Part 4: The Boeing perspective
Feb. 7, 2022, © Leeham News: After Boeing lost to Northrop Grumman-EADS for the KC-X US Air Force tanker contract, Boeing filed a protest with the Government Accountability Office (GAO).
The Air Force, Boeing complained, gave Northrop extra credit for the larger A330 MRTT’s fuel capacity and range. This possibility had not been in the Request for Proposals. Boeing, therefore, felt its tanker, based on the 767-200ER airframe, was properly sized for the USAF requirements.
The GAO upheld Boeing’s protest. For the third time, the Air Force now had to issue an RFP and run another competition.
Northrop decided to sit this one out. But, as previously reported in the Sean O’Keefe series of the Airbus perspective, Airbus elected to bid again.
This time, the RFP was tightened. It took a Pass-Fail approach.
The new RFP was about meeting minimum requirements and then it was based on cost. The old Boeing KC-135 was set as the bar that Boeing and Airbus had to meet. Either their airplanes passed, or they failed each criterion.
“In our estimation, the 767 being smaller than the 330 would win every time just because of the cost of the airplanes,” recalled Jim Albaugh, by then the president of Boeing Commercial Airplanes. Albaugh moved over to BCA from his role as president of Boeing’s defense in September 2009. Losing the contract to Northrop was, he said, the greatest disappointment of his tenure at the Boeing defense unit.
Under the third round of the competition, Boeing won the contract with a price about 10% below that offered by Airbus.
“We won it and really in pretty simple terms,” Albaugh said.
Boeing went into Round Three, however, discouraged by the Round Two loss. There was reporting at the time that the USAF considered the greater range and fuel capacity of the A330 MRTT because it was already planning for potential conflicts with China. China had a plan to deny the US access to the Pacific waters around China and as far as the US territory of Guam, a military base. Called A2AD (Anti-Access, Access Denial), US naval and air forces would be pushed back thousands of miles in a conflict. The theory was that the A330 MRTT’s greater range, great fuel capacity, and loiter time would be an advantage over the smaller KC-767.
“It was clear to us they’d fallen in love with a larger airplane,” Albaugh recalled. “Why? It wasn’t fully obvious to us. The KC-10 was a large refueler that they had. The RFP, the way we read it and I think based on the model, wasn’t about China, it was really written around Europe and NATO.”
For Boeing and its supporters, operating cost was as important as procurement costs and airplane capabilities. Operating cost was important, but as part of the overall life cycle cost of the program—a measure the Pentagon takes into account for any procurement.
US Rep. Norm Dicks, a Democrat from Bremerton (WA), a naval base, and a huge Boeing advocate, also persuaded the Air Force to look at a 40-year life cycle rather than the 25-year life cycle for the airplane. The move made sense. After all, the KC-135 entered service with the Air Force when Dwight Eisenhower was president and the last was delivered when Lyndon Johnson was president. Calculating the operating costs over 40 years instead of 25 further disadvantaged the A330, which as a larger airplane than the 767, already faced an operating cost deficit.
“I think the reason that that was pushed by Congressman Dicks was because that’s consistent with the way they valued all lifecycle costs on other programs. He was looking for consistency,” Albaugh said. “There’s no question in my mind and again [that] the smaller airplane generally equals smaller lifecycle costs. I would guess it would be to our advantage, but I think Norm was looking for consistency between this program and others at the Air Force had done.”
Concurrent with the KC-X procurement were the trade complaints between Europe and the US over illegal subsidies to Airbus, and to Boeing. As with Round Two, Boeing and its partisans hammered Airbus for benefitting from subsidies that the World Trade Organization later found to be illegal. Airbus countered that Boeing, too, benefitted from illegal subsidies (the WTO agreed, though for a lesser amount) and that in any case, Airbus had since repaid those received for the A330.
But under WTO rules, subsidies are irrelevant to military procurements. This, however, didn’t stop the subsidy campaign on either side.
“I think [the campaign] was trying to be consistent with the WTO suit that was ongoing at the time,” Albaugh said.
As I was covering all this at the time, I had a very distinct impression that Boeing spent almost more time talking about how bad the Airbus was and the illegal subsidies were than talking up how good the 767 tanker concept would be.
Next week, Albaugh discusses the campaign as it heated up.