Payton: Air Force Expects First C-5 RERP Production Contract In Early 2008

By Michael Sirak

The Air Force expects that the forthcoming process of recertifying the C-5 Reliability Enhancement and Re-engining Program (RERP) for continuation will conclude by the end of January, the service's acquisition executive said last week.

This will allow the service to sign a production contract with Lockheed Martin [LMT] to proceed with the initiative before the company's fixed-priced proposal expires at the end of February.

"We believe that we can be through the analysis of this with a well-structured program by the end of January and we can have Lockheed Martin on contract for an excellent C-5 program before their bid to us becomes invalid on Feb. 28," Sue Payton, assistant secretary of the Air Force for Acquisition, said Sept. 27 on Capitol Hill during an appearance before a Senate oversight panel to discuss the program.

But as part of the recertification process, which is mandated by a law known as the Nunn-McCurdy provisions when costs increase by a significant portion, the Air Force's leadership has been hinting that it may adjust the number of C-5s that it modernizes and keeps in the fleet.

The Air Force has 111 C-5s; the fleet has an average age of 29 years. Lockheed Martin built the aircraft, which is known as the Galaxy, for the Air Force in two tranches, one in late the1960s and one in the 1980s.

The aircraft is the largest transport platform in the service's inventory and is capable of hauling more material than any other of the service's aircraft and uniquely able to accommodate certain classes of outsize cargo. C-5s share the spotlight with Boeing [BA]-built C-17 Globemaster IIIs as the Air Force's only strategic transport platforms.

But despite their utility, C-5s have been plagued in the past by reliability issues that have lessened their availability rates, senior Air Force officials have said. Even with the RERP and a separate avionics modernization initiative to install new communications and navigation gear on the C-5s, the Air Force's leadership has said it may opt to seek congressional approval to retire some of them and acquire more C-17s or apply the dollars to other air mobility needs (Defense Daily, Feb. 13).

Lockheed Martin officials say the RERP and overall C-5 modernization lie in the best interest of the nation. The C-5s will remain structurally sound for almost four more decades, according to the company. If the RERP is executed on all C-5s, the company's estimates show that the Air Force would save $4 in operations and sustainment costs for every $1 it spends on the upgrades. This could result in savings on the order of $50 billion through 2040, the company says.

The RERP calls for adding new General Electric [GE] CF6-80C2 engines and new wiring and components to bolster the fleet availability of the Galaxies. The goal of the RERP is to increase the C-5 fleet's mission capability rate from the low 50 percentage points at least to 76 percent, according to figures cited by Payton.

"A 'RERPed' C-5 will have a 30-percent shorter takeoff roll, be able to climb 58 percent faster, and be cleaner and quieter," she said.

The Air Force has 60 C-5As, 49 C-5Bs and two C-5C models. Already two C-5Bs and one A model are flying both with the RERP and new avionics upgrades. These three aircraft are designated C-5M Super Galaxies. A total of 28 C-5s are already fitted with the new avionics.

Based on the new Air Force figures, the total projected cost of the RERP is now approximately $17.5 billion in FY '07 dollars. This includes the development of the RERP equipment and the production and installation of it as well as the depot standup and military construction needed to support the modernized aircraft. This equates to an average procurement unit cost of $146.7 million.

"What people forget is that the objective of this program was to raise by 10 points a fleet of 100 airplanes," Secretary of the Air Force Michael Wynne told reporters on Sept 24 at the Air Force Association's (AFA) 2007 Air and Space Conference and Technology Exposition in Washington, D.C. "If you raise by 10 points a fleet of 100 airplanes, it means a fleet of 10 equivalent airplanes that you get. If [the price] is $17 billion, then those airplanes are very expensive even if you address them in equivalency."

Accordingly, the secretary continued, "This is going to be a question of what is the best bang, and the best money spent on behalf of the taxpayer."

A new tanker remains the Air Force's number one procurement priority, and senior Air Force officials remain steadfast that they would support no plan that impacts fielding the new aerial refueling platform.

Lockheed Martin put forth a "firm-fixed price/not-to-exceed offer" in May to execute the RERP modernization on the remaining 108 C-5 aircraft for about $11.6 billion, which equates to a unit price of $83 million (Defense Daily, May 30 and July 18).

