When considering Air Force acquisition disasters, most people immediately picture flashy aircraft like the F-35. That’s only natural since a total program price tag of $1.5 trillion will be enough to garner headlines, and since these capital ships of the sky also serve at the pointy tip of the spear they instantly catch the eye of aviation enthusiasts. The more mundane aircraft like transports and tankers suffer from insufficient oversight and attention by comparison. What scrutiny shows, however, is that even the more utilitarian programs aren’t immune to the systemic acquisition problems common in the premier programs, such as needlessly complex designs, the costly practice of overlapping development and production, and flawed business models.
The $43 billion KC-46 Pegasus aerial refueler program serves as a prime example. The KC-46 will eventually replace the 396 KC-135 Stratotankers that began entering service in 1956 if the manufacturer, Boeing, and the Air Force can work through the extensive list of problems that, as we have reported before, have hobbled the program for years.
Each KC-46 costs approximately $239.8 million so far. For comparison’s sake, a KC-135 would cost approximately $62.2 million and a KC-10—another aerial refueling tanker—would cost approximately $139 million in 2020 dollars. Still, the total estimated program cost is currently lower than the original 2011 estimate of $51.7 billion by nearly $9 billion, which is a refreshing change from most Pentagon programs. Air Force budget managers anticipated the need for extra money to deal with changing design requirements that have not yet materialized. The Air Force also saved approximately $1.4 billion in military construction funds by deciding to reuse some existing support buildings for the KC-46 rather than building new ones.
That is not to say that taxpayers are getting a bargain.
Boeing received a $4.9 billion contract in 2011 to design, build, and deliver the first four KC-46s. The new tanker is a modified version of Boeing’s 767 airliner. The most significant improvement over the KC-135 is that it has the capability to refuel aircraft via two methods on the same flight. It is equipped with a refueling boom used by Air Force aircraft and a hose and drogue system used by Navy and Marine Corps aircraft. Although the KC-135 can refuel aircraft using both methods, it must land to be reconfigured from one system to the other. The KC-10 is equipped with both refueling systems.
Beyond that useful dual-mode capability, the KC-46 is not a radical technological leap forward when compared to the KC-135. It is certainly not the long-wished-for “stealth tanker” that could accompany other radar-evading aircraft into defended enemy airspace.
Still, by August 2019, the program’s growing pains caused Boeing’s expenses to nearly double, increasing beyond the original budget by$4.6 billion. Because the Air Force awarded the company a fixed-price contract, those costs are supposed to be covered by the Boeing Corporation. However, the taxpayers, as always, will likely end up footing the bill.
Boeing’s expenses during the early phases of this program will be made up during production of the KC-46 fleet and through costly sustainment contracts because the company is engaging in one of the most pernicious practices of the military-industrial-congressional complex: Boeing is deliberately creating a weapons program that only its employees can support in order to secure long-term, noncompetitive sustainment contracts.
The KC-46’s Troubled Design Undermines Its Mission
The development costs for the program continue to rise because Boeing engineers have yet to solve significant problems with the basic onboard systems that make the KC-46 a tanker. The program currently has three open “Category I deficiencies” related to its primary mission, design flaws so severe that they “may cause death, severe injury, or severe occupational illness; may cause loss or major damage to a weapon system; critically restricts the combat readiness capabilities of the using organization; or result in a production line stoppage.”
The issue that has generated the most media attention so far has been the aircraft’s remote vision system. Tanker aircraft transfer fuel to the receiving aircraft through a boom located near the tanker’s tail. An operator in the tanker aircraft maneuvers the boom into the receptacle on the aircraft being refueled. Before the KC-46, these operators sat in the back of the tankers and used their own eyes to move the boom into the right position. In typical Pentagon fashion, the Air Force and Boeing dispensed with such primitive methods for the tanker of the future and added a remote operator station at the front of the aircraft where an airman controls the refueling boom using a series of cameras.
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But it turns out that replicating the abilities of the human eye is both difficult and expensive. The remote vision system uses seven cameras to create a 3D image of the refueling boom and receiver aircraft, but they cannot recreate the resolution of the human eye. For example, sun glare can distort the images the operator sees. The whole system has a slight lag which means that what is happening at the back of the tanker and what the operator sees in the display are not perfectly in sync. The shortcomings in the system make it nearly impossible for the operator to know exactly where the end of the boom is in relation to the receiver aircraft.
As a result, there have been instances where the boom operators have struck aircraft outside of the refueling receptacle. This problem has a potentially cascading effect across several aircraft types. For programs like the F-22 and the F-35 that rely on delicate stealth coatings to reduce their visibility to enemy radar systems, damaged exterior surfaces have consequences beyond their cosmetic effects. Damage caused by the KC-46 boom could allow an enemy to better track those aircraft.
