Tag Archives: USAF

KC-46 EMD contract (update March 2015)

About two years ago I wrote a post, KC-46 EMD contract 101, in which I reviewed the nature, implications and status of the Fixed Price plus Incentive Firm (FPIF) that the US Air Force had signed with Boeing for the tanker K-46 Engineering Manufacturing and Development (EMD) contract.

I have been wanting to write an update of that post with how the situation has evolved for some months. The recent article in Bloomberg, Boeing KC-46 Tanker Suppliers Behind on Deliveries, GAO Finds, has finally triggered this review.

A recap of the main points from the Bloomberg article:

[…] The boom for the first KC-46 has been “delayed by eight months due to design changes and late parts deliveries,” […]

The delays have resulted in a slip of at least three months in the initial flight of the first fully equipped development aircraft. […]

[…] GAO said “another supplier has experienced significant delays in manufacturing” aerial refueling wing pods […]

[…] the Air Force projected in a revised estimate this year that Boeing will have to absorb $1.5 billion for exceeding a $4.8 billion ceiling to develop the first four planes.

Bloomberg cites GAO as a source. GAO stands for US Government Accountability Office. Every year, in March, the GAO releases its “Assessments of Selected Weapon Programs” where it reviews the Department of Defense (DoD) main programs. Find here [PDF, 10.4MB] the 2015 report released on March 12. It contains just 2 pages about the “KC-46 Tanker Modernization Program (KC-46A)”. What does it say? Main take aways:

[…] After the critical design review, the program had wiring design changes that led to several delays, including at least a three month delay to KC-46 first flight. The program does not plan to demonstrate a full system-level prototype until April 2015, 21 months after its critical design review. […] 

[…] key suppliers have continued to experience difficulties with the design and manufacture of aerial refueling systems, such as refueling booms and wing aerial refueling pods. The boom that was to be installed on the first KC-46 has been delayed by eight months due to design changes and late parts deliveries. Another supplier has experienced significant delays in manufacturing wing aerial refueling pods for qualification testing and development aircraft due, in part, to challenges with parts delays and engineering design changes. As a result of these delays, first flight of an aircraft that integrates military sub-systems has slipped at least three months to April 2015, 21 months after critical design review. […]

[…] Boeing is encountering more than twice the number of software problems than originally estimated that prevent or adversely affect the accomplishment of an essential operational or test capability.

[…] the program office noted that it has mitigated financial risk with the competitive fixed-price incentive development contract with firm-fixed and not-to-exceed pricing for the production of the aircraft. More than 57 percent of the development work has been completed. Boeing has met or exceeded all contractual requirements. […]

The program performance review that the GAO makes is seen from the Air Force point of view, which, as indicated above, since the contract is a FPIF, the USAF feels protected and thus it does not show any sign of the 1.5bn$ over cost that Bloomberg mentions that Boeing will have to bear:

Program Performance (fiscal year 2015 dollars in millions)

Bloomberg quotes a 1.5bn$ estimated over cost based on Air Force data.

The GAO published in March 2012 [PDF, 1.1MB], February 2013 [PDF, 1.2MB] and April 2014 [PDF, 1MB] three reports reviewing the KC-46 tanker program. Interestingly enough the reports from 2012 and 2013 included such estimates of the over cost using Air Force data, the 2014 report did not. See 2012 and 2013 estimates below:

KC-46 EMD Estimates 2012.

KC-46 EMD Contract & Estimates (March 2012).

KC-46 EMD Contract & Estimates.

KC-46 EMD Contract & Estimates (February 2013).

Why did the GAO not include such estimate in 2014 report? Wasn’t the information available? The release of such estimates in 2012 and 2013 did not sit well in some spheres?

Today is March 21st 2015. I guess we shall see soon the annual report from the GAO with the specific view on the KC-46 program. I wonder whether such cost estimate will be included this time (hopefully yes). In any case, I guess the information from the Air Force estimate has been duly leaked.

The contract was awarded on February 24th 2011; about a year later USAF was already estimating that Boeing suffered already over 750m$ over costs from target price, 260m$ over ceiling price. For the Air Force the picture was bleaker. One year later the figures had increased again. Luckily for USAF the FPIF contract has a point of total assumption on the side of the contractor (Boeing), as I indicated in the post from 2013:

KC-46 EMD FPIF Contract.

