Says Ordering Boeing, EADS Planes Would Be Too Costly

When it comes to selecting new aerial refueling tankers... the US Air Force will pick a favorite, thank you very much. A senior US defense official said this week the Pentagon will not split the lucrative KC-X contract between offerings from Boeing and EADS.

Sue Payton, head of acquisitions for the USAF, told The Financial Times splitting the deal would prove too costly, at a time when the service is having to keep close eye on its budgets.

"Because we are trying to do so much, we don't have the money upfront that it would take to carry two or three [tankers] through development and then into procurement," she said.

The Air Force is slated to announce later this year whether it will award the contract to Boeing's KC-767, or the KC-30 offered by EADS and Northrop Grumman. Both aircraft are based heavily on commercial planes -- Boeing's 767 and the Airbus A330, respectively -- and each has its strengths. The KC-767 is cheaper, though smaller; the KC-30 offers more cargo room and fuel capacity, but at a price premium.

There's also the matter of national pride. If selected for KC-X, the KC-767 would be manufactured in the United States, by an American-owned company. While Northrop would be responsible for outfitting all KC-30s stateside, in Alabama... the airframe itself would be manufactured in France.

Teal Group analyst Richard Aboulafia says Payton's comments come as a blow for the European aerospace consortium. EADS had reportedly lobbied Congress to consider a split bid, hoping to improve its odds against Boeing's homegrown offering as it seeks a greater presence in the US market.

"Given the odds against them, a split buy would have been very welcome news. It's better to get half of a sure thing than to be on the wrong side of 3-1 odds," he said. "Losing the tanker bid would follow the Joint Cargo Aircraft loss. That would leave the Light Utility Helicopter and Coast Guard patrol planes as their flagship programs, with few US opportunities on the horizon."

The USAF is expected to follow its initial 80-plane order with a second for 99 more planes, as it replaces its fleet of aging KC-135 air tankers. Payton says to split the order -- and the resulting need for parts, and training on two aircraft types -- would be cost-prohibitive.

"We would need billions and billions and billions more dollars," Payton said. "It is a balancing act of the entire portfolio of warfighting capabilities that we need because we are catching up on the peace dividend. And we can't afford to put all the money in tankers that it would take to do something like that."

That viewpoint contradicts a report in Reuters last week, that former Clinton-era Pentagon acquisitions chief Jacques Gansler concluded the Air Force could save 30 percent by splitting the initial order.

But that study was funded by EADS... and only considered acquisition costs and not support, according to Lexington Institute analyst Loren Thompson.

FMI: www.boeing.com, www.eads.com, www.af.mil