Dilemma for Boeing as Pentagon Issues Revised RFP for KC-X

 - August 22, 2008, 10:34 AM

Boeing faces a tough decision, now that the Pentagon has confirmed that bigger is better in the KC-X tanker competition. “We’ve now revised the language to make it unambiguous that we intend to provide consideration above threshold for fuel offload,” said U.S. director of defense procurement and acquisition policy Shay Assad. He spoke at a press briefing on August 6, to introduce the draft revised request for proposals (RFP).

The Airbus KC-30 that Northrop Grumman is offering carries 45,000 pounds more fuel than Boeing’s KC-767 Advanced Tanker, according to Paul Meyer, who leads the Northrop Grumman bid team. “[The KC-30] may burn more gas to get to the refuelling point [than the KC-767] but [it] delivers more,” he told AIN at the recent Farnborough Air Show. The KC-30 is the Northrop Grumman designation for the Airbus A330-200 Multi-Role Tanker Transport (MRTT). The Pentagon issued the official designation KC-45 when it awarded the KC-X contract to Northrop Grumman. That contract is now on hold, pending the revised selection process.

Boeing must now quickly assess whether fuel offload will be the deciding factor in the revised competition. If so, the company could decide to withdraw from the competition, or will need to bid a tanker version of the larger 767-400ER, or even of the 777-200LR. But Boeing would have only about six weeks to do all the risk-reduction engineering required to bid a larger tanker, because Assad confirmed that October 1 is the deadline for the revised KC-X bids. The Pentagon’s ambitious schedule then calls for discussions with the offerors on their bids during November, leading to best and final offers in the first week of December and a selection announcement on or about New Year’s Eve.

The Pentagon official said that although the revised RFP took account of the GAO’s criticism, it had not been substantially modified. But, Assad believed, the contenders for the KC-X now “have a very clear and unambiguous understanding of the relative order of importance of our requirements.” Northrop Grumman chairman and CEO Ron Sugar said, “As we’ve examined the [revised] RFP, we’ve determined the requirements are exactly as we saw them last time.”

But all is not lost for Boeing. Assad said that the life-cycle costs of each bid would now be calculated over a 40-year period, instead of 25 years. Boeing says that the KC-767 cost advantage grows as the price of fuel rises, so much so that the U.S. Air Force could pay “as much as $44 billion more over 40 years” to operate a fleet of 179 KC-30s. Another plus-point for Boeing came when Assad revealed that the “Monte Carlo” simulation model used to calculate costs in the original KC-X selection would not be used this time around. Instead, the evaluators would use “classic cost realism analysis by engineers,” he said. Boeing said that the model treated its bid unfairly. Northrop Grumman supplied the model to the Air Force under a prior contract that is not connected to the KC-X competition.