KC-46 EMD FPIF Contract (March 2013).

Let’s see where we would be now in the previous curve taking the information from Bloomberg as good (“[…] the Air Force projected in a revised estimate this year that Boeing will have to absorb $1.5 billion for exceeding a $4.8 billion ceiling to develop the first four planes.”):

KC-46 EMD FPIF Contract - 2015

KC-46 EMD FPIF Contract (March 2015 update, based on Bloomberg)

As I mentioned in the blog post from 2 years ago: this is the typical FPIF contract curve, which is the only thing which is missing in ALL the news, budgeting materials, GAO reports, etc., that I have read and is the most illustrative graphic to understand what is going to happen if the cost overruns keep piling and who is going to bear which amount of the cost from which point.

Bloomberg and the US Air Force estimate that those 1.5bn$ over the ceiling price are going to be born by Boeing as the FPIF contract stipulates. However, I wanted to call here the attention to the FY2016 budget request from the USAF (DoD) [here, PDF, 8.5MB], see below:

See "Total Cost" and "Remark" (source: Exhibit R-3, RDT&E Project Cost Analysis: PB 2016 Air Force).

See “Total Cost” and “Remark” (source: Exhibit R-3, RDT&E Project Cost Analysis: PB 2016 Air Force).

As you can see the USAF budget request for the KC-46 program includes the remark:

The contract ceiling price of $4.9B is the government’s maximum financial liability on the prime contract. The “Total Cost” value represents the Milestone B Service Cost Position (SCP), which accounts for the ceiling price of the contract plus the financial risk of potential design changes for the KC-46 Aircraft

I would not discard that through the justification of “design changes” the American tax payer will have to bear part of those estimated 1.5bn$ over the ceiling price. We will see.

Finally, I think it interesing to see the planning included in the budget request from USAF (below), as it indicates a Tanker First Flight in the 3rd quarter of 2015 (not April 2015 as quoted by Bloomberg (“initial flight of the first fully equipped development aircraft”)).

USAF FY2016 budget request - KC-46 Planning.

USAF FY2016 budget request – KC-46 Planning.

You can compare it with the planning presented in February 2012 with FY2013 budget resquest:

USAF FY2013 budget request - KC-46 Planning.

USAF FY2013 budget request – KC-46 Planning.

The GAO talks about a “first flight of an aircraft that integrates military sub-systems has slipped at least three months to April 2015”, but in my view that doesn’t mean a “first fully equipped development aircraft”. In 2012 the planning had a tanker first flight at the beginning of Q2 2015 which in the 2015 plan it is shown in Q3 2015, thus the 3-month delay mentioned by the GAO.

I am indeed looking forward to the KC-46-specific report from the GAO that may be about to be published (1).

(1) I may then have to write another post with a new update.

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Augustine’s Laws and the future long-range bomber

The US Air Force is moving ahead with its plan to develop a new long-range bomber aircraft to be operational by the mid of next decade. The program is not yet launched, but within this year it is expected that we will see the launch of a request for proposals (RFP).

I read about the latest moves about this program-to-be in an article from DefenseNews, “USAF To Shed Light on ‘Mystery’ Plane“. Apart from different declarations from officials and industry, the article provided some main general clues:

The Air Force intends to begin fielding the bomber in the mid 2020s, with penetrating capability in mind. The service will procure 80 to 100 planes, which will mostly be made with existing technologies. Those machines will also have both standoff and direct-attack munitions and room for a large payload.

The service also is exploring the idea of the aircraft being optionally manned.

Service officials have cited a cost of $550 million per plane as the ceiling for the program, but even that figure has some mystery to it. Observers have noted that the figure does not include research and development (R&D) costs, which could drive that amount up.

My first reaction on that figure of $550 million per aircraft was:

For those not acquainted with him, Norman Augustine served in many positions both in the Administration (Under Secretary of the Army) and in the Aerospace & Defense industry (CEO of Lockheed Martin). Lately he lead the Committee that was reviewing the US Human Space Flight Plans. He wrote a fantastic book, “Augustine’s Laws”, about the aerospace and defense industry, the problems that plague their programs, etc. I reviewed that book in this post.

