In response to the ruling, Boeing released the following statement from Mark McGraw, vice president, Tanker Programs:

“We welcome and support today’s ruling by the GAO fully sustaining the grounds of our protest.

“We appreciate the professionalism and diligence the GAO showed in its review of the KC-X acquisition process. We look forward to working with the Air Force on next steps in this critical procurement for our warfighters.”

Hundreds of pages of redacted documents related to Boeing’s protest were released this week and revelations about the strength of the company’s case have come to life. Excerpts from the redacted response, or comments, by Boeing on the Air Force’s Agency Report, which was filed in response to Boeing as part of the protest process, reveal the Air Force acknowledged that Boeing’s KC-767 has the lowest Most Probable Life Cycle Cost (MLPCC).

A revelation that Boeing says, contradicts initial statements that the Northrop/EADS aircraft “offered great advantage to the Government in cost price.”

Because the Boeing KC-767AT was in fact the lower-cost offering, the Source Selection Authority, should have conducted a tradeoff analysis of Northrop’s discriminators to ensure they were worth the additional costs. Because of the miscalculation of Northrop’s MPLCC, no such evaluation has been conducted.

Other issues raised in the documents include the fact that by excessively exceeding the fuel offload and airlift objective requirements should not be the basis for awarding the Airbus based tanker a “compelling discriminator.”

In addition it appears as though the inherent and significant risks associated with moving final assembly from Europe to Alabama and changing modification approaches during low-rate initial production weren’t appropriately assessed.

It is now three months since the Air Force shocked the world by awarding the contract for its next-generation aerial-refueling tanker to Northrop Grumman and the European parent of Airbus. Throughout that time, service officials have insisted that the process by which the winner was chosen was transparent and fair. But the service has failed to answer even the most basic questions about how the decision was made to deny the contract to Boeing, the widely favored incumbent. The Government Accountability Office is expected to issue a ruling on Boeing’s protest of the outcome in mid-June. Whatever it finds, the Air Force has some explaining to do… 1. The Air Force says it would cost roughly the same amount to develop, manufacture and operate 179 next-generation tankers, regardless of whether they are based on the Boeing 767 or the Airbus A330. But the Airbus plane is 27% heavier than the Boeing plane, and burns over a ton more fuel per flight hour. With fuel prices headed for the upper stratosphere, how can both planes cost the same amount to build and operate over their lifetimes? 2. The Air Force says it would be equally risky to develop the Boeing tanker or the Airbus tanker — after forcing Boeing to substantially increase the time and money required to develop its version. But Boeing proposed to build its tanker on the same assembly line where it has already constructed hundreds of the same airframe, whereas Airbus proposes to build its tanker at a plant and with a workforce that don’t yet exist in Alabama. How can the risks be equal? 3. The Air Force says that a computerized simulation of how the competing tankers would function in an actual wartime scenario strongly favored the larger Airbus plane. But the simulation assumed longer runways, stronger asphalt and more parking space than actually exists at forward bases, and failed to consider the consequences of losing bases in wartime. How can such unrealistic assumptions be relevant to the selection of a next-generation tanker? 4. The Air Force says the Northrop-Airbus team received higher ratings on past performance than the Boeing team, based on a review of programs deemed similar to the future tanker. But Boeing built all 600 of the tankers in the current Air Force fleet, whereas Northrop and Airbus have never delivered a single tanker equipped with the refueling boom the Air Force requires. How can Northrop and Airbus have superior past performance? I could go on. The Air Force refused to consider Boeing cost data based on 10,000,000 hours of operating the commercial version of the 767, substituting instead repair costs based on the 50-year-old KC-135 tanker. It said it would not award extra points for exceeding key performance objectives, and then proceeded to award extra points. It said it wanted to acquire a “medium” tanker to replace its cold war refueling planes, and ended up picking a plane twice as big. Whatever else this process may have been, it definitely was not transparent. Even now, neither of the competing teams really understands why the competition turned out the way it did. It would be nice to hear from the Air Force about how key tradeoffs were made, because at present it looks like a double standard prevailed in the evaluation of the planes offered by the two teams.

