via Daily Finance.com
In a world where sequestration is the norm, and defense spending exists in a proverbial vice, one thing a company doesn't want to do is have a product that's too expensive. And $10 billion above budget is way, way too expensive. Unfortunately for Boeing's KC-46A tanker, that's exactly what's happening. But in a surprising twist, this actually may be bad news for Lockheed Martin's F-35, not the tanker. Here's what you need to know.This is just too damn juicy.
The KC-46A will replace the aging KC-135, seen here refueling an F-15. Photo source: DefenseImagery/Wikimedia Commons
The $10 billion breach
In a report given to Congress in May, the Air Force estimated that over the five decades of planned service, the support costs for the KC-46A tankers would be $103 billion. That's 11% more than the previous estimate of $92.7 billion. More pointedly, it breaches a key component of the program's acquisition baseline plan.
The good news is that this breach isn't something Boeing is liable for -- which is especially good considering Boeing's already liable for an estimated $700 million in cost overruns during the development phase. In fact, this breach is due to the fact that the Air Force intends to increase flying hours on the tanker, as well as assigning 3.5 aircrews to the aircraft, instead of 2.5. What's even better news for taxpayers is that the Air Force stated that it's committed to staying within its budget, and will not seek additional funding for the KC-46A. But that, right there, is bad news for Lockheed.
What's good for Boeing is bad for Lockheed
There have been a number of defense budgets bouncing back and forth between the House and the Senate. But the latest 2014 Defense Appropriations proposal that passed last week in a Senate committee includes funding for the KC-46A development. It also cuts funding for Lockheed's advanced F-35 procurement funding for 2015.
As Lt. Gen. Charles Davis, the Air Force military deputy for acquisition, said earlier this year, the Air Force would likely "protect the tanker no matter what" which could mean scaling back on F-35 procurements.
Moreover, Senate subcommittee chairman Sen. Dick Durbin said about the recently passed measure, "We are crafting this support in a highly uncertain and tumultuous budget environment. We cannot continue like this. Across-the-board sequestration cuts are forcing us to play Whac-a-Mole with the defense budget."The fact of the matter is that sequestration is reality, and the Air Force has to operate under a reduced budget. So, if something costs more than it is budgeted, then the extra money spent on one program has to come from another program.
What people aren't realizing is that the long knives are going to come out for the F-35. Everyone has a priority and the F-35 only covers a few of them.
Sequestration is here to stay. Deal with it. Additionally this was going to happen anyway. Remember the talk when Hagel was appointed SecDef? It was with the idea that he was going to dramatically cut the Pentagon.
All the Republicans have done is give him cover to do what the Administration wanted done anyway.
The biggest juiciest easiest target to hit is the F-35.
This is gonna be good. Read the whole thing here.
Wow. I knew these two would conflict eventually, but I always thought the F-35 would simply mow down the tanker. I never thought it would result in reduced F-35 orders, which could potentially kill the jet. Looks like what we have here is conflict of interest.
ReplyDeleteI'm shocked. General Davis, who once ran the F-35 program on high-octane over-optimism, is now in charge of USAF procurement.
ReplyDeleteIf there are less F-35 you might imagine we would need less tankers. On the other hand, if the plan is to keep older aircraft flying, it must mean that we need to keep more of them (since I am sure the Air Force claims that the F-35 is much more capable, otherwise how could they justify buying it) - and so greater numbers of older aircraft means more hours on the tankers since they can't think of ordering more !
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