Next Tanker Round Option: Price Shootout

This article first appeared in Aerospace Daily & Defense Report.

The next U.S. president could move forward with a new competition to buy the Air Force's much-needed aerial tanker replacements with an idea quietly crafted this fall at the Pentagon as a potential compromise.

But, for now, the idea has been dashed amid the political firestorm over the $35 billion program.

Pentagon acquisition chief John Young says his team discussed the notion of a new strategy to judge the existing KC-X proposals put forth by rivals Northrop Grumman/EADS North America and Boeing.

The new concept was proffered inside the Pentagon, but Defense Secretary Robert Gates eventually decided to shelve the tanker competition and declare a "cooling off" period before proceeding.

The new strategy would include two phases. In the first, both proposals which met all of the key requirements of the KC-X competition would be declared "technically compliant," Young says. Both offers satisfied threshold requirements on fuel carriage, range and cargo and troop transport among others.

Second phase

But one complexity in the last competition was how to value nearly 800 smaller requirements that were not weighted prior to the outset of the source selection.

In the second phase, the Pentagon would then focus on value. The Defense Department would request a best and final offer from both bidders for the development and procurement of the first 68 (of 179) aircraft. The winner would be selected on the best total combined cost, he says.

Based on the previous competition, Northrop's combined cost for development and first units was $12.5 billion compared to Boeing's $15.4 billion. Boeing's proposal was based on modifications to its 767-200 while Northrop's was a version of the Airbus A330-200.

"If we went back for a best price proposal from both of those teams, we would get better prices," Young says.

He notes that lifecycle cost would be too thorny because of fluctuations in areas outside the Pentagon's control. For example, the price of oil recently dropped, dramatically reducing the lifecycle cost of both aircraft. However, fuel efficiency of the two bids were different, and given the challenge of projecting such costs in the future, Young says the simplest way of conducting a price competition is to focus solely on the up-front price associated with developing and buying the first aircraft.

Young asserts this strategy could be useful as the Pentagon embarks on other programs that build off of commercially available products. Still, some lawmakers are pushing the concept of buying both designs and splitting procurement between the two production lines.

'Very bad decision'

Top Air Force officials have previously and repeatedly said the service's budget cannot bear the cost of both developments. Furthermore, buying two designs at once would require the Pentagon to operate five tanker models simultaneously until one is retired. These would be the massive KC-135 fleet (which is the first to be replaced), the KC-130, KC-10 and the two new variants.

Read the rest of this story, see a hot shot of a post-IED medic, check out DARPA's river rover and get a look at the USAF's cyber gun from our Aviation Week friends exclusively at Military.com.

-- Christian

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