Airbus and Boeing officials are expecting a call from the Pentagon at 4:45 p.m. Eastern Standard Time this afternoon to inform them which company has won the $35 billion contract for the new U.S. Air Force KC-X tanker. The Pentagon will then make a public announcement about the award at 5:10 p.m. EST, Airbus and Boeing spokespeople told AIN.
According to some industry speculation, the long-running and highly contentious competition to supply the USAF with its next-generation aerial-refueling tanker will go to Airbus. Some Boeing contacts have told AIN that Boeing officials are not expecting to win the contract, while EADS contacts expressed careful confidence that Airbus will receive it. However, the sources from both companies officially stated that they have no firm information on the contract at this time. Regardless which company wins the award, the losing bidder could contest the decision, dragging eventual deliveries even further into the future.
If the contract goes to Airbus, the decision would be a bitter blow to Boeing, which has battled hard to have its 767 NextGen Tanker selected, overcoming the setback of having an earlier contract award overturned under pressure from vested interests in the U.S. Congress.
Both contenders took the opportunity to submit revisions to their bids on February 11. In a subsequent media briefing, EADS North America CEO Ralph Crosby implied that the Airbus price had been reduced due to the economy of scale offered by the recent increase in the A330 production rate and because the A330MRTT has matured, with more than 1,500 air-to-air refueling contacts now made. Airbus plans to build the A330MRTT (KC-45) at a new factory in Mobile, Ala.
For its part, Boeing has just relocated 767 final assembly within Everett and reconfigured it for in-line production. It might therefore have sharpened its pencil through an efficiency gain. The unit cost of a 767 NextGen tanker should be lower than that of the larger A330MRTT. For comparison, the list price of the current commercial 767-300F is $167 million, versus $203 million for a commercial A330-200F. In fact, price could be the main factor in the final decision. Dr. Loren Thompson of the Arlington, Va.-based Lexington Institute said, “I expect Airbus to prevail by offering a concessionary price that Boeing cannot match, since that is the company’s traditional approach in commercial-transport competitions.”
However, the Pentagon will have modified the total proposed price of the two bids, by means of three criteria, to arrive at a total evaluated price (TEP). The criteria are fuel burn, military construction cost and the now-infamous integrated fleet aerial refueling assessment (IFARA). The Pentagon must award the contract to the bid with the lowest TEP, unless the other TEP is within 1 percent. In that case, points are awarded to each bid for meeting a further 93 non-mandatory requirements, and the winner of this “tie-breaker” will be decided by the highest point score. In November last year, the program hit an embarrassing snag when the evaluating office inadvertently sent out IFARA documents of each proposal to the opposing bidders.
Beyond the hugely significant breakthrough into the U.S. defense market, a victory could lead to Airbus expanding its civil aircraft presence in North America. At the annual press conference of its EADS parent group in January, CEO Louis Gallois made it clear that Airbus still has a long way to go in cutting costs. Airbus profits are not considered satisfactory by shareholders and a big factor is the weakness of its income currency, the U.S. dollar, compared with its main cost currency, the euro. Having the option to build partial or even complete airliner airframes in the U.S. would help to correct this imbalance. The move would also change the dynamics of the long-running row over alleged illegal subsidies for Airbus programs. Boeing’s lobbyists would have a harder time contesting investments that create and sustain American jobs.
EADS’s declared goal for the next couple of years is to put down more tangible roots in local markets, and airliner production in the U.S. would be a key element in this strategy. EADS has plenty of money to invest around the world, with at least $10 billion in cash reserves. Shareholders have told EADS that it should either invest this money soon or give it back to them by way of dividends. The new Alabama factory would be an obvious target for such investment.