER GENERAL REPORT ON THE KC-46A AIRCRAFT ACQUISITION PROGRAM.

(a) Annual GAO Review- During the period beginning on the date of the enactment of this Act and ending on March 1, 2017, the Comptroller General of the United States shall conduct an annual review of the KC-46A aircraft acquisition program.

(b) Annual Reports-

(1) IN GENERAL- Not later than March 1 of each year beginning in 2012 and ending in 2017, the Comptroller General shall submit to the congressional defense committees a report on the review of the KC-46A aircraft acquisition program conducted under subsection (a).

(2) MATTERS TO BE INCLUDED- Each report on the review of the KC-46A aircraft acquisition program shall include the following:

(A) The extent to which the program is meeting engineering, manufacturing, development, and procurement cost, schedule, performance, and risk mitigation goals.

(B) With respect to meeting the desired initial operational capability and full operational capability dates for the KC-46A aircraft, the progress and results of—

(i) developmental and operational testing of the aircraft; and

(ii) plans for correcting deficiencies in aircraft performance, operational effectiveness, reliability, suitability, and safety.

(C) An assessment of KC-46A aircraft procurement plans, production results, and efforts to improve manufacturing efficiency and supplier performance.

(D) An assessment of the acquisition strategy of the KC-46A aircraft, including whether such strategy is in compliance with acquisition management best-practices and the acquisition policy and regulations of the Department of Defense.

(E) A risk assessment of the integrated master schedule and the test and evaluation master plan of the KC-46A aircraft as it relates to—

(i) the probability of success;

(ii) the funding required for such aircraft compared with the funding budgeted; and

(iii) development and production concurrency.

(3) ADDITIONAL INFORMATION- In submitting to the congressional defense committees the first report under paragraph (1) and a report following any changes made by the Secretary of the Air Force to the baseline documentation of the KC-46A aircraft acquisition program, the Comptroller General shall include, with respect to such program, an assessment of the sufficiency and objectivity of—

(A) the integrated baseline review document;

(B) the initial capabilities document;

(C) the capabilities development document; and

(D) the systems requirement document.

H.Rept. 112-78, accompanying H.R. 1540, explained the funding reduction:

The budget request contained $877.1 million in PE 65221F for the next generation aerial refueling aircraft, KC-46A.

The committee supports the attributes and benefits regarding the KC-46A competition and acknowledges that the source-selection process was conducted fairly amongst all competitors. According to Department of Defense acquisition officials, the competition resulted in at least a twenty percent savings for the unit cost of the aircraft and a savings of $3.0 to $4.0 billion as compared to the source-selection competition held for the tanker in 2008.

The committee plans to closely monitor the KC-46A engineering, manufacturing and development program to ensure that the taxpayer dollars are wisely invested and that the platform will result in a capability that enhances the warfighter's global reach capabilities. The committee also understands that the Under Secretary of Defense for Acquisition, Technology and Logistics (USD, AT&L) will conduct quarterly reviews of the Air Force's KC-46A program.

Elsewhere in this title, the committee includes a provision that would require the Comptroller General of the United States to conduct an annual review of the KC-46A program and to provide the results to the congressional defense committees beginning on March 1, 2012. Furthermore, the committee directs USD, AT&L to provide to the congressional defense committees the results of each quarterly review of the KC-46A program within 30 days after the date of completion of each review. At each quarterly review briefing, USD, AT&L is directed to provide notice of a major engineering, design, capability or configuration change to the KC-46A, and cost for that change when it becomes known, that is different from the baseline aircraft offered in the final proposal related to Air Force contract #FA8625-11-C600.

The committee recommends $849.9 million, a decrease of $27.2 million, in PE 65221F for the next generation aerial refueling aircraft because that funding is in excess to the $818.0 million obligation authority limited by USD, AT&L for the program for fiscal years 2010 and 2011.

The report accompanying S. 1253 as passed by the Senate Armed Services Committee (S.Rept. 112-26, accompanying S. 1253) recommended $749.1 million for the Next Generation Aerial Refueling Aircraft, a reduction of $127.1 million from the Administration's request, to "Align funding to signed KC–46A contract." The report went on to explain:

Next generation aerial refueling aircraft

The budget request included $877.1 million to continue development of the KC–46A, the next-generation aerial refueling aircraft. The Air Force developed the budget estimates before signing the contract for the KC–46A and before knowing the funding required, and the timing of that requirement. Based on a comparison of the program's fiscal year 2012 budget submission and the contemplated funding allotments for fiscal year 2011 specified in the recently signed engineering and manufacturing development (EMD) contract, the Air Force already has funds that are well in excess of what is needed to execute the current KC–46A contract. The program will need roughly $753.5 million to cover planned fiscal year 2011 activities, but the program has $830.5 million available in fiscal year 2011 from regular appropriations and the Tanker Replacement Transfer Fund. This means that $77.0 million is available within the program to pay for fiscal year 2012 KC–46A EMD activities.

