Jan. 31, 2022, © Leeham News: Following the 9/11 terrorist attacks in the United States, Boeing offered the US Air Force a lease deal for 100 aerial refueling tankers based on the 767-200.
The concept of leasing tankers had been floated before. Boeing at one point proposed creating a 747-based tanker and leasing it to the Air Force. The idea went nowhere, but this one gained traction.
The leasing concept formed just before Jim Albaugh arrived at IDS, but he was president as it progressed and through the subsequent competition, called KC-X, against Northrop Grumman-EADS (Airbus) after the lease deal was canceled.
“You go back in history, and it started out with the need for the Air force to replace the 707s which were their tanker fleet for a long time, and they were getting old,” recalls Albaugh, the CEO of Boeing’s Integrated Defense Systems unit at the time. IDS is now called Boeing Defense, Space and Security (BDS).
“We like to joke that the mother of the last pilot on the 707 tanker hasn’t been born yet. It’s about how long those things were going to be in service. The Air Force was looking for a quick way to get a new fleet in place based on a new airframe and that’s where the lease thing started.
“The government had never done anything like that before,” Albaugh said. “Quite frankly, we hadn’t either. We went back and forth, back and forth. Members of the government were concerned about whether or not this was the right way to go about redoing the fleet.”
Boeing and the Air Force agreed to a deal to lease 100 KC-767s for 20 years. But Sen. John McCain of Arizona, who sat on the Senate Armed Services Committee, challenged the costs of the deal and the propriety of some key players. Darleen Druyun, a civilian Air Force official who was key to the procurement, was later hired by Boeing by the chief financial officer, Mike Sears. Each was charged with a felony in the ensuing investigation and served prison time.
“It started just before I got to IDS, but I was in charge there. Senator McCain got involved. There was the Druyun and Sears issue. The Air Force decided that rather than try to push forward with a lease in light of the political opposition to it that doing a competition was the right thing to do. They put together an RFP and they sent it out and we responded to it as did Northrop and Airbus,” Albaugh said.
The competition became known as KC-X, which was the first of three planned recapitalization procurements to completely replace the hundreds of aging KC-135s in service. EADS, the name of Airbus Commercial’s parent at the time, teamed with Northrop Grumman to bid for the contract.
Boeing saw the RFP as calling for was a smaller plane. The 767 was larger than the KC-135, but the Airbus A330-200 was larger still. The specifications were based on NATO runways, how long the NATO runways were, and also how many planes you could park at a NATO airbase.
“Then there was a model they put together and it was really about the ability to fully deploy and to put hoses on airplanes,” Albaugh said. “In our estimation, modeling a smaller plane was much more effective in delivering gas than a large airplane was. If we really thought it was a large airplane they wanted, we had one. It’s called the 777, but in our mind, the airplane that best met the model and could offload more gas toward deployment was the 767.”
The competition was bitter and political. But since Boeing was the incumbent supplier with the KC-135, everyone—including EADS—expected Boeing to win the contract. Thus, when the Air Force awarded the deal to Northrop-EADS, the shock waves flowed through Washington (DC) to the “other Washington,” where Boeing would assemble and militarize the 767 into tanker configuration.
Boeing received a debrief from the Air Force, a standard procedure. In the process, Boeing discovered that the Air Force awarded the A330 tanker proposal extra credit for longer range, extra loiter time, and extra fuel that could be delivered to the thirsty airplanes it was refueling. But the prospect of extra credits was not part of the RFP. Boeing protested to the Government Accountability Office (GAO), which upheld the protest. The procurement would have to be rerun once more.
“That’s the only protest I was ever involved in, in my career,” Albaugh recalled. “We were very shocked and surprised because clearly, the RFP in our estimation was all about a smaller airplane as opposed to our large one. Then of course when the GAO looked at it, the GAO concurred with us. The Air Force put out a new RFP.”
Part 4 of the Boeing perspective continues next week.