The KC-46 is one of the biggest programs in the Defense Department, and one of the very few that leadership has openly said they’re protecting from financial hardship at the expense of other programs. And while the KC-46 program itself is trucking along just fine so far, there’s a distinct possibility that next year’s budget battle could derail the program’s promising start.
The program so far looks to be “pretty well run,” said Richard Aboulafia, vice president of analysis at the Teal Group. After all, it’s based on the well-established Boeing 767 aircraft, he noted, so a lot of the design challenges that plague other programs aren’t as difficult to overcome. For the very first time this year, the Pentagon will ask for money to start buying the aircraft, beginning with seven before ramping up to 12 next year and up to 18 in fiscal 2017.
But despite the protection of the Air Force, there are some looming concerns with the program. Already there are reports that sequestration could force the service to reopen the contract, which would ramp up costs in an already very expensive program. “It’s not really clear how the budget situation can affect it,” Aboulafia said.
For this year, the program is likely safe. Bryan Clark, a senior fellow at the Center for Strategic and Budgetary Assessments, said that sequestration won’t happen in fiscal 2015 if the budget comes within the revised spending caps, and Congress has agreed to make sure that happens.
But next year is a different story. If the White House sends over a budget that is in excess of budget caps — which the Pentagon appears likely to do at this point — then Congress is faced with three options: 1) approve the budget as-is and let sequestration take effect — which would cost the KC-46 eight to nine percent of its budget line — 2) change the budget caps, or 3) trim the budget until it is under those budget caps, Clark said. Any of those scenarios will result in a budget battle that will be about much more than the KC-46, and thus the program could be collateral damage as the legislative and executive branches attempt to set the agenda on the nation’s budget.
But all is not lost for the program — even if worse comes to worse and the KC-46 must trim its costs. Clark said it’s possible for the program to go back and identify short-term savings to avoid reopening the contract, such as by choosing to forgo buying equipment to outfit the aircraft or delay post-delivery actions until a later date. “If they’re smart, they’ll position themselves so in FY-16, they’ll be able to identify money that comes out if they are sequestered,” he said.
He pointed out that during the last round of sequestration, programs were able to go into their program lines and take some things out, deferring them to later years. “That’s usually not a big deal, because there’s usually time to deliver and install it,” Clark said.
Ultimately, he thinks renegotiating the contract is unlikely in a sequestration scenario in 2016, but if much lower budget caps stick around long term, all bets are off. And there are other things to be concerned about, most notably whether Congress disagrees so strongly with the Air Force’s decision to cut the A-10 and U-2 programs — which means the service may have to look to the KC-46 program for money to pay for that.
So while the Air Force’s tanker program remains a top priority, that may not be enough to guarantee the safety of a platform in this day and age. As large as the program is, there are even larger forces at play in the next budget cycle that will determine its fate in the long run.