Fourth in a Series
Jan. 3, 2022, © Leeham News: As the US Air Forces gears up to solicit bids for its KC-Y aerial refueling “bridge tanker” competition, Boeing is now the incumbent tanker supplier.
Having won the KC-X competition against Airbus, Boeing is supplying a total of 179 tankers based on the 767-200ER. The KC-46A, however, has been plagued with problems, delays, and cost overruns.
As the incumbent, Boeing would seem to have an advantage in the KC-Y competition. But on the other hand, the problems that Boeing has had in technical compliance categories, failures, and delivery delays, and foreign object debris issues, could work against it.
Sean O’Keefe was the president of EADS North America, Airbus’ parent when Boeing won the KC-X contract. He also worked for the government as the NASA administrator and on The Hill. He was friends with Bob Gates, the Secretary of Defense during parts of the Bush 43 and Obama administrations. This gives him a special insight from government and industry perspectives to weigh the advantages and disadvantages Boeing faces in the anticipated KC-Y contest that will likely pit the incumbent against the Lockheed Martin-Airbus team that will once again offer the A330-200-based tanker called the LMXT.
“I think Boeing’s advantages clearly are it’s a legacy company,” he said. “That was the same advantage they had in the last competition. This is a company that’s had a long-standing relationship with the Defense Department, with the Air Force in particular, with the Navy to another extent, as well in other areas. That’s where I dealt with them primarily. It was at the Navy Department. Certainly, at NASA, that was the case, but they also had a legacy position with the least capacity of rocketry.”
However, O’Keefe said, being a legacy company “never” was a deciding point for a contract award.
“It really did provide a track record that you could assess,” he said. “It was more having a deep visibility in what their capabilities were, knowing their advantages, as well as their flaws in terms of what to watch for.”
There is no question that this experience Boeing has had during the past decade on the KC-46 program is one that has a record, O’Keefe said.
“There’s a real legacy there. Their performance has been very challenged in this condition. They have had a year-over-year charge they’ve had to take for this program, and the very likelihood they may ever, ever make a dime on the KC-46 is much in doubt. That speaks to a performance record that transcends any legacy or any capacity to really have an institutional relationship. That’s going to be a factor. That’s the one that when you get done with it, it almost evens out in terms of the advantages and disadvantages they have,” O’Keefe said.
The Air Force and Boeing can’t underestimate the significant advantages of their ongoing, long-standing legacy relationships that they’ve had because the USAF really does know what Boeing is capable of doing and what it’s not capable of doing, O’Keefe said.
“The Air Forces knows where their flaws are, as well as Boeing’s advantages. There’s a real plus to that, but at the same time, on this program, it’s been a real challenge. There’s no getting away from that.”
Airbus Group, and before that as EADS had defense work with the Pentagon, the helicopters, and CN-235 and CN-295 procurements by the Coast Guard and some National Guard units. But it doesn’t compare with the level of Boeing’s supplier relationship. But the Airbus/EADS relationship with the Pentagon was successful.
“Airbus delivered more than 70 on Aerial Scout Program, the UH70, helicopters. It was a successful program for the Army. It was provided to the Navy for some test programs to the National Guard. The Coast Guard has been a continuing customer going forward on a number of different rotary wings, as well as fixed-wing programs. That’s an advantage,” O’Keefe said.
The experience, though on a small scale and with fewer programs compared with Boeing, allowed EADS/Airbus to grow its understanding of dealing with the Pentagon and the challenge of doing business with the government.”
Selling to the government must factor in all kinds of other things not done for a commercial market. There are requirements for small and minority-owned businesses. There are all kinds of different features that go into government procurement, O’Keefe says.
“There is any number of provisions of law that require plenty of labor surveys, all kinds of stuff that goes into this that no commercial company would have to deal with, and no commercial customer would impose,” O’Keefe said. “At the margin, it runs you, from what I could calculate at the time, easily 15% more to do business with the government for the same airframes, for the same assets, for the same capabilities, in some cases going forward.”
Airbus Group built all kinds of commercial helicopters, and they just didn’t require anywhere near the compliance with regulations required by the government, O’Keefe said.
“That’s something that was new really to EADS at that time. That was not a real deep experience,” he said. The Coast Guard legacy programs turned out to be a bigger Army Helicopter program. The Army purchased the choppers for training purposes. “That really gave Airbus a much deeper appreciation for what it is they have to do in order to do business with the United States government.”
For the KC-Y competition, Airbus teamed with Lockheed Martin, which, O’Keefe said, is “built for this stuff. They’ve done it on multiple fronts, so that’s something that is not new to them.”
O’Keefe said that teaming with Northrop Grumman for KC-X required some internal salesmanship. Doing so met with resistance.
“The time I had to spend really dealing with an awful lot of colleagues and counterparts in the commercial side of the house of Airbus to say, ‘Look, folks, here’s why we got to do this. They aren’t just doing this to be heavy-handed, they’re doing it because it is a compliance requirement, it is a unique set of characteristics, the government, and there is a good and present reason for why they do it. Let’s get over whatever anxiety you got here and stop dealing with that.’”
The final part of this series: Lockheed Martin and Airbus going forward.
Read more about the KC-X tanker competition in my book, Air Wars, The Global Combat Between Airbus and Boeing. Some excerpts:
The 2005 tanker fight became mean and nasty, very quickly. It was clear very early on that Boeing’s communication team was out for blood. They attacked Airbus for its illegal subsidies; its inexperience in building tankers; for illegal subsidies; inexperience in building refueling booms; for illegal subsidies; being French; for illegal subsidies; tying up with Northrop, which also didn’t know anything about building tankers; for illegal subsidies; proposing a “greenfield” assembly site in Mobile; for illegal subsidies; and the Mobile workforce being incapable of building tricycles at Christmas.
Boeing was obsessed about the subsidies. As an after-thought, Boeing also said the KC-767 was a pretty good airplane. Except it wasn’t all that good: Only eight were built, there were flight control flutter and structural issues, all were delivered late and large write-offs were taken for the losses incurred.
For its part, Airbus and Northrop guffawed over biting cartoons by J. D. Crowe of the Mobile Press-Register. Crowe drew the Boeing tanker, which used the fuselage from the 767-200ER, wings from the 767-300ER and the cockpit of the 767-400 and labeled it the Frankentanker. Another cartoon mocked Boeing’s tricycle characterization of the Mobile labor talent.
The USAF, by all appearances, tried to stay above the fray. However, it emerged that the USAF changed the parameters of the procurement in a way that favored the Northrop-EADS KC-330 offering. They thought it appropriate to give EADS credit for the extra capabilities of their aircraft. When the time came to announce the contract, Boeing, its employees and supporting members of Congress gathered for a celebration, anticipating the win. Northrop, EADS and Airbus were consigned to losing.
Thus, when the USAF gave the contract to the Northrop team, everybody—on both sides, in the media, consultants, everybody—reacted with shock and disbelief.