One of the issues facing Boeing (NYSE:BA) and the KC-46A new aerial tanker program is that it is already behind schedule. The Air Force originally planned to award a contract in 2001-2002 timeframe and have new tankers flying before 2010. The contract was not awarded until almost a decade later and the first aircraft will begin service in 2017. This was caused by three attempts to conduct the source selection with Boeing winning the third round from EADS North America, part of EADS (EADS:P).
This has meant the current initial development contract is very short. Boeing is planning on taking commercial B-767 aircraft off of their line, installing a new cockpit from the 787 as well as necessary military gear. They also need to demonstrate that the aircraft is able to meet the requirements of the Air Force and keep it all within cost as Boeing agreed to a fixed price development contract.
The Director, Operational Test & Evaluation (D,OT&E) which is an independent body within DoD responsible for evaluating programs performance as well as their overall test plans releases an annual report reviewing major defense programs and their test plans. They expressed concerns to Congress that the KC-46A is hoping to conduct a very aggressive test campaign. In their report, which may be found on their website here, they write that in their opinion "The DOT&E review of the post-Milestone B draft TEMP indicates the KC-46 test program is not executable."
This is due for the following reasons:
- The plan requires 42 hours of testing a month compared to an average of 30 on similar large aircraft military programs.
- It assumes that only 15 percent of the tests would be repeated. A higher repeat rate adds time to the overall testing program.
- There is not time in the schedule to fix issues found in Developmental Testing (DT) prior to Operational Testing (OT).
- There is not enough time allocated to test the fuel boom with Air Force and Navy aircraft.
- The OT time is too short for the 750 flight hours planned to be flown and D,OT&E calculations estimate that 1,250 hours is the minimum required.
The organization recommends a new Test & Evaluation Master Plan (TEMP) be developed that includes a more realistic schedule for testing.
The Air Force, of course, disputes D,OT&E claims and believes the testing schedule is appropriate and executable. They feel that they have structured the program to support a proper OT decision and then into production and service.
The other pressure is on Boeing as an extension of the test program will cost them money. The fixed price contract has already reached a point where there is little slack or money left in it. More flight hours, more tests and more re-work will cost Boeing and reduce the potential for any profit on this contract. The Air Force recognizes this as they add in their defense of the program that they "structured the KC-46 development contract as a fixed price contract to protect the DoD and taxpayers from any cost growth on the program if the test program is not executed as planned." So Boeing will pay for these issues if any.
D,OT&E can tend to be very conservative when it comes to these types of assessments but that does not mean they are right. One of the biggest issues affecting program development timelines is the need for more testing. Problems are discovered that were not necessarily anticipated and they take time to fix and then there is also time added to do the test again. The KC-46A is probably looking at a test program that will take some amount of time between their estimate and D,OT&E. Even if there is only a little growth it will affect Boeing's cost and bottom line.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: This was first published at kc-xtankernews.com.