"We are committed to ensuring the success of this program," Larry McQuien, vice president of Business Ventures for Lockheed Martin Aeronautics, said in discussing the proposal at the same Senate hearing. "I am acutely aware that Air Force recapitalization is fiscally constrained and it is imperative that every dollar be spent wisely."

The plan calls for an initial production lot and 11 additional lot options, with Lockheed Martin assuming much of the risk as long as the Air Force does not deviate significantly in the number of aircraft that it upgrades each year. For example, McQuien said, the Air Force cannot expect prices to remain unaltered if it orders 12 RERP kits one year and then only two the next. Under current schedules, the C-5 RERP production phase is expected to begin in 2008 and conclude in 2021.

Based on Lockheed Martin's calculations, which company officials have said are realistic and based on solid data, the per-unit costs would rise between $108 million and $118 million when factoring items such as training expenditures, spares, support equipment, over-and-above maintenance and program management costs.

This leaves about a $30 million per-unit variance in the Air Force's and company's estimates based on divergent views on the costs of the new engines as well as differences in areas like the hours of touch labor needed to modify each aircraft, Payton and McQuien said.

Harmonizing those costs is key to determining how the RERP will proceed, according to the Air Force.

"I think the first step is to get a better understanding of why the numbers are that far apart and what is the standard set of numbers...so that you can have a reasonable discussion about what is next," Chief of Staff Gen. Michael Moseley told reporters on Sept. 24 at the AFA conference.

As for options to the current RERP program of record, the Air Force has already discussed a "30-30 plan" with Congress under which 30 of the service's oldest C-5A aircraft would be retired and replaced by 30 C-17s. But this would require lawmakers to lift a prohibition enacted in 2004 on retiring any more C-5s until RERP testing is completed and the analysis is in, which is not expected until 2010.

This plan would also require a rephrasing of the money earmarked for the RERP in the Air Force's current five-year future year defense plan (FYDP). But some have said the dollars just don't match up and there is no way that these same funds could cover the costs of buying 30 new C-17s.

"My answer is you cannot do that," Payton acknowledged during her appearance before the oversight panel when asked how RERP funding could cover the costs of the new C-17s. She testified, along with McQuien, before the Senate subcommittee on federal financial management, government information, federal services and international security.

Boeing says the unit flyaway costs of a C-17A today, assuming an annual production rate of 12 to 15 aircraft per year, is somewhere between $225 million and $240 million.

The Air Force must also factor in its deliberations the law that requires it to maintain at least 299 strategic transport aircraft in its inventory.

"We are in compliance with both of those laws," said Wynne of the prohibition on retirement and the 299 minimum. "Right now, if the money sounds right and the Congress holds the laws together, we are going to execute the C-5."

The Air Force formally announced the Nunn-McCurdy breach on Sept. 27, saying the cost of the C-5 RERP has increased by more than 50 percent from its original unit-cost estimate in November 2001 (Defense Daily, Sept. 28). Per law, the Office of the Secretary of Defense (OSD), working with the Air Force, must now determine whether the program warrants continuation in spite of the cost growth through analysis that will include an examination of alternatives. If OSD opts to keep the program, it must recertify to the Congress that it remains essential for national security.

Payton told the Senate panel that the costs increase was due to development delays, budgets cuts due to other Air Force priorities, and production cost increases in the areas of engines, specialty metals, pylons and touch labor.

"We have had other programs in this situation and they are currently prospering and on contract," Wynne said in a statement on Friday.

"The C-5 is another example of our aging inventory and we are committed to the pursuit of modernization," the Air Force said in a separate statement last Friday.

Payton said the Air Force, upon determining last week the extent of the RERP's cost growth, decided to move out quickly so that the new cost estimate could be included in the next selected acquisition report (SAR) that OSD must submit to Congress quarterly on the costs of its major weapons programs. The forthcoming SAR, which will be issued publicly within the next month or so, will cover the period of July to September 2007.

By doing so, she said, the Air Force, in conjunction with OSD, will be able to launch the recertification process without delay.