However, after writing that tweet I decided to check it myself…

See below the original graphic from the book depicting the trend of increasing costs of bomber aircraft:

Trend of Increasing Cost of Bomber Aircraft (source: Augustine's Laws).

Trend of Increasing Cost of Bomber Aircraft (source: Augustine’s Laws).

I extrapolated the trend with the information provided in the article, that is, a $550 million unit cost with an entry into service by the mid 2020s, see below where that spot is in the enlarged graphic:

Updated Trend of Increasing Cost of Bomber Aircraft (source: Augustine's Laws + future long-range bomber information).

Updated Trend of Increasing Cost of Bomber Aircraft (source: Augustine’s Laws + future long-range bomber information).

You will see that I marked 2 different spots in red and blue. The blue one corresponds to the unit cost ceiling of 550M$ reported in the article. You will see that the spot is way off the 70-year old trend (from the end 1920s-1990s). Therefore, I decided to continue the trend line and see at what unit cost would a bomber aircraft with entry into service in the mid 2020s still follow the trend, and I marked that unit cost in red. The result is that the future bomber would have to cost about $500 billion apiece, or a cost roughly equal to the entire Department of Defense yearly budget.

That may seem impossible today, completely off reality. How could that happen? Start by imagining that the budget which will be earmarked for 80-100 airplanes along several years, in the end serves to procure many less units (40?, 10?… 1?). Then, add to that the information appearing in the article accompanying the 550M$ figure, “the figure does not include research and development (R&D) costs, which could drive that amount up”. Put all that together and we might end up seeing, 10 years from now, that Augustine’s was right on the spot.

In fact, the assertion that one single airplane would cost the US Air Force the entire DoD yearly budget was exactly predicted by Augustine in his Law number IX, though he applied it for tactical fighter aircraft, and the date in that case would be a bit later, 2054:

In the year 2054, the entire defense budget will purchase just one tactical aircraft. This aircraft will have to be shared by the Air Force and Navy 3 1/2 days each per week except for leap year, when it will be made available to the Marines for the extra day. (LAW NUMBER IX)

Update (2014-03-08): See in the article from Bloomberg, “Long-Range Bomber’s Development Would Get $12 Billion“, a declaration from Lt. General Charles Davis: “Is it going to be $550 million a copy? No, of course it’s not going to be $550 million a copy once you add in everything.“. The article includes further figures providing a new estimate of 810M$ apiece… The closing of the gap between 550M$ and ~ 500bn$ has started.

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Spraylat

Some of you may have wondered why all aircraft windows and so many other parts in the pictures I showed in previous blog posts about The Boneyard are covered with white paint?

C-130 Hercules covered with spraylat (note that it is fitted with skis for Artic and Antartic operations).

C-130 Hercules covered with spraylat (note that it is fitted with skis for Arctic and Antarctic operations).

To protect heat-sensitive parts from the desert high temperatures these parts are covered with two different coatings: the first layer being a dark paint while the second layer is the characteristic white one, reflecting sunlight and heat. The paint is a vinyl plastic called spraylat after the company that produces it, Spraylat Corporation.

You may check the detail of Aerospace Maintenance and Regeneration Group (AMARG) storage processes in the following two links from the Wikipedia and “AMARC experience” (“AMARC” being the previous name for AMARG).

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The Boneyard

The US Air Force’s 309th Aerospace Maintenance and Regeneration Group (AMARG), known as “The Boneyard”, is one of the places that I had wanted to visit since many years ago. Luca and I visited it a couple of weeks ago.

The Boneyard is an aircraft and equipment storage facility located at Davis-Monthan AF Base near Tucson (Arizona). The are over 4,000 military aircraft stored at the place. Most of them come from the USA (not only from the air force, but from other services as well) but there are some aircraft from foreign countries. The aircraft are stored for several reasons and in different conditions.

