Despite signals from the Defense Department that some changes will be made to a draft request for proposals (RFP) for a new Air Force aerial refueling tanker, industry executives in talks with the Pentagon over the matter expect no alteration to the fixed-price strategy outlined in the draft.
“I believe fixed-price development will stay in the final RFP,” Dennis Muilenburg, president and chief executive officer of Boeing’s defense business, told the National Aeronautic Association Monday.
He said Boeing executives told Air Force officials recently that clear requirements and mature technologies are prerequisites to a successful fixed-price acquisition.
“We have a common understanding with the customer now that, for this to succeed, we need to ensure mature technologies and that we have a crystal clear understanding of the requirements up front,” Muilenburg said. “The current acquisition approach can be successful if we stick to that kind of approach to doing business.”
Representatives from the rival industry team, EADS North America and Northrop Grumman [NOC], won a contract to build 179 tankers for the Air Force in February 2008. That contract was canceled when U.S. auditors upheld a Boeing protest tied to Air Force missteps in evaluating the bids. The Northrop Grumman-EADS team has threatened to walk away from the bidding if the final RFP is not altered substantially to make a Northrop Grumman-EADS bid viable from a business standpoint.
Muilenburg also said that difficulties with Europe’s A400 cargo plane, built by EADS parent Airbus, could bolster sales for Boeing’s C-17 aircraft.
“As the A400M tends to slip out that does represent some opportunities I believe internationally for the C-17, so that’s a significant factor for us,” he said.
Belgium, France, Germany, Luxembourg, Spain, Turkey and the United Kingdom are purchasing the A400M. Those countries have called a meeting in London this week to discuss Airbus demands for $7.6 billion in additional funding for the effort.
A United Arab Emirates order for six C-17s was announced to Congress earlier this month, and Muilenburg said India last week submitted a letter of requirement for 10 aircraft.
Congress last year extended the C-17 production line, despite Pentagon attempts to close it. President Barack Obama signed the $636.3 billion defense appropriations bill for fiscal year 2010 into law last month, providing $2.5 billion for 10 new aircraft not requested by the Pentagon. The program’s political supporters have questioned Defense Secretary Robert Gates’ assertion that the U.S. military has excess strategic airlift capacity.
Muilenburg said Boeing is upgrading its production lines to keep the price of the C-17 stable.
“From a productivity standpoint, we’re spending a lot of time investing in the technology that’s required for a flexible line so that, depending on what the production rate might be, we have the ability to hold unit costs,” he said.
Finally, Muilenburg noted that Boeing’s recent reorganization and renaming of its Defense, Space and Security unit is an effort at repositioning the company at a time of “flattening” defense budgets. He said that, in addition to its work with the Pentagon, Boeing would like to enter new sectors like homeland security, cyber security and defense of critical infrastructure like the energy grid.
“The name is important because it conveys where we are heading and what we are about,” he added.