Page 1 GAO-10-124R 

 

United States Government Accountability Office

Washington, DC 20548 

 

October 5, 2009 

The Honorable Solomon Ortiz 

Chairman 

Subcommittee on Readiness 

Committee on Armed Services 

United States House of Representatives 

Subject: Briefing on Air Force’s Response on Fee-For-Service Aerial Refueling 

Section 1081 of the National Defense Authorization Act for Fiscal Year 2008 calls for 

the Secretary of the Air Force to conduct a pilot program to assess the feasibility and 

advisability of utilizing commercial fee-for-service air refueling tanker aircraft for Air 

Force operations.1 In response to your May 2009 letter to the Secretary of the Air 

Force requesting an update on the status of this pilot program, the Air Force 

submitted the Status of the Pilot Program on Commercial Fee-For-Service Air 

Refueling Support for the Air Force on August 7, 2009. 

This letter formally transmits the enclosed briefing in response to your May 2009 

request requiring GAO to provide the Subcommittee an assessment of the information 

in the Air Force update and any recommendations regarding the fee-for-service air 

refueling pilot program that may be appropriate. The full briefing, including our 

scope and methodology, is reprinted as Enclosure 1. As part of our quality assurance 

protocol, we obtained comments on the briefing from DOD and incorporated those 

comments as appropriate. 

This report will also be made available at no charge on GAO’s Web site at 

https://gao.gov. Should you or your staff have any questions concerning this report, 

please contact me at (202) 512-8365 or solisw@gao.gov. Contact points for our Office 

of Congressional Relations and Public Affairs may be found on the last page of this 

1

 Section 1081 of the National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-181, January 28, 

2008. 
Page 2 GAO-10-124R 

Landesman; John Van Schaik; and Stephen Woods. 

 Capabilities and Management 

nclosure

report. Key contributors to this report were Ann Borseth, Assistant Director; Charles 

Perdue, Assistant Director; Noah Bleicher; Laura Czohara; Stephanie Gaines; Joanne 

William M. Solis 

Director, Defense

E
Enclosure: Briefing Slides 

Page 3 GAO-10-124R 

Enclosure: Briefing Slides 

GAO REVIEW OF THE AIR FORCE COMMERCIAL

FEE-FOR-SERVICE AIR REFUELING PILOT PROGRAM

Observations on Status Report

Briefing for the Staff of the

House Committee on Armed Services, 

Subcommittee on Readiness

September 11, 2009

1
Enclosure: Briefing Slides 

Page 4 GAO-10-124R 

2

Briefing Outline 

• Background

• Objectives, Scope, Methodology

• Observations on Fee-for-Service Air Refueling Pilot Program
Enclosure: Briefing Slides 

Page 5 GAO-10-124R 

3

Background

• Section 1081 of the National Defense Authorization Act for FY 2008 (Public Law 110-181) calls for the 

Secretary of the Air Force to conduct a five year pilot program to evaluate the feasibility and advisability of 

fee-for-service air refueling to support, augment, or enhance the air refueling mission of the Air Force by 

utilizing commercial air refueling providers on a fee-for-service basis.

• Additionally, Section 1081 mandates GAO submit to the congressional defense committees (1) an 

annual review of the conduct of the pilot program and any recommendations for improving the 

program and (2) a final assessment of the results of the pilot program and recommendations for 

whether the Secretary of the Air Force should continue to utilize fee-for-service air refueling.

• On May 7, 2009, the House Committee on Armed Services, Subcommittee on Readiness, requested that 

the Secretary of the Air Force submit, no later than July 30, 2009, a report to include the current status of 

the fee-for-service air refueling pilot program, the additional steps needed to implement the pilot, and 

information regarding the cost of conducting the pilot program from the planning phase through the five 

year period required in the legislation. 

• The Subcommittee also requested GAO to assess the Air Force’s status report on the fee-for-service air 

refueling pilot program no later than 60 days after the date on which the Secretary of the Air Force submits 

the report. The Air Force report was submitted Aug. 7, 2009.
Enclosure: Briefing Slides 

Page 6 GAO-10-124R 

4

Background (continued)

• Air refueling occurs using two methods: flying boom or probe and drogue 

• Boom in-flight air refueling is accomplished by the Boom Operator, flying the tanker’s refueling boom 

into the receiver’s receptacle. Once connected, the tanker pumps fuel from its fuel tanks into the 

receiver’s fuel tanks. This is the primary method used by the Air Force.