  • Some of them are maintained waiting for a possible future use of them (be it with US armed forces or through some foreign military sale, that is the case of several old versions of C-130, F-16).
  • Other aircraft are kept so their parts can be used as spare parts for other active flying aircraft (e.g. C-130, KC-135).
  • Finally, there are aircraft which are stored waiting to be scrapped so the metal can be reused somewhere else.
KC-135 partly scrapped.

KC-135 partly scrapped.

Hundreds of C-130.

Hundreds of C-130.

There are whole fleets of retired aircraft: C-141 Starlifter (retired once the C-17 took over their role), half of the C-5 Galaxy fleet (the A versions, due to budget constrains and fleet strategic decisions), the Vietnam-era helicopters Hueys and Cobras

The Boneyard can be visited with a guided tour organised by the Pima Air and Space Museum (I will write about this museum in another post).  The tour is made with a bus which goes through the Boneyard very slowly and making several stops (though guests cannot exit the bus). The guides are veterans from the US armed forces, who have flown or maintained some of those models that you get to see. The wealth of knowledge that they have about them, the anecdotes and stories that they tell during the tour are worth much more than the 7$ that the tour costs.

The place is impressive, overwhelming. Not only there are thousands of aircraft but the seeing of them fully aligned, whole fleets of different models helps you put things into perspective:

  • World commercial airliner fleet (over 100 pax) has about 16,000 aircraft vs. the 4,000 at The Boneyard.
  • The largest airline fleets have about 1,200 aircraft.
  • Spanish AF has 14 C-130 Hercules vs. the hundreds of them you see at The Boneyard.
  • The dozens of retired Lockheed C-5A Galaxy that you can see there have a combined payload capacity of over 5,000 tonnes… which is more than the complete payload capability of any other air force in the world except the US one…

You may want to take a look at satellite images from the Boneyard here:

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Air Force Flight Test Center Museum at Edwards AF Base

During the recent honeymoon trip to the USA, Luca and I managed to visit 5 aerospace museums, 3 airplane assembly lines, 2 US air force bases and 1 space observatory… be sure some of the coming posts will be related to that side of the trip.

Air Force Flight Test Center Museum at Edwards AF Base

Since we were going to visit California and we would be around the desert of Mojave I thought that we could make a detour to visit Edwards Air Force Base, where the Flight Test Center of the USAF is located.

The Flight Test Center has got a museum which is open to the public, for which identification is needed and no carry on items able to take pictures of videos are permitted. The museum is free and opens 5 days a week. On top of that there is a monthly guided visit of the air base, flight line included. This tour is offered only once a month and you have to subscribe with some time in advance.

Several dozens of aircraft have first flown at Edwards and that, together with Rogers dry lake is what makes the place so special.

First Flights Wall at Edwards AFB (public domain image).

Some very famous flights at Edwards: the Bell XS-1 which first reached the speed of sound with “Chuck” Yeager at the controls, the test campaigns of the YC-130 (Hercules), C-17 Globemaster III (and the prototype YC-15 from which it got many features), testing of the Space Shuttle, testing of today’s state of the art fighters F-22 and F-35… take a look at the wall to get an idea.

Rogers Dry Lake is by itself a national historic landmark. The lake formed thousands of years ago, and today it’s mostly dry along the year and the strength of the ground permits it to have several unpaved very long runways in its lakebed. The longest one being over 12 kilometers long. It also has the world’s greatest compass rose marked into the lake to help flight test pilots guide themselves. It was there, in the lake, where the now retired Space Shuttle would land in its return from space.

Rogers Dry Lake at Edwards (public domain image).

The exhibit at the museum displays a replica of the XS-1, the first 2 F-22 prototypes, an exhibit about the formation of the lake, the history of the base, some remarkable test pilots, etc. The outdoors display has as a highlight a Lockheed SR-71 Blackbird (a classic in US aviation museums).

Lockheed SR-71 Blackbird at Edwards (public domain image).

The area of the base is of 1,200 km2 (this is about 1/7th of the region of Madrid). The visit to it, museum included, lasts about 3 hours. There are veterans offering explanations at the museum and at one restoration hangar within the base. Our guided tour was led by a young aerial photographer, Jet Set  (what a name! :-)), who made if very enjoyable.

