Part 6: The KC-X competition from Boeing’s perspective
Feb 21, 2022, © Leeham News: Jim Albaugh, the former president and CEO of Boeing Commercial Airplanes and of Boeing’s defense unit, retired from the company in 2012. He oversaw the first competitive bid at the defense unit for the US Air Force KC-X refueling tanker. That was lost to Northrop Grumman-EADS (Airbus) in 2009.
As CEO of BCA, he oversaw commercial efforts to get Boeing’s cost down on the 767-200ER, which formed the basis for what became the KC-46A tanker. Defense won this round against a solo EADS bid. Boeing’s winning price was about 10% below the EADS bid for its A330-based MRTT.
Years removed from Boeing but nevertheless an interested observer with experience on the losing and winning bids, Albaugh has some observations and advice as Boeing prepared to compete against Lockheed Martin-Airbus for the KC-Y campaign that already has unofficially begun.
Lockheed Martin (LMCO) is the prime contractor against which Boeing will compete. Airbus is the sub-contractor, as it was in the Northrop Grumman-Boeing KC-X campaign. But the LMCO airplane is once again the Airbus A330 MRTT, which will be further modified to USAF specifications. Already, Boeing partisans attacked Airbus for the old illegal subsidies campaign that was the focus of the two KC-X rounds. It’s as if LMCO isn’t a party.
Albaugh knows better.
“I have great respect for Lockheed. I have great respect for Airbus. Lockheed is the number one defense contractor in the world. Airbus builds good airplanes. Boeing has a lot of experience and a lot of scar tissue, but a lot of knowledge as a result of what they’ve just been through. I’m sure it’ll be a spirited competition and I certainly hope Boeing wins it,” Albaugh said.
Albaugh shrugs off the early attacks on Airbus’ government launch aid that supported the funding of the A330. The structure of the aid was found to be illegal by the World Trade Organization, though not the principal of the aid. Airbus has long since repaid the A330 funding. Under WTO rules, launch aid isn’t applicable to military programs.
Nevertheless, people like Loren Thompson, a former State Senator from Kansas and a former Congressional aide are playing the subsidy card again. Does Albaugh think that even though the Pentagon won’t be looking at that and by WTO rules, it’s irrelevant, that playing the subsidy card again is a good idea, a bad idea, or a worn-out idea?
“Nothing in life is totally fair. Competing against a subsidized airplane makes it difficult. At the end of the day, it’s how you’d respond to the RFP and how they score your paper. I think Boeing understands that,” he said.
Boeing KC-46 has had a lot of delays with the KC-46A and it’s written off some $5bn. They’ve had some technical issues; they’ve had a lot of Category One issues with the airplane, the most severe of deficiencies under the USAF rankings. How important are these going to be to the risk factor, or will Boeing have all that sorted out by the time that the RFP is issued this year?
Past performance factors in, Albaugh acknowledged. “At the same time, Boeing’s got a lot of experience, and I think that’ll be factored in as well. I’m not sure. I think it depends on how the RFP reads.”
Albaugh advises Boeing to proceed with the competition as it approached things in the past.
“One, have a very good red team that is looking very hard at what a Lockheed and Airbus are going to propose. At the same time, look very, very hard at the lessons learned on the KC-46, put together a very dedicated team to work this and be realistic about the risks that are inherent in this program and put an aggressive bid in, but one that is executable,” he said.
Sean O’Keefe, who headed EADS Americas during the KC-X campaigns, said Boeing’s advantage is its incumbency. Incumbency is also its disadvantage. O’Keefe, who earlier in his career, headed NASA and worked for a Senator on The Hill, is well versed in federal procurements. So is Albaugh, who spent much of his career as a supplier to the Pentagon.
“Incumbency can be a blessing and a curse. It’s a blessing in that you really understand the risks. It’s a curse and that you really understand the risks. Sometimes you can become a little too cautious because you do understand the risk going forward. I don’t think Boeing wants to have write-downs on any future anchor competition, so I think they will bid this thing through clear glasses.
“For Lockheed and Airbus, it’s probably not so clear glasses because they’ve never done it before. I need to read the RFP before I could tell you anymore,” he said.
The USAF has issued a Request for Information, but the RFP comes out later this year. Albaugh doesn’t know what’s going to be in the RFP.
“I know it’s a larger airplane, but I think that Boeing has a lot of different airframes that they could propose. They’ve got a lot of experience. I really don’t know enough about it to be able to say what the advantages and disadvantages are.” Boeing, he said, could offer a tanker based on the larger 767-300ER or even the 777-200LRF. While there would be non-recurring costs to develop such a plane and these would be paper airplanes against the LMCO-Airbus MRTT, Boeing once before floated a 777-based tanker concept.
Albaugh said Lockheed certainly has a lot of institutional knowledge with the USAF and Pentagon. “That’s going to be something I’m sure they’ll play on. At the same time, a teaming arrangement with a different company can be cumbersome at best sometimes how they put together that team, do they book profit on profit, the financial structure they put together, all that’s going to be an interesting thing to watch.”
Albaugh predicted Airbus will emphasize the tanker will be assembled in the US. Actually, as a subcontractor, LMCO will take the lead on this—and it already has. Lockheed has a web page dedicated to the Americanization of the LMXT, its name for the MRTT.
“I wish the best for Boeing. I always said I hated to lose, but if you do lose, you have to take some comfort in that the customer is getting a better solution, a better product. I hope that Boeing can put together the best solution and the better product,” Albaugh said.
Coming up: An interview with Boeing. Lockheed Martin was interviewed here.