"We want to move out, because if we don't do it in September, then we won't be able to start the Nunn-McCurdy process until January," she said Sept. 27 during her appearance before the Senate subcommittee on federal financial management, government information, federal services and international security. "And then we would have lost all of the good data that Lockheed Martin has provided us."

Determining the path ahead for C-5 modernization sooner rather than later is crucial for the Air Force since the C-17 production line is nearing its end and will shutter soon in the absence of new orders beyond the 190 units that the Air Force already has on the books. Waiting too long to commit could mean that the line shuts down beforehand and the costs of restarting it would prohibitive - an undesirable option.

"I am hopeful, as you are, that we get the outcome that we all desire [with the C-5]," Air Force Gen. Norton Schwartz, commander of U.S. Transportation Command, told the same Senate oversight panel on Sept. 27. "The question is: What do we do with C-17 production? My concern is that that bit of insurance might expire if we don't move on that issue properly."

"The time is now," added Gen. Arthur Lichte, the new commander of Air Mobility Command, when asked by reporters at the AFA show on Sept. 26 about the timelines for formulating the path ahead for the RERP.

"We need to find out. We need to get on with it because there is a lot of impact with the C-17 production line...

"The concept of putting new engines on a C-5 and getting reliability up on that great weapon system is fantastic and I hope it works," he continued. "But at some point we are all taxpayers and I have got to do the right thing for the United States...I can't do that at just any cost. At some point it is going to cost just as much as a brand new airplane."

Already Boeing is assuming hundreds of millions of dollars in risk in keeping the C-17 supplier base running for 10 additional C-17s in the absence of new U.S. orders within the aircraft's 34-month build time, Dave Bowman, the company's vice president and general manager for Global Mobility Systems, told reporters on Sept. 25 at the AFA show.

"We could have decided to shut down already," Bowman said. "We have not."

The company did temporarily halt the line earlier this year, but restarted it after news came to light of the 30-30 plan and the support in the House for funding the acquisition of 10 additional C-17s beyond 190 as part of the ongoing FY '08 budget deliberations.

The company's next decision point for stopping the line will be in January, Bowman said. The last Air Force C-17A currently on order will roll off the line in August 2009, he said.

Earlier this year, Boeing gave the Air Force an unsolicited multiyear offer for 30 C-17s over three years, Bowman said. Although the production rate would be 12 per year under Boeing's proposal, the company priced the aircraft at a lower rate as if the production pace for them was at a more efficient 15 per year, he said.

As for RERP, Lockheed Martin believes that it will be able to provide the Air Force with sufficient performance data by the mid-2008 for the service to make sound decisions on the future of the program. Developmental testing of the three C-5Ms is expected to be complete in August 2008, McQuien said.

"The three aircraft are meeting performance expectations," he noted.

The company's analysis indicates that a C-5M will provide a 30 percent or more improvement in mission capability, he said.

As an example of the continued value of the C-5 fleet, Galaxy aircraft flew 25 percent of the airlift missions during the buildup to Operation Iraqi Freedom, yet delivered 50 percent of the cargo, according to data that Lockheed Martin provided. Further, the C-5 can haul seven Mine Resistant Ambush Protected (MRAP) Class 1 vehicles, or five Class 2 vehicles, or four Class 3 vehicles versus the C-17's capacity to carry four, three and two, respectively, Lockheed Martin says.

Lichte said the reliability of the C-5 is the defining issue.

"There are not that many more missions that a C-17 can't do that the C-5 can," he said on Sept. 26. "And what you get from the C-17, even though it doesn't carry as much cargo- -it is about half the pallets of what a C-5 carries--you get velocity. And in this business, it is all about velocity. And if I can get two C-17s very reliably to this place and one C-5 breaks two or three times on the way, well, I have got all of the cargo on the two C-17s and I have accomplished the mission."

The pace of modernization is also essential, Lichte said during a panel discussion at the AFA show on Sept. 25, noting his initial observations when he assumed his new command post earlier this month.

"The disappointing part for me, quite frankly, is that we are not modernizing as quickly as I would have liked," he said. "We are not getting things quickly enough for the outyears that we need to really have right away. For example, the C-5 RERP program has been much slower that I would have expected."





More Stories You Might Like