In addition, the fiscal year 2012 budget request of $877.1 million for KC–46A EMD exceeds fiscal year 2012 requirements for the EMD by $50.1 million. In total, this means that the budget request for fiscal year 2012 exceeds the amount of funds to keep the KC–46A program fully funded and on schedule by a total of $127.1 million.

Therefore, the committee recommends a reduction of $127.1 million in the budget request for the KC–46A EMD program.

The conference report accompanying H.R. 1540 as passed recommended $742.1 million for the Next Generation Aerial Refueling Aircraft, a reduction of $135.0 million from the Administration's request—$127.1 million was cut to "Align funding to signed KC–46A contract," and $7.9 million was considered "excess to requirement." The conference report also included the House reporting requirement:

SEC. 244. ANNUAL COMPTROLLER GENERAL REPORT ON THE KC–46A AIRCRAFT ACQUISITION PROGRAM.

(a) ANNUAL GAO REVIEW.—During the period beginning on the date of the enactment of this Act and ending on March 1, 2017, the Comptroller General of the United States shall conduct an annual review of the KC–46A aircraft acquisition program.

(b) ANNUAL REPORTS.—

(1) IN GENERAL.—Not later than March 1 of each year beginning in 2012 and ending in 2017, the Comptroller General shall submit to the congressional defense committees a report on the review of the KC–46A aircraft acquisition program conducted under subsection (a).

(2) MATTERS TO BE INCLUDED.—Each report on the review of the KC–46A aircraft acquisition program shall include the following:

(A) The extent to which the program is meeting engineering, manufacturing, development, and procurement cost, schedule, performance, and risk mitigation goals.

(B) With respect to meeting the desired initial operational capability and full operational capability dates for the KC–46A aircraft, the progress and results of—

(i) developmental and operational testing of the aircraft; and

(ii) plans for correcting deficiencies in aircraft performance, operational effectiveness, reliability, suitability, and safety.

(C) An assessment of KC–46A aircraft procurement plans, production results, and efforts to improve manufacturing efficiency and supplier performance.

(D) An assessment of the acquisition strategy of the KC–46A aircraft, including whether such strategy is in

compliance with acquisition management best-practices and the acquisition policy and regulations of the Department of Defense.

(E) A risk assessment of the integrated master schedule and the test and evaluation master plan of the KC–46A aircraft as it relates to—

(i) the probability of success;

(ii) the funding required for such aircraft compared with the funding budgeted; and

(iii) development and production concurrency.

(3) ADDITIONAL INFORMATION.—In submitting to the congressional defense committees the first report under paragraph (1) and a report following any changes made by the Secretary of the Air Force to the baseline documentation of the KC–46A aircraft acquisition program, the Comptroller General shall include,

with respect to such program, an assessment of the sufficiency and objectivity of—

(A) the integrated baseline review document;

(B) the initial capabilities document;

(C) the capabilities development document; and

(D) the systems requirement document.

The House Appropriations Committee, in its report (H.Rept. 112-110, accompanying H.R. 2219) recommended funding the Next Generation Aerial Refueling Aircraft at the Administration's request, $877.1 million. The report also stated:

KC–46A CHANGE REPORTING

The award for the Air Force's KC–46A aerial refueling tanker was announced on February 24, 2011. The Committee's recommendation fully funds the request for this vital program. Air Force leadership testified before the Committee that efforts would be made to ensure that the new tanker will be delivered within cost and on schedule. In order to further this approach, the Committee directs the Secretary of the Air Force to report any authorized contract modifications with a cost greater than or equal to $5,000,000 to the congressional defense committees not later than 30 days following the authorization of such change.

