Split-Buy USAF Tanker Concept Gaining Favor

Jan 29, 2009
By Amy Butler

As the Pentagon attempts to craft a way forward to replace the KC-135 aerial refueling fleet, the option of a split buy of two models is back and gaining attention on Capitol Hill, according to officials close to the tanker program.

The idea is sure to be a topic of discussion as the chairman of the House Appropriations defense subcommittee, Rep. John Murtha (D-Pa. ), travels this week to Alabama, where Northrop Grumman and EADS were proposing to assemble their tanker design. Murtha is expected to visit Boeing’s Washington state facility in the coming weeks as well.

After multiple failed attempts at competing the $35 billion KC-135 replacement program, some officials close to the program are convinced dual-sourcing is the only realistic option to get beyond repeated award protests and delays.

But the split-buy concept still lacks support in the Pentagon. “It will incredibly complicate the Air Force’s life because they will have two new tankers and the old tankers and the maintenance, the training, and the logistics just becomes a nightmare,” Defense Secretary Robert Gates said during an interview last month with Aviation Week.

Still, officials close to the KC-X program, which was designed to begin replacing more than 500 aging KC-135 tankers with 179 new aircraft, say dual-sourcing may be the only politically palatable way to move forward. Plans from the middle of the decade called for a later buy of KC-Y aircraft and replacing the KC-135s with these two new models in succession. KC-Y was to be a new round of competition after the KC-X buy ended.

Now, officials are looking at an option to bring KC-Y forward and conduct simultaneous replacement purchases of KC-X and KC-Y. “This would put a wrapper of legitimacy around it,” one industry official says.

Earlier talk of a split-buy involved halving the KC-X buy, which would have amounted to doling out funds for two simultaneous developments that would yield, at most, production of 90 aircraft for each contractor. Yet by guaranteeing each team a number of units, the benefits of competitive dual-sourcing would be lost, says Jacques Gansler, the Pentagon’s acquisition chief from 1997-2001.

Gansler, who directs the University of Maryland’s Center for Public Policy and Private Enterprise, says that conducting periodic competitions between sources can produce significant savings and favorable contracting terms for the government, although he is not necessarily advocating this approach.

During last year’s competition, the Northrop/EADS team’s development program was judged to be less expensive, but the team would incur cost by establishing its first stateside widebody final assembly facility.

By bringing KC-Y forward, industry sources say, the Air Force would forgo some of the pricing benefits of competition in the development phase as both contractors would receive funding to design their models. However, the service could conduct merit-based pricing wars annually between the two models for production, awarding only a base amount if one of the teams is underperforming.

Two earlier attempts at a competition between the rival teams – led by Boeing, with a 767-200-based option, and Northrop/EADS North America, with an A330-based aircraft – were botched.

While options for a split buy are under review, the Air Force also is assessing ways for the new Obama administration to attempt a third competition. Pentagon officials are adamantly against a split buy because of high up-front cost. But some acquisition experts say competitive dual-sourcing may be the only way to avoid a new round of lengthy bid protests.

“There’s no way that the Air Force or anyone else can write a operational requirement for existing aircraft with known capabilities that results in a level playing field,” says retired USAF Gen. Mike Loh, once head of Air Combat Command. “Whatever you write will tilt the decision and end up in another protest.”

Photo: Northrop Grumman

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