August 2003 Vol. 86, No. 8

The Air Force seeks a deal to replace its aged KC-135s with leased commercial tankers.

100 Tankers

By John A. Tirpak, Executive Editor

The Air Force, heavily dependent for more than 40 years on workhorse KC-135 tankers, is about to begin a critical renewal effort.

The oldest and most problem-prone tankers in the Air Force—KC-135Es such as this one—would be replaced by 2011 with new, commercial tankers leased from Boeing. Younger KC-135Rs could continue in service 20 more years.

Following years of frustrating delays, the Pentagon finally gave the Air Force a green light to replace the aged air refuelers with state-of-the-art aircraft. Edward C. Aldridge, speaking at his last news briefing as Pentagon acquisition chief, said USAF can lease 100 tankers based on the Boeing 767-200. Boeing would convert these aircraft into KC-767 commercial tanker variants.

Aldridge announced the DOD decision on May 23. Congress must review and approve it before the Air Force can sign a contract.

The tanker modernization program, if it goes forward as planned, would serve as a model for “no-frills” acquisition that could be used to field urgently needed capability quickly. Indeed, the Air Force said the program must succeed if it is to head off what officials warn could be “catastrophes.”

“ We cannot continue to fly KC-135s forever,” Aldridge asserted, “and the longer you wait to recapitalize, the more you run the risk ... of a fleet of those aircraft being grounded for some reason.”

The Aldridge announcement capped two years of round-robin negotiation and horse-trading between and among Boeing executives, members of Congress, and Pentagon and Air Force officials. The avowed goal was to shake hands over a deal that would not only satisfy service requirements but also be affordable.

Aldridge declared that the deal in hand will do both.

In brief, USAF would lease the 100 airplanes at a per-airplane cost of $138.7 million. The Air Force also will have the option to buy the KC-767s at the end of the lease for an additional per-airplane cost of $40 million.

Aldridge, after seeing the terms of the deal as it was finally stated, told Defense Secretary Donald H. Rumsfeld that the Pentagon should “proceed with the lease arrangement.”

The KC-767 would be capable of carrying more gas and taking off from shorter runways than the KC-135 it replaces. Additionally, it would have the electrical power to host communications relays for other aircraft in the battle area.

Only the First 100?

Rumsfeld agreed. Moreover, he also blessed language stating the intent of the Defense Department to “go beyond the first 100 767s” with additional acquisitions. Aldridge did not establish a final number.

The Air Force operates 544 KC-135s, said Aldridge, so the ultimate number of new aircraft likely will have to be “several hundred.” However, DOD will not replace the Stratotankers one-for-one.

The Air Force has until Nov. 1 to deliver to Rumsfeld a long-range plan for recapitalizing the tanker fleet. (“Recapitalize” means the replacement of one type of service equipment with newer equipment of roughly equivalent or somewhat better capability.) Aldridge said the plan will answer basic questions about numbers of aircraft and configuration that the service will need after this initial lease.

The new aircraft will generally match the KC-135 in size but will exceed the old aircraft in capability, having the power to take off faster, operate from shorter runways, and carry more fuel. It will also feature advanced digital electronics.

Moreover, the new airplanes will be able to generate an amount of electrical power sufficient to let the airplanes serve as communication relays in the sky.

Under terms of the deal, USAF would take delivery of the first KC-767s in 2006. Production would ramp up to 20 airplanes per year. By 2009, the Air Force will have received 67 tankers.

The new plan replaces an earlier Air Force effort that encountered difficulties. Aldridge noted that, had the Air Force pursued its previous plan to start recapitalization in 2006, it would not have received the first airplane until 2010, if then.

The only other option—buying the new airplanes outright—would have required expenditure of about $8 billion in the 2004-09 Future Years Defense Program. However, no one believed the Air Force could come up with that kind of money.
“ We would have had to take it out of some other program,” Aldridge said. “We’d rather lease and get the airplanes sooner than spend that much money earlier in the FYDP.”

There is urgency to doing this, said Aldridge. Tankers are “an essential part of our ability to do what we want to do in the military,” he went on, but the KC-135s are wearing out. After 40 years, they are plagued with corrosion, stress fractures, spar fatigue, and other maladies of old age.

The only other large tanker in service is the KC-10, of which the Air Force has only 59. If the KC-135 was grounded, it would mean massive problems for the entire military.

“ We need to do this right now,” said Marvin R. Sambur, the Air Force’s acquisition chief.

If some problem grounded the KC-135 fleet, USAF would have to rely on KC-10s such as this one, of which there are only 59. A diversity of tankers would pro-vide insurance against a fleetwide problem in the venerable Stratotanker force.

A “Horrible” Prospect

Sambur told Air Force Magazine that USAF is dependent on KC-135s for almost 86 percent of its tanking. A corrosion problem that called for immediate grounding of the type would be a “horrible” prospect, said Sambur, and would leave the service with no alternative means for aerial refueling.

