Northrop/EADS KC-30 Is Larger, More Capable... And Cheaper?

We now know more about the Pentagon's reasoning behind opting to delay ruling on the contentious KC-X aerial tanker contract... and we have to say, they seem to have a valid point.

According to The Washington Post, the Pentagon's top procurement officer said Boeing's bid to supply 68 KC-767s under the initial stages of KC-X came to $15.4 billion... almost $3 billion more than a consortium led by EADS and Northrop Grumman estimated for their larger, newer KC-30A.

John Young, undersecretary for acquisition, technology and logistics, told the Post Wednesday that Boeing's tanker "was smaller and should have been cheaper... A member of the American public might conclude that Boeing sought to charge more than the Defense Department reasonably expected."

In addition to the uneasy feeling of potential price gouging on Boeing's part, Young added that the Airbus-sourced KC-30A offered by Northrop/EADS "provided more tanker capability and offload rate and was substantially cheaper to develop." Northrop also promised an earlier delivery date than Boeing did, he added.

As ANN reported, last week Defense Secretary Robert Gates terminated the competition for a US Air Force airborne tanker replacement, saying the process had become too politically charged to guarantee a fair winner. That ruling came after Boeing mounted a successful protest to the Government Accountability Office over the Air Force's initial choice of the KC-30.

In its decision, the GAO ruled the Air Force "undermined by a number of prejudicial errors that call into question the Air Force's decision." Among the findings was the revelation the Air Force held Northrop's hand in dealing with some shortcomings of its bid.

The GAO discovered that in one case, USAF officials told Boeing it had met a set of objectives... but later said it had not, after discussions had already closed. Conversely, the Air Force told Northrop about areas its bid had fallen short on, then gave the company time to alter its proposal.

The government watchdog agency also found the Air Force's math was flawed, in determining the KC-30 would be cheaper to operate in the long run... but Young reasserted Wednesday the KC-30 would have been cheaper for the Air Force to purchase, though he conceded both offerings were "technically outstanding."

The price discrepancy may be explained by a couple of factors. Boeing may have charged a higher price to help offset development costs on the KC-767, which has been under development since 2002. Conversely, EADS may have deliberately underbid its program, in hopes of gaining a foothold in the US defense market.

Young defended the decision to pass off KC-X until the next presidential administration. "We would have picked the ingredients, the menu, and fixed the meal, only to serve the meal to the next team -- along with the bill -- and I'm uncomfortable with that," he said.

In a separate interview, Young told The Wall Street Journal he feels the entire procurement process may be flawed, and is in desperate need of simplification. He notes the Air Force initially had 37 key criteria requirements for KC-X... but 800 less-important factors.

"Having that many tradeable requirements creates a fertile field for protest issues," he said. "Frankly, the circumstances and course of events are rewarding bad behavior, which cannot become the norm for defense acquisition."

Boeing spokesman Dan Beck told the Post the company was "not interested in discussing the past," saying only that Boeing was preparing for the next KC-X bidding war. Northrop's Randy Belote said "We look forward to the opportunity to compete again and are confident that we will achieve the same result."

FMI: www.af.mil, www.gao.gov, www.dod.mil, www.boeing.com/ids, www.northropgrumman.com