The F-22 and F-35 programs already suffer from poor readiness rates, and difficulties in maintaining the stealth coatings on the aircraft are significant factors driving those rates lower. Damage caused by the KC-46’s boom to stealth skin around the refueling receptacle adds more time-consuming work to an already overburdened workforce.
Rather than fixing the problem by abandoning the clunky camera system and going back to the proven method of putting an operator in the rear of the aircraft to give them a direct view of their work, the Air Force and Boeing are instead doubling down on the flailing futuristic version with Remote Vision System 2.0. The new version will use 4K color cameras, larger viewing screens, and a laser ranger to try replicating with technology at great expense what the human eye does naturally.
Poor vision isn’t the only reason the KC-46’s boom is damaging aircraft, however. Aircraft are also being damaged because the boom is too stiff. The refueling boom on tanker aircraft has to telescope in and out to remain in contact with the receiver aircraft as they fly together. Testing has revealed the boom on the KC-46 does not move as freely as the boom on the KC-135 and KC-10. For larger aircraft like the B-52 and the C-17, the extra stiffness does not matter as much because their greater mass allows them to apply the necessary pressure and remain connected to the boom’s receptacle for refueling in flight. For smaller aircraft, though, the extra stiffness means the pilots have to add additional throttle to their engines to remain connected properly. According to the Government Accountability Office, the extra throttle “can cause the receiver aircraft to lunge forward into the boom and strike it, possibly damaging the receiver aircraft and the boom.”
The two aircraft most affected by this problem are the A-10 and the F-16, which shows that the KC-46 poses a danger to both new and older aircraft alike. The aerial refueling receptacle on the A-10 is on the top of the nose of the aircraft, directly in front of the windscreen. Concerns that the KC-46 boom might strike the windscreen and injure the pilot prompted Air Force leaders to halt all KC-46 refueling operations with A-10s until the problem is fixed. In the case of the F-16, where the receptacle is on top of the fuselage behind the cockpit, the concern is that the boom could strike the vertical surfaces on the aircraft’s tail. For the time being, the Air Force is allowing F-16s to be refueled by the KC-46 during operational testing.
The most recent addition to the list of critical design flaws is a leaky fuel system inside the KC-46. Maintenance crews discovered fuel between the primary and secondary protection barriers that make up the aircraft’s fuel containment system. Spokespersons for the Air Force and Boeing did not specifically address potential ramifications of the leak in the system, but the fact that the issue was raised to a Category I deficiency indicates it posed a significant safety concern. Engineers have reportedly discovered a solution to this problem. Fixing it in the aircraft already built takes approximately 10 days at the depot in San Antonio, Texas. The fix will also be included on the assembly line in Everett, Washington.
The Air Force estimates it could take engineers up to three years to correct all the KC-46’s remaining design flaws, and several more years beyond that to retrofit the new designs into the aircraft already purchased. Combined, these problems forced Pentagon leaders to delay the operational testing period for the program, which will also push back the decision to begin full-rate production until late in 2024, a full five years behind schedule.
Risky Contracting Strategy and Blown Budgets
Most new Pentagon weapons projects are developed through cost-plus contracts, where the government reimburses the contractor for their allowable expenses designing the new system and pays them a fee for their work. Cost-plus contracts face a great deal of criticism due to concerns that this structure means the contractor has little motivation to control costs on everything from parts to ground support equipment to meals while developing a new weapon because they know they will be reimbursed by the government for their expenses. Firm-fixed-price contracts are used for the production phase of a program once the design is set. Neither type of contract is inherently better or worse than the other. Each carries risks to the taxpayers if the original technological or budget projections are wrong or if the program is not managed properly. The KC-46 program demonstrates some of the risks a firm-fixed-price development contract carries for taxpayers.
Boeing underbid the true costs of the program to beat out rivals Airbus and Northrop Grumman for the 2011 tanker contract. The company expected to make up whatever it lost during the development phase of the program with additional sales overseas and in long-term support contracts. The foreign market for the KC-46 has been limited up to this point to Japan, the United Arab Emirates, and Israel as the only approved foreign customers for the KC-46 for a combined total of 13 aircraft.
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Unless foreign KC-46 sales pick up, which is an uphill battle in the face of a competing Airbus tanker design, Boeing will have to make up its costs through service contracts for the tankers it does manage to sell. One way to turn a profit in the long run is to produce a product that only their own people can maintain. The added design complexity required to justify such a scheme helps fuel the readiness crisis facing many programs in the Pentagon today.
