From Aviation Week

 

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.”

From Aviation Week

 

Gates Continues to Oppose Split Tanker Buy

Apr 17, 2009

By Amy Butler

 

If there was any confusion about U.S. Defense Secretary Robert Gates’s position on the possibility of a split buy of Boeing and Northrop Grumman/EADS refueling tankers for the U.S. Air Force, he is taking pains to fix it. “I am laying my body down across the tracks” in opposition to it, he told an audience of officers at the Air War College at Maxwell Air Force Base, Ala., on April 15. The response was vigorous applause. During a press conference a day earlier en route to Fort Rucker, Ala., he said he opposes the introduction of two separate training, maintenance and logistics requirements simultaneously into the fleet. He also said that developing two tankers at once could cost $14 billion over five years, double the price of one. Some lawmakers have seized on the idea of a dual buy as the only politically palatable way to move forward with a KC-X program after repeated false starts and protests. Northrop, which partnered with EADS’ Airbus against Boeing in the last round, has also sounded support for such a compromise.

From Defense Aerospace

 

Op-Ed: The Business Case for Buying Tankers from Both Teams

(Source: Lexington Institute; issued April 28, 2009)

 

By Loren B. Thompson, Ph.D.

 

Without aerial refueling, the global reach of U.S. air power would be severely limited. However, nearly 90% of the tankers in the current refueling fleet -- 453 planes -- are Eisenhower-era KC-135s that average 50 years of age. Nobody knows how much longer these planes can operate before metal fatigue, corrosion and parts obsolescence cause a disaster.

 

What we do know is that if replacement were to begin tomorrow, it would take at least 20 years to modernize the whole fleet. The Air Force has been trying to acquire new tankers since the decade began, but has encountered a series of obstacles. The latest obstacle is defense secretary Robert Gates.

 

During the Bush years, Secretary Gates presided over a mismanaged effort to award the contract for the first 179 next-generation tankers to one of two teams led by Boeing and Northrop Grumman. A successful protest by the losing Boeing team forced the government to start over.

 

Gates wants to do another winner-take-all competition while correcting the errors of the first round. But since the government has failed to consult with industry teams in formulating its requirements and strategy for the re-competition, the outlook is for another protest by whichever team loses.

 

Congressman Jack Murtha (D-PA) has a better idea: split the contract between both teams, awarding a larger number of planes to the team that shows the best performance and price discipline. Gates says that will cost too much, but he's wrong. The Murtha plan will save money over the long run while avoiding further delays.

 

The most compelling reason for dual sourcing is operational. Boeing and Northrop are both offering planes that would cost less to operate than existing tankers while transporting more fuel, but the Northrop plane is considerably larger than the Boeing plane. What that means in operational terms is that each plane could be better suited to specific contingencies than the other.

 

For instance, the bigger Northrop plane might be a better fit for the long distances of the Western Pacific, while the smaller Boeing plane might be a better fit for the shorter distances and denser basing network of the Middle East. You can't really say which will prove more useful without knowing where future wars will be fought, so the smart option is to buy a mix of both.

 

Secretary Gates doesn't like that option because he says it would cost $7-14 billion more than the winner-take-all approach. Not only would the government have to pay to develop two different tankers, but it would have to buy more tankers each year to sustain competition between two production lines.

 

However, Gates ignores the huge savings that would result from retiring old tankers earlier because their replacements arrive sooner. The old tankers are very expensive to operate and maintain due to their advanced age. They will require new skins and other costly modifications in the near future that could be avoided if new tankers were acquired faster, which the Murtha plan would do.

 

Secretary Gates also overlooks the savings that result from having two teams competing throughout the life of the program for tanker awards. A study by former Pentagon acquisition chief Jacques Gansler found that in winner-take-all competitions, costs tend to increase markedly after the award, whereas when two teams remain competitively engaged costs tend to go down.

 

Under the Murtha dual-sourcing plan, each team could count on getting a minimum award of planes, but the team that offers better price and performance would get a bigger share of the planes.

 

So when Secretary Gates says dual-sourcing would cost more, he means on his watch. Over the long term, it would save a lot of money.