Tankers were heavily used in Gulf War II, solving many access problems by extending the range of coalition aircraft from bases outside the immediate vicinity of Iraq. (See “The Squeeze on Air Mobility,” July, p. 22.) Tankers also routinely reduce the need for large bases around the world. They permit strike, cargo, and intelligence aircraft to fly long distances without landing. In the absence of the tankers, the operating radius of the entire fixed-wing inventory of the US military would be sharply reduced.

For example, had there been no aerial tankers in Operation Iraqi Freedom, Navy aviation would have only been able to fly a small fraction of the missions it flew, given the limited capacity of its own small refueling airplanes.

Because of the long lead times involved, there is no room for delay, Sambur asserted. The KC-135s “may not fall out of the sky” if the service doesn’t start recapitalizing now, he said, but “five to 10 years from now we could have catastrophes on our hands.”

Sambur maintained that the Air Force needs to “start doing the prudent thing right now,” which means “getting the insurance policy.”

Under the lease arrangement, Boeing would bear all of the development risk. The aircraft are to come into USAF hands already in refueling configuration.

The Air Force is preparing not only the comprehensive Nov. 1 report but also one that lays out the service case on four issues:

• There is a need for the tankers.
• The service explored all options.
• Leasing is superior to actual purchase.
• The terms make it a good deal.

That report was destined to move quickly to Congress after review at OSD and the Office of Management and Budget.

One option favored by some in Congress was to re-engine the KC-135 to increase its takeoff power, cruise speed, and other performance parameters.

However, such an upgrade will “not buy you any lifetime, and that’s what we need to buy: additional life,” Aldridge said. He added: “We’re going to be flying KC-135s for a long time, and we’re going to be very dependent on them, but we don’t have to be dependent on all of them.”

Under lease terms, Boeing’s per-aircraft profit cannot exceed 15 percent. Should Boeing achieve better efficiency and achieve greater profits, it will simply have to reimburse the government or lower the price to the Air Force, said Aldridge.

Aldridge explained that any cost overruns would reduce Boeing’s profit. “We will never pay more ... for this airplane,” he declared, “and could, if things become optimistic, pay somewhat less.”

Aldridge said he believes there will be sufficient support on Capitol Hill to get the lease arrangement approved.

Some favor re-engining the KC-135Es, as was done with KC-135Rs like this one. However, senior leaders point out that re-engining does nothing to solve corrosion and age problems on the Stratotanker fleet.

McCain’s Complaint

A prominent opponent is Sen. John McCain (R-Ariz.), who argues that the KC-135 aircraft, though old, could be maintained indefinitely and their effectiveness dramatically increased by a re-engining program, which would cost less than new airplanes.

The General Accounting Office, a Congressional watchdog agency, determined that re-engining 127 KC-135Es would cost about $3.6 billion.

McCain calls the lease arrangement “corporate welfare” designed to raise Boeing’s bottom line. The aerospace giant has been hard hit by a downturn in the aircraft industry following the Sept. 11 terror attacks in New York and Washington.

McCain claimed Air Force Secretary James G. Roche has been “relentless in exaggerating aerial tanker shortfalls in order to win approval of the lease.” This, said McCain, contradicts the Air Force’s own studies, which have suggested the tanker fleet could be flown at least until 2040 with proper maintenance.

Sambur maintains that the studies to which McCain refers are old and no longer present an accurate view of the situation.

“ A lot of people come back and say, ‘Well, you had a report that said these things could last forever,’ ” Sambur noted. “People keep coming back at us with this report, that the Air Force wrote a couple of years ago.”

The report was written in “good faith,” Sambur said. Soon after it was completed, he went on, the Air Force came face to face with some disturbing, real-life experiences concerning depot maintenance, and USAF found it had “greatly underestimated the effects of corrosion on these things.”

Moreover, corrosion affects each airplane differently, making it impossible to predict where and how damage will occur.

Sambur said the previous report was like getting a clean bill of health from a doctor. That report is virtually worthless two years later; two-year-old assurances are no guarantee that you haven’t developed a medical problem during the interim. Critics who use it to back their opposition to the lease are ignoring two years’ worth of subsequent experience, in Sambur’s view.

Now, with KC-135s having to be virtually rebuilt every time they visit the depot for tear-down inspections, the age issue has been sharply drawn.

The Air Force was required to make the “business case” for the lease to Rumsfeld, Sambur said. Part of that was a comparison of the present cost to maintain the KC-135 and the cost to lease the new airplanes.

Sambur said the Air Force took a conservative approach to estimating the rising cost of KC-135 maintenance. Even so, he said, the Air Force analysis showed the service could go out and acquire the new aircraft for the “net present amount” needed to maintain the old aircraft.

In depot, KC-135s are having to be virtually rebuilt as corrosion is found eating away at skin, stringers, and spars. No one has ever operated a fleet of 40-year-old aircraft before, and maintenance costs are climbing more than 18 percent a year.

The Cost of Aging

The KC-135 maintenance cost has increased since 1993 by an average of more than 18 percent per year, Sambur said.

This was the figure used in the official analyses, but “as these things get old ... you’d have a pretty good case to say, well, it’s going to get worse than that,” said Sambur.

