* GAO report notes program already $900 mln over cost target
* Program has significant overlap between development,
* Air Force says risk of delay "moderate"
By Andrea Shalal-Esa
March 26 One year into its development, the Air
Force's new KC-46 refueling tanker being developed by Boeing Co
faces "significant schedule risks" and technical
challenges, and is already $900 million over budget, a
congressional report found.
The Government Accountability Office, an investigative arm
of Congress, said the Air Force had limited its liability for
cost overruns on the $51.7 billion program by using a
fixed-price contract, but schedule delays were still possible.
"Even with these safeguards, it is important to note that
one year into development, Air Force and contractor development
cost estimates exceed the development contract amount and
significant schedule risks have been identified," GAO wrote in
an annual report on the program required by Congress.
The program is already $900 million over the target price of
$4.4 billion for the initial development contract, and $400
million over the contract's ceiling of $4.9 billion.
The contract calls for the government to cover 60 percent of
overruns up to the ceiling. Boeing has to cover any overrun
beyond that level, unless the government changes its
requirements for the tanker and renegotiates its contract.
Boeing beat out Europe's EADS to win the contract
in February 2011, capping a decade of failed Air Force attempts
to start replacing its aging fleet of KC-135 refueling planes,
which are now 49 years old on average.
GAO said the program had an accelerated schedule with
significant overlap, or concurrency, among the development,
testing and production of the new 767-based planes.
The issue of "concurrency" has troubled another big Pentagon
weapons program, the F-35 Joint Strike Fighter built by Lockheed
Martin Corp. The Pentagon has restructured that program
three times in recent years to reduce the overlap between
development and production.
GAO said the tanker program was not as challenging as an
all-new weapon system since it used a modified commercial
platform, but it still faced risk on three critical technologies
that had not been tested in a realistic environment.
It noted that the Air Force and Boeing were both concerned
about risks to the development and test schedule for the new
planes due to a tight flight testing schedule, work on the
commercial Boeing line to prepare the aircraft for military
modifications, the need for two Federal Aviation Administration
certifications, and software challenges.
GAO said Boeing's recent decision to shut down its Wichita,
Kansas, facility where it had planned to militarize the planes
added a further complication, despite the government's
insistence that it will hold Boeing to its contractual
obligation to deliver 18 aircraft by August 2017.
"If the provisions in the current contract remain intact,
the government's cost liability will be safeguarded ... However
these provisions cannot prevent delays in delivering aircraft
should problems be discovered late in development or while
production is under way," it said.
Only about 60 percent of the flight testing of the new
planes is planned to be competed when the Air Force plans to
start low-rate production of the new tankers in August 2015.
GAO identified three technologies that still needed to be
demonstrated in a realistic environment, including a new
three-dimensional display for the crew members who operate the
plane's refueling boom and several software issues.
It also raised concerns about the plane's weight, which is
already near its limit, and instability of the hose used on new
The Air Force acknowledged that there was some concurrency
on the program, but said it was "nowhere near as much as most
other major aircraft acquisition programs," adding that it
viewed the risk of schedule delays as "moderate."
"The Air Force clearly recognizes schedule as the top risk
on the KC-46 program ... however the Air Force believes the GAO
assessment that the KC-46 program has 'significant concurrency'
overstates the actual level and impact of schedule concurrency
between development, testing and production activity," it said
in a response to the GAO report.