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Air Force Tanker Project to Cost More Than $4.9B

WRIGHT-PATTERSON AIR FORCE BASE -- The cost to develop a new Air Force refueling tanker is expected to exceed a $4.9 billion spending cap, but taxpayers won't be on the hook for the extra costs, according to a Government Accountability Office report.

The Air Force Life Cycle Management Center at Wright-Patterson Air Force Base manages the program.

The GAO report released this week also found the flight test schedule for the KC-46 aerial refueling tanker was a "substantive concern" for the aircraft that is a top Air Force acquisition priority.

The service branch has a $52 billion fixed-price contract to buy an initial 179 KC-46 tankers from Chicago-based Boeing Co. through 2027.

The KC-46, a military tanker version of the commercial Boeing 767 passenger airliner, will replace many aging KC-135 Stratotanker refuelers, the last of which joined the fleet in 1965.

The GAO reported both the government and Boeing were concerned development costs would exceed what's budgeted. The contractor has estimated the cost overrun will reach $266 million while the Department of Defense has pegged the additional expense at $717 million, according to Michael J. Sullivan, GAO director of the acquisition and sourcing management team.

Under the contract, the government is not liable for overrun costs beyond the $4.9 billion cap set on development costs, the GAO said. "We think it's important to keep track of it obviously because it shows pressure on the contractor," Sullivan said. "They don't want to lose money."

Sullivan said the expense to build three systems integration labs and systems engineering and management costs, among other expenses, added to the development price tag.

GAO said Boeing has spent 80 percent of a budget set-aside for identified yet unresolved risks although about five years of development work remain scheduled.

The federal watchdog agency recommended the Department of Defense analyze the root causes of why the money was spent sooner than estimated.

Boeing spokesman Jerry Drelling said in an email the company was closely monitoring expenses and the bottom-line cost estimate of the entire project had not changed since May 2011. "A rigorous effort is underway by the program with support from the Boeing enterprise to focus on cost reductions and management reserve replenishment," he wrote.

In a statement, Drelling also said the GAO recognized progress in the KC-46 program the past two years and the company plans to meet a 2017 date to deliver the first 18 tankers to the Air Force.

Flight tests are estimated to begin in 2015. Some officials expressed concern the 15-months set aside for flight testing was too "aggressive," the GAO said.

The GAO report said about 9,000 of 15,000 engineering drawings were completed by December but some lower level subsystems reviews were behind schedule. The contractor continues to work on solidifying software plans, addressing growth in the aircraft's weight and ensuring no design issues with an aerial refueling boom system, the report said.

The Department of Defense concurred with GAO recommendations. In a Feb.11 letter to GAO, Maj. Gen. John Thompson, Air Force executive officer for tankers, wrote the fixed price contract mitigated taxpayer risk of paying for higher costs and the Defense Department would ensure adequate testing of aircraft systems.

Despite the concerns, the GAO reported KC-46 estimates remain virtually unchanged from last year with Boeing "running very close to the planned budget and schedule."

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