Senate

The Senate Appropriations Committee report (S.Rept. 112-77, accompanying H.R. 2219) recommended $742.1 million for the Next Generation Aerial Refueling Aircraft, a reduction of $135.0 million from the Administration's request, with the accompanying language:

KC-46A- The budget request includes $877,084,000 for the development of a next generation aerial refueling tanker. Replacing the aging tanker fleet is essential to the Air Force's modernization efforts, and the Committee remains very supportive of this program. However, after the budget was submitted, the Air Force conducted an Integrated Baseline Review [IBR] of the program, which changed the annual spending plan to complete the development effort of the program. As a result, the Air Force identified $135,000,000 that will not be required in fiscal year 2012. Therefore, the Committee recommends reducing the request by this amount to align the budget with the new IBR.

Final Action

The Joint Explanatory Statement of the Committee of Conference on the FY2012 defense appropriations bill funded the Next Generation Aerial Refueling Aircraft at the Administration's request, $877.1 million. It included one provision regarding the KC-46 program, referring to the House report provision on change reporting:

KC-46A

The conferees direct the Secretary of the Air Force to submit the reports regarding the KC-46A required in H.Rept. 112-110 on a quarterly basis, with the first report to be submitted not later than March 30, 2012.

FY2011 Funding Request

The Administration's proposed FY2011 defense budget requested $863.9 million in Air Force research and development funding to begin the KC-X acquisition.³³

Senate

House

Conference

House

KC–X

Senate

Final Version 

House

Senate

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.³⁹ 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 (KC-135E) 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."⁴⁰ The 2006 RAND AOA similarly concluded that the KC-135 fleet "can operate into the 2040s," but not without risks.⁴¹

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,"⁴² 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.⁴³

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 2002.⁴⁴ 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 KC-135 depot processes. The DSB report forecasted modest growth in maintenance costs in the future.⁴⁵

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."⁴⁶ 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 fleet-wide 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."⁴⁷ 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.⁴⁸

Footnotes

The funding was requested in the Air Force's research development, test and evaluation (RDT&E) account in program element (PE) 0605221F, KC-X, Next Generation Aerial Refueling Aircraft.

Jeff Schogol, "Nine bases on final list to host KC-46 tanker," AirForceTimes.com, January 13, 2013.

Department of Defense, "Air Force Announces KC-46A Candidate Bases," press release, January 9, 2013, http://www.defense.gov/releases/release.aspx?releaseid=15771.

Michael Hoffman, "Fixed-price tanker contract at risk," DoDBuzz.com, September 18, 2012. See also Megan Scully, "Tanker Program Faces Funding Setbacks Under Stopgap Bill," CQ Today, September 19, 2012, and Colin Clark, "Boeing Plows Through KC-46 Reserve Funding; Sequestration Would Be 'Near Catastrophic'," AOL Defense, September 18, 2012.

Aaron Mehta, "Experts: Budget woes could affect AF's KC-46," Air Force Times, January 15, 2013.

Marcus Weisgerber, "House bill would protect KC-46 contract funding," Air Force Times, March 12, 2013.

Michael Hoffman, "Fixed-price tanker contract at risk," DoDBuzz.com, September 18, 2012. See also Andrea Shalal-Esa, "Air Force Says Vigilant On Boeing Tanker Program," Reuters.com, September 18, 2012, and Colin Clark, "Boeing Plows Through KC-46 Reserve Funding; Sequestration Would Be 'Near Catastrophic'," AOL Defense, September 18, 2012.

Amy Butler, "FlightSafety Prevails In Tough Tanker Trainer Competition," Aerospace Daily, May 3, 2013.

Kris Osborn, "Air Force awards KC-46A tanker training system contract," DoDBuzz.com, May 2, 2013.

Testimony of Major General Bruce Litchfield, Special Assistant to the Commander of the Air Force Materiel Command, before the U.S. Congress, House Committee on Armed Services, Subcommittee on Seapower and Projection Forces, Aerial Refueling Aircraft Programs, 112^th Cong., 2^nd sess., October 13, 2011.

U.S. Government Accountability Office, KC-46 Tanker Aircraft: Acquisition Plans Have Good Features But Contain Schedule Risk, 12-366, March 26, 2012, http://www.gao.gov/assets/590/589590.pdf.

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 May 7, 2013, at which time it carried a date of December 29, 2011. The fact sheet states that:

Of the original KC-135A's, more than 415 have been modified with new CFM-56 engines produced by CFM-International. 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, a re-engined tanker with the TF-33-PW-102 engine was designated the KC-135E. In 2009, the last KC-135E retired from the inventory.