So we must ask the question: How could the Pentagon have chosen the Airbus KC-30, a larger, costlier, higher-risk tanker that falls far short of the requirements for fueling irregular, asymmetric conflicts of the future? The people Secretary Gates called “America’s key asymmetric advantage” — our men and women in the military — deserve the most capable and affordable answer: the KC-767 Advanced Tanker.

At least we’ve noticed statements in the press the past few weeks (attributed to Northrop Grumman) that the government “loans” provided to Airbus for A330 development have been repaid, with interest.

The impression that Northrop is attempting to give of the subsidy dispute – that the dispute is much ado about nothing – is highly misleading and, frankly, a slap at the U.S. Trade Representative (USTR) which has worked tirelessly to end an illegal, market-distorting trade practice and level the international playing field for American companies and their workers. Northrop’s reported statements also are a surprise to us, given that Northrop supported the U.S. case against European launch aid for Airbus when it chaired the Board of Governors of the Aerospace Industries Association in 2006.

Here are some facts about European launch aid from Ted Austell, Boeing vice president for trade policy.

“The complaint that the USTR has brought against European launch aid makes a very compelling case that this assistance, no matter what it’s called, violates the WTO Agreement on Subsidies. These so-called loans carry terms that no business would likely obtain from commercial lenders. That’s why Airbus has gotten a significant amount of the financing for each of its product launches from government sources rather than commercial lenders.

“Those government loans carry below-market interest rates, and because of the extent of European government involvement in these product launches, Airbus is able to secure more favorable credit ratings and therefore less expensive loans from private lenders for the balance of its funding needs.

“Perhaps most important of all, the terms of the government loans do not require Airbus to repay the billions of government dollars it has received in accordance with a fixed schedule like you or I would have with a bank if we took out a mortgage on a house. Airbus repays the money only as it achieves certain sales and delivery targets that the company itself defines. That gives Airbus tremendous financial flexibility and a very big competitive advantage when it comes to pricing its products. It also gives Airbus a huge security net since it does not need to fully repay the loans if a product proves unsuccessful in the marketplace. In fact, USTR has presented evidence to the WTO that some loans for the A330 have been forgiven outright.

“The bottom line is that these are non-commercial loans, and as such are a subsidy in the view of USTR and Boeing. We both believe that the WTO panel handling the U.S. complaint will reach the same conclusion when it issues its ruling later this year – a ruling that members of Congress will be watching closely.”

For a summary of the U.S. case against the billions of dollars of illegal subsidies provided to Airbus for all of its products – the A330 included – click on the link below. It will take you to the official USTR web site.

http://www.ustr.gov/assets/DocumentLibrary/FactSheets/2005/assetuploadfile486_7766.pdf

Despite the fact that the stated parameters for evaluating the aircraft said no extra credit would be assigned for exceeding certain requirement objectives, the Northrop Grumman and European Aeronautic Defence and Space Company (EADS) team received such credit. As a result, the oversized Airbus A330-based KC-30 was selected. Boeing has protested the decision to the U.S. Government Accountability Office.

According to the Statement of Objectives for the KC-X program, the primary mission of the new tanker would be aerial refueling rather than hauling cargo or transporting passengers. In order to meet the documented mission requirements, Boeing offered the KC-767, which efficiently fulfills the vital mission of a mid-sized aerial refueling fleet while also exceeding the highest requirements for airlift, passenger and aeromedical evacuation capabilities.

“Tanker flight crews are asked to bring the right amount of fuel to the fight in the most efficient, reliable manner, and the KC-767 meets that fundamental requirement,” said Mark McGraw, vice president, Boeing Tanker Programs. “Asking these aircrews to fly longer missions in larger, less survivable planes with more fuel capacity than needed and vast amounts of unused cargo and passenger space just doesn’t add up.

“The Boeing KC-767 exceeded the requirements in a manner that still kept the plane right-sized and efficient,” McGraw said. “Our competition likes to talk about offering more, more, more — but in reality, the KC-30 will cost more to operate, more to maintain, and more to house, with the U.S. taxpayer footing the bill.”

A larger plane — like the KC-30 tanker offered by Northrop Grumman and EADS — simply results in wasted capacity, wasted efficiency and wasted taxpayer dollars.