• Probe and drogue air refueling is accomplished by a probe-equipped receiver flying the receiver 

aircraft’s probe into the tanker’s drogue — a basket attached to the end of a flexible hose or the 

tankers boom. Once connected, the tanker transfers fuel to the receiver aircraft. This is the method 

used by the Navy.

• There are no commercial boom-equipped refueling aircrafts. 

• The Air Force gathered data from two Requests For Information (RFIs) and hosted two sets of Industry 

Days to help inform what would be necessary for a successful pilot program, to develop cost estimates, 

and to gain insight concerning the status of the industry today.

• According to the Air Force’s response, entitled Status of the Pilot Program on Commercial Fee-For-Service 

Air Refueling Support for the Air Force, potential participants in the pilot program will need time to acquire a 

boom and modify an aircraft. The fee-for-service air refueling pilot program anticipates an 18 to 36 month 

preparatory period during which a boom-equipped air refueling aircraft will be developed. Air Mobility 

Command will then conduct the pilot program over the five year service period required by law. 
Enclosure: Briefing Slides 

Page 7 GAO-10-124R 

5

Background (continued)

Based on Air Force assessment of information gathered at Industry Days, two models are likely to emerge

for the pilot program because, according to the Air Force, the new aircraft will have to be certified 

airworthy (either by the Federal Aviation Administration (FAA) or the Air Force) and because various 

vendors will likely compete under their preferred model of certification of airworthiness.

Aircraft in the Pilot Program could operate under two models:

Model 1: Air Force would be the airworthiness certification authority

Model 2: FAA would be the airworthiness certification authority

__________________________________________________________________________________________________________

The Pilot Program would be structured under two options:

Option 1: Two Vendors, Four Aircraft (Two Aircraft each)

• One vendor with Air Force certification; and 

• One vendor with FAA certification

Option 2: One Vendor, Two Aircraft

• Single certification (either FAA or AF certification)
Enclosure: Briefing Slides 

Page 8 GAO-10-124R 

6

Objectives

Key objectives of our engagement describe

(1) whether the Air Force response addresses the elements as requested by the 

House Committee on Armed Services, Subcommittee on Readiness; and

(2) any additional information relating to the Fee-for- Service (FFS) Air Refueling pilot 

program that could further inform congressional defense committees.
Enclosure: Briefing Slides 

Page 9 GAO-10-124R 

7

Scope and Methodology

Scope

• Office of Assistant Secretary of the Air Force (Acquisition) Global Reach Programs (SAF/AQQ), Rosslyn, 

VA

• Office of Assistant Secretary of Defense, Acquisition, Technology and Logistics, Defense Procurement and 

Acquisition Policy, the Pentagon

• Air Force Acquisition, Program Executive Office for Combat and Mission Support, the Pentagon

• Air Force Materiel Command, Aeronautical Systems Center, Wright Patterson Air Force Base, Ohio

• Air Force Air Mobility Command, Scott Air Force Base, Illinois

Methodology

• We reviewed Section 1081 of the National Defense Authorization Act for FY 2008 (Public Law 110-181), 

the Air Force’s response, entitled Status of the Pilot Program on Commercial Fee-For-Service Air 

Refueling Support for the Air Force as well as DOD and Air Force policy and guidance, including 

Department of Defense Instruction 5000.02, Enclosure 9, and Air Force Instruction 63-101. 

• We interviewed officials to gain an understanding of the Fee-For-Service Air Refueling Pilot Program, 

including cost estimates, the requirements generation process, legislative relief identified by the Air Force, 

and the review and approval process for the acquisition of services, specifically those designated “Special 

Interest”. 

• We conducted our work from June to September 2009 in accordance with all sections of GAO’s Quality 

Assurance Framework that are relevant to our objectives. The framework requires that we plan and 

perform the engagement to obtain sufficient and appropriate evidence to meet our stated objectives and to 

discuss any limitations in our work. 
Enclosure: Briefing Slides 

Page 10 GAO-10-124R 

8

GAO Review of the Air Force Response

• The Air Force response, Status of the Pilot Program on Commercial Fee-For-Service Air Refueling Support for 

the Air Force, addresses the elements as requested by the House Committee on Armed Services, Subcommittee 

on Readiness.

• We found additional information that could further inform the Subcommittee about the pilot program in the areas 

of costs, legislative relief, and service contract requirements.
Enclosure: Briefing Slides 

Page 11 GAO-10-124R 

9

Observations on the Air Force Commercial Fee-For-Service Air 

Refueling Pilot Program

Cost

• Total costs of the FFS Air Refueling pilot program are uncertain but are likely to be significant.