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, autopilot and surveillance equipment to meet future civil air traffic control needs.

Marcus Weisgerber, "KC-135 Maintenance Costs to Reach $6 Billion Per Year," InsideDefense.com (DefenseAlert – Daily News), September 15, 2009.

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 December 7, 2009, at which time it carried a date of September 2008. The fact sheet states that 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. The Navy also provides some aerial refueling through a private fee-for-service vendor.

Government Accountability Office, Defense Acquisitions[:] Assessments of Selected Weapon Programs, GAO-13-294SP, March 2013, p. 91.

John T. Bennett, "Boeing official says nothing's changed in Air Force tanker plans," The Hill, July 20, 2011.

Dave Majumdar, "IN FOCUS: Boeing must deliver on KC-46, USAF says," FlightGlobal.com, April 23, 2012.

Ibid.

Testimony of David Van Buren, Air Force Service Acquisition Executive, before the U.S. Congress, House Committee on Armed Services, Subcommittee on Seapower and Projection Forces, Aerial Refueling Aircraft Programs, 112^th Cong., 2^nd sess., October 13, 2011.

Department of Defense, Fiscal Year 2010 Budget Request, Summary Justification, May 2009, p. 1-50.

Statement of Michael B. Donley, Secretary of the Air Force, and General Mark A. Welsh IIII, Chief of Staff, United States Air Force, Before the Senate Armed Services Committee [Hearing] May 7, 2013, pp 11-12.

Boeing, "Boeing Statement on EADS' Decision to Enter KC-X Tanker Competition," press release, April 20, 2010, http://www.unitedstatestanker.com/media/Statement-20100420.

Amy Butler, "USAF Tanker Chief Sees Wichita Move Complicating Program," Aerospace Daily, April 3, 2012.

For more on GAO bid protests generally, see CRS Report R40227, GAO Bid Protests: Trends, Analysis, and Options for Congress, by [author name scrubbed] and [author name scrubbed], and CRS Report R40228, GAO Bid Protests: An Overview of Time Frames and Procedures, by [author name scrubbed] and [author name scrubbed].

Gopal Ratnam and Alison Fitzgerald, "Northrop Declines Tanker Bid on 'Financial Burdens' (Update2)," Bloomberg.com, December 1, 2009.

See, inter alia, Colin Clark, "Northrop Drops Tanker Bid," DoD Buzz, March 8, 2010 and John Reed, "Northrop Won't Bid on USAF Tanker," DefenseNews.com, March 8, 2010.

Michael Bruno, "USAF KC-X Bid Deadline Extended 60 Days," AviationWeek/Ares blog, March 31, 2010.

John Reed, "EADS Confident Its KC-45 Can Compete for USAF Tanker Bid", DefenseNews.com, April 20, 2010.

The requested funding is found in the Air Force's research development, test and evaluation (RDT&E) account in program element (PE) 0605221F, KC-X, Next Generation Aerial Refueling Aircraft.

S.Rept. 112-173, accompanying S. 3254, National Defense Authorization Act for Fiscal Year 2013.

"Explanatory Statement accompanying the Department of Defense, Military Construction and Veterans Affairs, and Full-Year Continuing Appropriations Act, 2013," Congressional Record, March 6, 2013, p. H1199.

The requested funding is found in the Air Force's research development, test and evaluation (RDT&E) account in program element (PE) 0605221F, KC-X, Next Generation Aerial Refueling Aircraft.

The requested funding is found in the Air Force's research development, test and evaluation (RDT&E) account in program element (PE) 0605221F, KC-X, Next Generation Aerial Refueling Aircraft.

U.S. Congress, House Committee on Armed Services, 111^th Cong., 2^nd sess., May 21, 2010, H.Rept. 111-491.

Jen DiMascio, "House Committee Passes Defense Bill," Politico.com, May 20, 2010.

Jim Wolf, "House Votes Pro-Boeing In Tanker Contest," Reuters.com, May 28, 2010.

Roll call vote No. 658, December 21, 2010.

The first sentence of Section 1081(a) of the FY2008 defense authorization act (H.R. 4986/P.L. 110-181 of January 28, 2008) states: "The Secretary of the Air Force shall conduct, as soon as practicable after the date of the enactment of this Act, a pilot program to assess the feasibility and advisability of utilizing commercial fee-for-service air refueling tanker aircraft for Air Force operations."

Ibid.

Ibid., p. 17.

Ibid, p. 18.

Ibid.