Current reform proposals put forward by Representative Mac Thornberry (R-TX) being considered by the House Armed Services Committee include a provision to curtail this practice to some extent by better coordinating support functions between the services and the defense industry, though it does not prioritize controlling costs. The impact of these reforms on existing programs like the KC-46 may be limited since the business model for the programs have already been firmly established. In the case of the KC-46, the government did not secure all the data rights it needs to be able to competitively bid sustainment contracts for the program as part of the original contract.
The long-term strategy Boeing executives used to secure the KC-46 contract placed the company in a precarious financial position in the short term. Combined with the troubles caused by the 737 Max safety crisis, the company faced a serious bankruptcy threat by the end of 2019. The COVID-19 crisis created an opportunity for Boeing to seek financial help from the federal government as part of the economic impact stimulus package. The company originally requested a taxpayer bailout of $60 billion. In April, the Air Force paid Boeing $882 million the service had earlier withheld because of some of the KC-46’s unmet performance capabilities just to keep the company afloat during the COVID-19 shutdown. According to an Air Force statement, “This withhold release is in line with Department of the Air Force and Department of Defense policies to maximize cash flow, where prudent, to combat coronavirus impacts on the industry base.” Ultimately, the company took a $25 billion loan in the form of a bond sale, which, along with cutting approximately 10% of its workforce, will shore up the company’s financial footing in the near-term. But it doesn’t solve the long-term problems with the KC-46 program which will continue to cost the company, and ultimately the taxpayers, even more money.
The KC-46’s Needless Complexity
The Air Force and its predecessor organizations have been refueling aircraft in flight for nearly a century. The United States Army Air Service conducted the first aerial refueling on June 27, 1923. While the process has evolved beyond pilots passing a hose from one biplane to another, the basic principle has remained consistent and effective through the years.
The KC-135 fleet remains viable and performs the refueling mission well, even more than 60 years after the first aircraft entered service. The 59 larger KC-10 Extender aerial refuelers and the KC-130 aircraft modified as refuelers round out the current tanker fleets for all the services, and they too are still effective at performing the refueling mission. So while the KC-46 will fill an obviously useful role if and when it ever becomes fully operational, the need for a radically new design remains unclear. The Pentagon and Boeing appear to be needlessly reinventing the wheel—at great expense.
Frank Kendall, the Pentagon’s acquisition chief at the time the tanker contract was awarded, recently wrote that he had believed there was little technical risk involved with converting a proven airframe into a tanker, and that convinced him to go along with the fixed-price development contract. The fact that the program is already more than two years late shows there was apparently more technical risk than the Pentagon leaders were led to believe. Still, the KC-46 does the same thing earlier refuelers have done, and is little more than a model year change of an existing product line with a few overly complex upgrades. Yet the taxpayers are being charged as if the Air Force and Boeing have designed a radically new product.
The current fleet of KC-135 tankers still have a great deal of life left in them despite their average age of 57 years. The existing tankers were originally designed to operate mainly with B-52 bombers as part of the Cold War-era Strategic Air Command to provide nuclear strike capability. Both fleets of aircraft spent a significant amount of time on ground alert for that role, so they only accrued a relatively small number of flying hours during that time. A Defense Science Board study on aerial refueling requirements determined that the KC-135 fleet can continue flying until 2040 based on its current usage rates.
The KC-46 serves as an excellent example of what is wrong with the military’s procurement system. It shows what can go wrong when contractors deliberately underbid projects to secure the contract. The practice of abandoning proven technology in favor of overly complex new designs may help justify lucrative development contracts, but the remote camera system in the KC-46 proves that newer is not always better.
The program has attracted its fair share of congressional attention. Senators Maggie Hassan (D-NH), James Lankford (R-OK), and Jeanne Shaheen (D-NH) sent a letter to the Government Accountability Office in May calling for an investigation into the program’s delays that prevent the KC-46 from being used in regular operational missions. We already know that many of the problems are rooted in the systemic issues with Pentagon acquisitions. It would be better for Congress to understand how underbidding contracts and over-promising technological capabilities leads to the kind of problems the KC-46 program currently faces. In so doing, we might be able to avoid them in the future.
The senators should join forces with their colleagues in the House to strengthen the reforms regarding long-term sustainment contracts. The reform language should more explicitly include analysis of costs and benefits, including assessing whether sustainment strategies allow for resilience or if they require the services to depend on costly contractors for their basic operations.
A previous version of this report stated that the KC-46 would be the only Air Force tanker aircraft capable of refueling all military aircraft on the same flight. The KC-10 already has this capability and the text has been updated to reflect that fact.
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