Fuel Capacity — The historical average offload on a tanker mission is 60,000 to 70,000 pounds of fuel. The Air Force fuel offload requirement was set at 94,000 pounds of fuel at 1,000 nautical miles, comfortably above the historical average. The KC-767 exceeded the 94,000-pound requirement by 20 percent while remaining within the optimum size for medium tanker operations. The KC-30 fuel capacity exceeded that requirement by 50 percent — meaning more than half of its fuel load would be unused during an average mission. The result: a large tanker that burns more fuel and requires significantly higher costs in maintenance and support. Cargo/Passenger Capacity — In 2006, the Air Force moved less than 1 percent of its cargo and passengers in tankers. The KC-767 does offer significantly more cargo and passenger capacity than the KC-135, but not at the expense of airplane size or efficiency. Again, the KC-30 carries more passengers and slightly more cargo based on weight, but with a bigger, less survivable and more costly plane. Aeromedical Evacuation — The Air Force Request for Proposals set an objective requirement of being able to carry 24 litters and 26 ambulatory patients. The KC-767 carries 30 litters and 67 ambulatory patients, far exceeding the highest requirement. The Air Force praised the KC-767’s superior aeromedical crew stations, its ability to generate oxygen onboard, and the power provided for aeromedical crew systems. The KC-30 again offered more quantity with less quality and less survivability.

But do the facts fully support these claims?

First of all, Northrop Grumman has NEVER built or tested an aerial refueling boom. All of the KC-30 refueling boom technology resides in Spain, inside the offices of European, Aeronautic, Defense and Space Company.

What’s more, EADS overstates its experience and its achievements in the world of military refueling booms.

Fact No. 1: Contrary to the impression NG/EADS has attempted to create, EADS has never passed fuel through a boom attached to its A330 aircraft –the platform upon which the KC-30 would be built – while in flight. EADS has been flying a boom on an A310 demonstrator that company engineers were hoping to have fully qualified by the end of 2006. That didn’t happen. The first dry contact with an F-16 was made in late 2007 and it finally passed fuel to an F-16 in late February 2008. What’s more, questions persist about how the boom actually performed in flight as only still photography had been released from the flight, until 43 seconds of edited video were released by Northrop two months after the test flight.

Fact No. 2: The first A330 tanker for the Australian Air Force has been flying with its boom stowed. It has yet to deploy the boom in flight. And the only time fuel has been passed through the boom was when sitting on the ground.

Fact No. 3: The tanker competition assessment of the EADS boom expressed concerns that it may never work. In fact, it identified three “weaknesses” with the approach. In contrast, Boeing has successfully built, tested and delivered 5 generations of refueling booms. Its 6th generation boom, the baseline in its Air Force tanker bid, is an incrementally improved derivative of the 5th generation boom flying today on the KC-767J tankers that were delivered to Japan earlier this year. Boeing successfully tested the 5th generation boom first with a B-52 and then moved onto day- and night-time operations with fighter aircraft.

Fact No. 4: Clearing a boom requires extensive flight testing at different refueling aircraft weights, airspeeds, altitudes and lighting conditions such as daytime and nighttime. What’s more, one of the most challenging parts is fielding a boom that can safely maneuver quickly when needed in situations like an emergency breakaway and also be able to be precisely controlled to be guided into the receptacle. This challenge gets harder as the boom gets bigger. With thousands of tankers built and generations of boom-building experience, Boeing has proven repeatedly it knows how to get this job done.

In response to these facts, Northrop Grumman likes to reference the Aerial Refueling Efficiency (AFE) metric, which is a very different metric. The AFE metric was an attempt by the government to compare different sized tankers and was calculated as:

AFE = (Fuel Off-Loaded) ÷ (Fuel Off-Loaded + Fuel Burned)

Fuel off-load in the above is the actual amount of fuel transferred to aircraft in flight, what are called “receivers”. The key to the formula though is what is the assumed fuel off-load? Decades of tanker operations show that a typical off-load is in the 60,000 – 70,000 lb range. Using this as the assumed off-load; the KC-767 has a higher efficiency metric. One could also use the off-load requirements as defined by the government in their requirements for this competition as this also reflects reality of actual operations. At any point on the range/off-load curve defined by the government, and even above it, the KC-767 has a higher efficiency metric. Finally, if one looks at the actual results of the real life refueling scenarios that were part of the Integrated Fleet Aerial Refueling Assessment, the typical off-load from either the KC-767 or KC-30 were in line with history, and the requirements, and again the KC-767 has the higher AFE metric. The KC-30 only generates the higher efficiency metric when it flies to a range and off-loads a full load with just enough fuel to get back to base, an extremely rare event.

