Tanker War: Not Over Yet

March 6, 2011

In the wake of EADS’s announcement on March 4 that it would not protest the U.S. Air Force’s award of the KC-46A program to Boeing there has been a lot of talk that the big tanker war is now over.

But that may be a far too narrow view of the massive program.

With the competitive phase now over, the Pentagon has lost one of its best tools to hold industry’s feet to the fire. When there was no competition, Boeing was ready to charge the U.S. government $42 billion for the KC-135 replacement program. Thanks to the intervention by Sen. John McCain (R-Ariz.), who nixed the sole source contract arrangement on the table a decade ago, the U.S. taxpayer will now end up paying $10 billion less for an aircraft that should be more capable.

However, the risk now is that with competition out of the way, the tanker price will start creeping up. Yes, the deal is being structured as a fixed price contract, but history has seen ample examples of such arrangements being changed — either because the government changes requirements or because a company pleads its future is at risk if it does not get contractual relief.

The USAF was very diligent during this last round of the KC-X program to structure a competition that was protest proof. It now needs to put as much effort into making sure Boeing has no excuse to require a price revision.

The tanker war between EADS and Boeing may be over, but that doesn’t mean there will not be a tanker war between Boeing and the U.S. taxpayer.