Part 5 in a Series: the Boeing perspective in the last KC-X campaign
Feb. 14, 2022, © Leeham News: After the Government Accountability Office (GAO) upheld Boeing’s protest over the US Air Force contract award to Northrop Grumman-EADS, the parties regrouped to consider whether or how to compete for the KC-X contract again.
Boeing was discouraged after the Northrop win. According to press reports at the time, US Rep. Norm Dicks, a Democrat from Bremerton (WA) since retired, encouraged Boeing to make another bid. The US Air Force recast the new procurement to a pass-fail process on the requirements, emphasizing the price. The process was known as Technically Acceptable, Lowest Price, or TALP. Northrop decided to drop out. EADS, despite concluding the odds were long that it could win, went ahead.
In September 2009, the Air Force began the new procurement process. The same month, Jim Albaugh moved from Boeing’s defense unit, where he had been president and CEO, to Boeing Commercial Airplanes, in the same position. Although no longer involved day-to-day in the KC-X campaign, Albaugh nevertheless was in a good position to recall how Boeing approached this round.
As in the previous round, the public and political campaign focused on allegations that Airbus benefitted from illegal subsidies. There was a parallel case before the World Trade Center in which the US and European Union traded complaints that Airbus and Boeing each improperly benefitted from government support.
Boeing and its partisans also claimed Airbus, the EADS subsidiary, didn’t know how to build a tanker, while Boeing was the expert. Airbus and its partisans pointed out that the last tanker Boeing delivered, the KC-135, was in 1965. McDonnell Douglas delivered the last KC-10 tanker in 1988, nine years before Boeing and MDC merged.
Albaugh, who spent most of his career in the defense industry, was dismissive of the public and political campaigns.
“I spent a lot of time responding to government RFPs and the only thing that really matters is how you’ve addressed the requirements of your customer,” he said in an interview with LNA last month. “Then they grade your paper and then make a selection. There probably was a lot of stuff in the press and a lot of public relations out there, but I think that, in my mind, is always irrelevant to a competition. The relevant part is how they score your paper. Does it score higher than competitors based on the requirements laid out in the RFP?”
Evaluations by the Air Force in the Boeing-Northrop round also included a risk assessment. Boeing was scored down because the KC-767 International tanker program for Japan and Italy was troubled.
“I know there were issues,” Albaugh said. “I can’t really tell you the details of it. We had trouble with the vision system. There were some flutter issues with the drogue and its ability to be stable. Eventually, all those were worked out. There’s risk in every new program, but to the extent that Boeing had done a couple of programs already and Airbus to a large degree had not, to me, that should have de-risked the program. Obviously, because of the issues that they had on the KC-767, there was risk involved and probably more risk than anybody anticipated.”
By the time the Boeing-EADS campaign got underway, Albaugh was at BCA. The interaction with the Pentagon and the public and political relations didn’t really involve BCA. Albaugh’s BCA, however, worked the supply chain. BCA, of course, assembles the 767. The airplane is rolled out of the Everett factory and across the airport to the Everett Modification Center, where it is militarized.
“We were very involved in working with the supply chain, working efficiencies in the factory to try to get the price of the green airplane down. That helped us with the tanker and also helped us with the 767s that we were building for FedEx at the time. We scrubbed the 767 green airplane costs very, very hard,” Albaugh said.
Dicks, the now-retired Congressman, urged Boeing to bid aggressively under the Pentagon’s TALP process. When the bids were opened in early 2011, Boeing underbid Airbus by about 10%–a figure that stunned pretty much everybody, especially EADS. Boeing since wrote off about $5bn on the fixed-price contract, leading many to believe Boeing low-balled the bid. But Albaugh looks at it differently.
“I don’t think we lowballed the bid,” he said. “Sure, we won the contract. I think we put in an aggressive bid. I was never involved in any proposal where we purposely bid it to win knowing that we would lose money.”
One element of the procurement was the long-term services contract. This is often where the OEM makes the most money.
“It’s always important,” Albaugh said. “When you look looking at the revenue stream we’re going to get, it’s the price of the airplanes and it’s also the lifecycle of the airplane. All that factored in.”
The Pentagon issued a Request for Information last year. The Request for Proposals will be issued this year. The final part of this series from the Boeing perspective includes thoughts from Albaugh about what comes next.