Along the flight line of the base, for the pleasure of European-based spotters (who don’t have the chance to see them often), were some test F-35s, F-22s, C-17s, Global Hawks, F-16s, etc. Apart from some aircraft flying around. I, however, missed seeing the B-2 that was somewhere “hidden” in the base (next time!).

Edwards AF Base entrance.

Edwards AF Base entrance.

Rosamond Dry Lake (a lake close to Rogers Dry Lake).

Rosamond Dry Lake (a lake close to Rogers Dry Lake).

YC-15

YC-15.

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US Air Force fleets evolution

In these days in which the sequester is being often in the media, this will be a very brief post to bring to the memory a study prepared by Mitchell Institute for Airpower Studies, founded by the Air Force Association, “ARSENAL OF AIRPOWER: USAF Aircraft Inventory 1950-2009” [PDF, 6.5 MB], published in November 2010.

I wanted to bring forward some comments and two graphics:

  • “To put matters into perspective, a single C-17 can carry the equivalent of 15 C-47 loads (as well as cargo that could never fit inside a C-47) and deliver that cargo anywhere in the world within hours without requiring en-route staging bases.”
  • “The average cost of a flying hour over the past decade is around $23,000 (in constant FY11 dollars), compared to about $11,000 in 1985 and roughly $4,800 in 1970.”
  • “For example, a single B-2 now armed with 80 Joint Direct Attack Munitions (JDAMs) could strike as many targets as five of the 75-aircraft 1991 Gulf War era packages.”
US Air Force fleet evolution 1950-2009.

US Air Force fleet evolution 1950-2009.

US Air Force Airlift fleet, 1950-2009.

US Air Force Airlift fleet, 1950-2009.

The keyword here is capability, not numbers.

I will come back to here in following posts.

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KC-46 EMD contract 101

The US Government Accountability Office (GAO) has recently published a report about the KC-46 Tanker Aircraft [PDF, 1.2 MB]. In it the GAO reviews the situation of the program, measures introduced, costs, technology development, etc. In the first page it summarizes:

“The KC-46 program 2012 estimates for cost, schedule, and performance are virtually the same as last year’s, with the contractor running very close to the planned budget and schedule”.

On the technical side it points to several challenges: flight test plan, completion of engineering drawings, relocation of personnel and facilities related to defense equipment, etc.

However, in this post I wanted to focus only on the costs and contractual sides of the program, given the amount of articles that we could read about it during the past year. Several news have reported about the cost overruns in the program and about how these were to be born by Boeing.

The last time I read about the topic, the reported overrun was of about 1.2bn$ on a 4.4bn$ contract, out of which ~500M$ would be born by USAF and the remaining 700 M$ by Boeing (see articles from Bloomberg, Aviation Week, The Seattle Times…).

But, where do these figures come from?

One of the many things I like of the USA is the transparency in making lots of information and data available to the public, for example, budgeting information of the Air Force, GAO’s assessments, hearings at the Senate and House of Representatives Committees, etc. Thus, you can find:

Contractual framework

From the USAF budgeting material, page 675, under the paragraph “E. Acquisition Strategy“, the explanation of the different contracts structure for the KC-X program (the name of the program prior to the contract award) can be found:

“The KC-46 program released a final Request for Proposal (RFP) on 24 Feb 2010, and entered source selection on 9 Jul 2010. The KC-46 program held a Milestone B Defense Acquisition Board (DAB) on 23 Feb 2011, received approval to enter EMD from OSD AT&L on 24 Feb 2011, and awarded the KC-46 contract to Boeing on 24 Feb 2011 to develop and procure 179 KC-46 aircraft. The KC-46 contract procurement was conducted via a full and open competition per Federal Acquisition Regulation (FAR) Part 15, and resulted in a FY 2011 EMD Fixed Price Incentive Firm (FPIF) contract. The EMD phase will develop, build, and test four KC-46 aircraft, and will qualify receiver aircraft.