An analogy would be that Northrop would argue a Chevy Suburban carrying 8 people is more fuel efficient than a Chevy Malibu carrying 2 – 3 people as the fuel burn per person might actually be less. But we all know that the Suburban is burning more fuel than the Malibu as they drive side by side down the road. With 1 or 2 people in the Suburban, the most likely scenario 98% of the time, the “right-sized” Malibu is more efficient.

The super-sized capacity of the KC-30 is not capability, it is just waste.

Mark McGraw

Members of the media are starting to take note. In a straightforward account, Reuters reporter Andrea Shalal-Esa recently fleshed out the whopping differences between the two competing proposals. As Shalal-Esa observed: “The Air Force’s evaluation and adjustments to the two bids…are at the heart of Boeing’s contract protest filed March 11 with the nonpartisan Government Accountability Office.’’ The GAO is set to rule by June 19.

In protest documents we have filed with the GAO, we have said the government unfairly increased the cost of our 767-based tanker. The government cited higher risk associated with the development and production of our tanker, as well as a disagreement about anticipated repair costs, which all led to evaluators unfairly assigning us a much higher cost than we could ever have imagined.

The same evaluators, on the other hand actually lowered Northrop-Airbus estimated operation and support costs by $1.4 billion. They lowered the operational costs of an airplane that is larger than our 767, burns 24% more fuel, requires more support and parking space and proposes a high-risk, itinerant and intercontinental production plan. In total: the Northrop-Airbus tanker life-cycle costs will cost the U.S. government $49 billion more than our more efficient tanker over 40 years. Go figure.

We believe, as we have testified in our protest, that the evaluation clearly favored Northrop and was “plagued by unreasonable cost assessments, disparate treatment, misleading discussions, and a fundamental failure to follow the evaluation criteria.”

According to Shalal-Esa, among costs added to the Northrop bid included $333 million to beef up defensive equipment and the projected life cycle cost of Northrop’s proposal to $108.01 billion. That figure includes $68.3 billion to operate and support the new flying fuel stations over the next few decades. But it keeps the “most probable life-cycle cost” for Northrop’s bid ever so slightly below our $108.04 billion bid.

As we continue to insist: It doesn’t add up. Even key defense experts are beginning to question the math, and the logic. The Reuters article quotes Loren Thompson, a defense analyst at the Lexington Institute, saying our protest made clear the process was not as transparent as the Air Force had hoped.

Observed Thompson: “It appears that the Air Force’s pricing methodology was stacked fairly heavily against Boeing’s bid.’’

Now that we’re protesting the tanker contract award, though, some people are questioning our right to speak out. They said we had our chance during the proposal process and that our behavior now is just “sour grapes.” So why are we still talking about it? Because we disagree with that opinion. We actually believe it’s not only our right but our responsibility to ensure we get answers to our significant concerns. We plan to keep communicating until we feel our concerns have been addressed.

So how have we been communicating our position in the month since we filed the protest? I’ve met with some editorial boards – the Seattle Times and Seattle Post-Intelligencer, the two daily papers in Seattle – and plan to do more. My counterpart in Integrated Defense Systems, Mark McGraw, also met with several editorial boards. He also has done numerous radio, TV, and print interviews. We’ve communicated through many blog entries, both to external audiences and internally with our employees.

The intent behind these public communications is to provide all stakeholders with an opportunity to understand the facts and to understand the importance of getting the acquisition process right, not only for this competition but also for future competitions. Our service men and women, the citizens of the United States, our employees and our partners expect us to have high expectations of the procurement process and to be able to trust in that process. It is our right and our responsibility.

Beverly Wyse

Press Release