By Marina Malenic
A top Boeing [BA] official said yesterday that the company will provide the Defense Department thorough pricing data should it be chosen to provide the Air Force with a replacement fleet for its aging KC-135 tanker aircraft.
“We have told the Air Force and the Department of Defense that they’ll get full insight into our cost and pricing information, and they will,” said Jim Albaugh, the CEO of Boeing’s commercial aviation division. “We’re going to be fully transparent on everything.”
Congressional supporters of industry rival Northrop Grumman [NOC] have warned that, since that company’s decision to drop out of the contest, the Pentagon is left with no leverage over price inflation by Boeing.
Northrop Grumman announced last week that it would not bid for the work, alleging that the Air Force’s request for proposals outlined last month favors Boeing’s smaller tanker. Northrop Grumman’s industry partner, Airbus parent company EADS North America, has remained quiet about its intentions.
Albaugh said that Boeing is still operating under the assumption that there will be a competition for the work, which Pentagon officials have said could be worth up to $50 billion over the life of the program.
“Our assumption is, it’s going to be competitive,” Albaugh said. “In the event that it’s not, they’re going to go through all the cost and pricing information in excruciating detail. And we’re going to make sure they have full access and that we’re totally transparent on that.”
Boeing has said that it will offer the Air Force a wide-body version of a 767-based refueling aircraft in a proposal it plans to submit on May 10. The company said earlier this month that it plans to modernize its 767 commercial aircraft with a new digital flight deck from its 787 Dreamliner, as well as a new fly-by-wire refueling boom (Defense Daily, March 5).
Northrop Grumman-EADS won a contract to build 179 tankers based on the Airbus A330 for the Air Force in February 2008. The contract was canceled when U.S. auditors upheld a Boeing protest tied to Air Force missteps in evaluating bids.
Northrop Grumman CEO Wes Bush, in a March 8 letter to Pentagon officials outlining his company’s reasons for dropping out of the bidding, warned the government not to overpay for a new tanker. Bush noted that the Air Force had planned to pay a unit flyaway cost of approximately $184 million per tanker for the first 68 A330-based aircraft proposed by Northrop Grumman-EADS–a number that included the non-recurring development costs.
“With the Department’s decision to procure a much smaller, less capable design, the taxpayer should certainly expect the bill to be much less,” he wrote.
Albaugh yesterday told reporters that Boeing continues to work on driving down the cost of the 767 commercial aircraft on which its tanker would be based. He said the major cost-cutting effort comes from completing all structural modifications to the aircraft on the main production line in Everett, Wash., before shipping it to Wichita, Kan., for integration of mission systems.
“The original way that we’ve done derivative aircraft in the past has been to fly it to Wichita, cut it up, and put it back together again,” he said. “This is now a much more efficient way to build the airplane, and it will drive the cost down.”
Asked how far the company aims to drive that cost, Albaugh would not specify. But he said that a final price would not be far removed from its 2008 bid.
“The expectation, certainly of the Air Force, is that it will be a number reasonably close to the prior one, with escalation,” he said. “And we’re trying to drive to a number that will win.”
Albaugh added that KC-X “will be a program that can generate about $3 billion a year in round numbers for the Boeing Company.”