Production will begin in FY 2015 with two Low-Rate Initial Production (LRIP) lots (Firm Fixed Priced (FFP)) and then Full-Rate Production (FRP) options (FFP with Not to Exceed (NTE) + Economic Price Adjustment (EPA)). The LRIP and FRP options will be exercised following successful completion of Operational Assessments (OAs) for the LRIP decisions, and a successful completion of Initial Operational Test and Evaluation (IOT&E) for the FRP decision.”

Thus, so far only the Engineering Manufacturing and Development (EMD) contract  phase has been contracted, on February 24th Feb 2011 (you can see Boeing and DoD press releases).

Cost Assessment by GAO:

From the Government Accountability Office (GAO) assessment of the program, referred above:

“The current development cost estimate of $7.2 billion as reported in October 2012 includes $4.9 billion for the aircraft development contract and 4 test aircraft, $0.3 billion for the aircrew and maintenance training systems, and $2 billion for other government costs to include program office support, government test and evaluation support, contract performance risk, and other development risks associated with the aircraft and training systems. […]

Through December 2012, Boeing has accomplished approximately $1.4 billion (28 percent) in development work and has more than $3.5 billion (72 percent) in estimated work to go over the next 5 years. […]

Barring any changes to KC-46 requirements by the Air Force, the contract specifies a target price of $4.4 billion and a ceiling price of $4.9 billion at which point Boeing must assume responsibility for all additional costs. […]”

See the table below showing Air Force and Boeing contract amounts and estimates:

KC-46 EMD Contract & Estimates.

KC-46 EMD Contract & Estimates (Source: GAO).

The report from GAO offers the following graphic referring to what they call “management reserves“:

KC-46 EMD Management Reserves (Source: GAO)

KC-46 EMD Management Reserves (Source: GAO)

This graphic shows well the rate at which Boeing has been supposedly burning its margins. However, it does not reflect at all the nature of the issue, related to the type of contract this “Engineering Manufacturing and Development” (EMD) contract: a Fixed Price plus Incentive Firm type of contract (FPIF).

Fixed Price Incentive Firm contracts

It is not easy to find good literature online about these types of contracts. The Wikipedia for instance does not have yet an article on FPIF contracts, but only on the calculation of the Point of Total Assumption. However, you can find a couple of good sites with explanations and examples of FPIF contracts here and here [PDF from the US Army].

Some concepts that we need to bear in mind are (definitions from the link above):

Target Cost (TC): The initially negotiated figure for estimated contract costs and the point at which profit pivots.
Target Profit (TP): The initially negotiated profit at the target cos
Target Price: Target cost-plus the target profit.
Ceiling Price (CP): Stated as a percent of the target cost, this is the maximum price the government expects to pay. Once this amount is reached, the contractor pays all remaining costs for the original work.
Share Ratio (SR): The government/contractor sharing ratio for cost savings or cost overruns that will increase or decrease the actual profit. The government percentage is listed first and the terms used are “government share” and “contractor share.” For example, on an 80/20 share ratio, the government’s share is 80 percent and the contractor’s share is 20 percent.
Point of Total Assumption (PTA): The point where cost increases that exceed the target cost are no longer shared by the government according to the share ratio. At this point, the contractor’s profit is reduced one dollar for every additional dollar of cost. The PTA is calculated with the following formula. [thus, PTA = (Ceiling Price – Target Price)/Government Share + Target Cost]

Where can we get these figures for the KC-46 EMD contract? Some of them are referred to in the different reports and budgeting materials (explicitly or implicitly) and others can be found in the following letter from US Senator John McCain to the DoD from July, 15 2011 [PDF, 400 KB].

Thus for the KC-46 EMD contract we have:

  • Target Cost: 3.9 bn$.
  • Target Profit: 500 M$.
  • Target Price: 4.4 bn$
  • Ceiling Price: 4.9 bn$
  • Share Ratio: 60% / 40% (Government / Boeing).
  • Point of Total Assumption (calculated): ~4.73 bn$.

With this information we can produce the typical FPIF contract curve, which is the only thing which is missing in ALL the news, budgeting materials, GAO reports, etc., that I have read and is the most illustrative graphic to understand what is going to happen if the cost overruns keep piling and who is going to bear which amount of the cost from which point:

KC-46 EMD FPIF Contract.

KC-46 EMD FPIF Contract.

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