If ever a contest proved the truth of Yogi Berra's "It ain't over till it's over" quip, it's the KC-X Tanker.
Round One: In 2004, the Air Force tried to give Boeing (NYSE:BA) a contract to lease refueling tankers -- and got shot down amid a quid pro quo scandal. Round Two: Four years later, the Pentagon aborted a second attempt to obtain new tankers when a private contest between Boeing and Northrop Grumman (NYSE:NOC) degenerated into a very public shouting match.
Here comes Round Three.
KC-X = What?
After months of waiting, investors got their first glimpse at the Air Force's new-and-improved requirements for the KC-X competition Thursday. If the teams remain the same as before, Boeing's side, which includes Rockwell Collins (NYSE:COL), Spirit AeroSystems (NYSE:SPR), United Technologies (NYSE:UTX), and Honeywell (NYSE:HON), will vie with Northrop, EADS, GE (NYSE:GE), and ... Honeywell, to satisfy 373 mandatory requirements for the new aircraft, along with 93 non-mandatory goals.
By cutting the requirements in half from Round Two's bulky 800-rule contest, the Air Force aims to craft a fairer contest. New terms include:
- Choosing a winner based not on the lowest price, period, but on which bid offers the best value for the money.
- Considering various wartime scenarios in which the planes may need to operate, and adjust the value proposition accordingly.
- Considering too whether one plane may entail extraneous costs based on its burning more fuel than the other, or requiring new military construction.
Which sounds fair, but that last point tells me this competition may be tilted ever so slightly in Boeing's favor. How? You may recall that back in January 2008, Boeing argued its plane's superiority in part because the smaller KC-767AT consumed less fuel than Northrop's KC-30. Additionally: "nearly twice as many [smaller Boeing] KC-767s can be based on a parking ramp compared to the competitor's oversized aircraft."
As it turned out, the Air Force actually preferred the bigger plane last time around, calling it "the best value to the government," possibly because the KC-30 could serve as a troop transport when not hauling gasoline. This time, however, the KC-30's size could prove a disadvantage if it's penalized for greater fuel consumption, or if the military has to build larger runways to accommodate its size. Both factors would increase the KC-30's imputed cost -- benefiting Boeing.
Foolish final thought
Bear in mind that Boeing could lose this advantage if it elects to offer a larger, Boeing 777-based tanker this time around. Such a move could also shake up the team's structure if Boeing mounts a Rolls Royce or GE engine on the plane.
Which way will it go? Like the man said, we won't know till it's over. Stay tuned.