Even with 100 new KC-767s, the Air Force will have to keep at least some of the KC-135s flying for many years to come. If the Air Force brought on board a second batch of 100 leased tankers—as it thinks it must do—it would still be flying KC-135s for decades, Sambur said.

Because no one has ever flown whole fleets of 40-year-old airplanes, it’s impossible to say with certainty how long the KC-135s will last, Sambur added.

The Air Force wants to take out of service the 133 most aged KC-135Es. Sambur said it is simply an issue of money. Air Mobility Command said these tankers are already flying with restrictions, are the most problem-prone, and require the most extensive depot maintenance.

Of the $138.7-million-per-KC-767 cost, $131 million will accrue to Boeing to cover materials, labor, and provide a profit margin. The other $7.7 million per aircraft will go to a “special entity” set up to administer the lease. It will cover interest payments for Boeing construction loans and long-lead purchases.

Boeing will also perform major maintenance and overhauls on the aircraft and will receive about $3.6 million per aircraft per year for this work.

When the legislation enabling the lease was enacted, some suggested that the Air Force would have to pay both to modify the airplanes to tanker configuration, then, at the end of the lease, convert them back to cargo or passenger configuration. There was also the suggestion—from Roche himself—that USAF would receive “white tails”—airplanes made available by cancellations of commercial orders.

This is not true in either case, according to Bob Gower, Boeing’s vice president for tanker programs.

“ All of the airplanes are ‘new build’ airplanes, and none of them are sitting on our ramp,” Gower told Air Force Magazine.

Aldridge suggested that, because the financially strapped Boeing might shut down its 767 line, the Air Force had a need to move quickly. According to Boeing officials, this is also not true. Gower asserted, “Our plans were and are to continue producing the 767 as long as it’s commercially viable, and it’s still commercially viable.”

Boeing has enough tooling to support the production of as many as seven 767s a month at its Bremerton, Wash., plant, Gower said. “Green tail” 767s would go to Boeing’s Wichita, Kan., facility for conversion to tanker configuration.

The 767-200 made its debut in 1982, but the aircraft has been continually updated since then, Gower said. The model that is being offered to the Air Force has an all-digital cockpit, as well as a new boom operator’s station just aft of the cockpit. From there, the boom operator can observe all the aircraft behind the tanker using multiple cameras. The station will be identical to a simulator, saving training costs.

The PACER CRAG KC-135 update brought the fleet up to current international navigation and communications standards and was initially thought sufficient to keep the fleet flying indefinitely. Reality has since set in. The Pentagon intends to go beyond 100 KC-767s, eventually replacing most of the fleet.

Internet in the Sky

The airplane will also have a 120 KVA generator to support the additional communications gear USAF wants to install on the airplane, making it a “smart tanker.” The generator is included in the price, and so is Link 16 data-sharing capability, but the additional communications gear—which would make the airplane “an Internet in the sky,” according to Chief of Staff Gen. John P. Jumper—would be an extra cost.

The KC-767 will also have a receptacle so that it, too, can be refueled in midair. This feature will multiply the options available to combatant commanders. So will the fact that the KC-767, fully loaded, will be able to take off using a runway of only 7,700 feet. The KC-135 requires more than 12,000 feet.

The original estimate to lease 100 airplanes ran to $26 billion. The price has now fallen to $16 billion, but, according to Aldridge, that was possible only under certain conditions. The most important was the Pentagon’s declaration of its intent to expand the arrangement beyond just 100 airplanes. Boeing needed to see this intent, said Aldridge, because it eliminated some of the risk the company faced.

Moreover, caps were imposed on some expenses, Aldridge noted, and the Air Force agreed to do without certain items that were on the original work plan. “As the Air Force has gone through this process,” said Gower, “they really have used the cost-as-an-independent-variable approach in trying to figure out what they would like to have and what they can afford.”

Example: Though USAF wanted plumbing in the wings for wingtip probe-and-drogue refueling, to lower cost, it dropped the requirement. The aircraft will have both a boom-type refueling system and a probe-and-drogue, both on the centerline.
The Air Force wanted a “combi” configuration permitting it to carry passengers and cargo at the same time. This would have required building a special bulkhead, so the plan was dropped.

Sambur bristled at the suggestion that the Air Force was working a special deal to bail out Boeing. He maintained that, had the Air Force attempted to start a new tanker from scratch, it could easily have taken until the mid-2010s to get the first airplane, and development costs would probably have killed the project at the outset.

Sambur said the project is an example of “agile acquisition.” The idea was to buy something “proven, off the shelf, [that] gives us great capability.”

Pressure from OMB, as well as the federally funded think tank Institute for Defense Analyses, kept the price down, too, Sambur added. Thanks to this pressure, he went on, “We were able to get Boeing to really prove they were giving us a good deal.”

One of the hardest “sells” was the Pentagon’s program analysis and evaluation shop, Sambur noted. “PA&E ... was very concerned about whether we really needed a tanker. They were convinced at the outset that we could re-engine [the KC-135]. And they had some very good arguments.”

In the end, however, the constellation of need, price, opportunity, and logic won the day.