• Cost figures for the FFS Air Refueling pilot program range from:

• $2B (the initial estimate based on preliminary data gathered from the first RFI as well as the first round of 

Industry Days, February-April 2008) to

• $1.3B (as estimated from more detailed data gathered from the second RFI as well as the second round of 

Industry Days and based upon further cost analysis, February 2009). According to Air Force officials and 

GAO analysis, this estimate is based on detailed cost estimating (including government support costs for 

developing RFP as well as standing up a program office, and service period costs such as certification 

costs) to 

• $850M-$900M (as reported in the Air Force response, Status of the Pilot Program on Commercial Fee-ForService Air Refueling Support for the Air Force.

(Note: According to Air Force officials, cost estimates are in constant FY09 dollars. Therefore, the 

estimates do not account for inflation).
Enclosure: Briefing Slides 

Page 12 GAO-10-124R 

10

Observations on the Air Force Commercial Fee-For-Service Air 

Refueling Pilot Program

Impact of Amortization 

• It is important to note how the application of amortization costs impacts the cost per flying hour. 

• For example, the Air Force response states that the “Air National Guard...could provide an additional 

4,800 hours of air refueling per year for $43 million per year”. This equates to a cost of about $8,960 

per flying hour.

• According to Air Force officials, there are no amortization costs built into the flying hour cost portion of 

the $43 million per year because the aircraft (KC-135) has been fully amortized. 

• According to GAO analysis, the cost of a long term Fee-for-Service Air Refueling Pilot Program would mean 

lower vendor flying hour costs because the amortization costs would be spread over a longer period of time 

than just the five year pilot period. 

• Additionally, the AF is mandated to report annually on the fee-for-service air refueling program, including 

information on, among other things, the annual and cumulative cost to the Government of the program, 

including a comparison of costs of the same service provided by the Air Force.
Enclosure: Briefing Slides 

Page 13 GAO-10-124R 

11

Observations on the Air Force Commercial Fee-For-Service Air 

Refueling Pilot Program

Legislative Issues

The Air Force response identified legislative changes it believes are necessary to begin the pilot program. According 

to the Air Force, the following require legislative authority:

• Legislative authority to award a multiyear services contract

• According to the Air Force, a multiyear contract is necessary to assist vendors’ ability to secure 

financing, reduce program costs, and increase competition.

• Aerial Refueling is not one of the covered services authorized for multiyear contracting in 10 U.S.C. § 

2306c(b). Therefore, any multiyear contract for these services would require legislation authorizing 

the contract. 

• Legislative authority to award an 8-year multiyear contract

• FFS AR pilot program executed in two phases – preparatory (boom development and test for 1.5-3 

years) and service (five year pilot program).

• The law authorizes certain multiyear services contracts for not more than five years. Therefore, a 

contract for longer than five years would require legislation authorizing the contract.

• Legislative authority to award a multiyear contract valued at more than $500M

• If the value of the multiyear contract is to exceed $500M, authority for the contract must be 

specifically provided by law, in accordance with 10 U.S.C. § 2306c(d)(2).
Enclosure: Briefing Slides 

Page 14 GAO-10-124R 

12

Observations on the Air Force Commercial Fee-For-Service Air 

Refueling Pilot Program

Legislative Issues Continued

The Air Force response identified additional legislative changes it says are necessary to award a multiyear contract

for the Fee-For-Service Aerial Refueling pilot program:

• The Air Force identified the need for authority to award a multiyear contract with an unfunded contingent 

liability in excess of $20M. 

• Existing multiyear contract authority requires congressional defense committee notification of a 

contract for services that includes an unfunded contingent liability in excess of $20M. 10 U.S.C § 

2306c(d)(1).

• The Air Force identified the need for authority to award a multiyear contract with a cancellation ceiling in 

excess of $100M.

• Existing multiyear contract authority requires congressional defense committee notification of a 

contract for services that has a cancellation ceiling in excess of $100M. 10 U.S.C. § 2306c(d)(4). 
Enclosure: Briefing Slides 

Page 15 GAO-10-124R 

13

Observations on the Air Force Commercial Fee-For-Service Air 

Refueling Pilot Program

Legislative Issues 

Additionally, the Air Force response identified other areas that it says require legislative action:

• Relief from funding for contract cancellation costs

• Under current law, if the budget for a multiyear contract does not include proposed funding for 

contract cancellation up to the cancellation ceiling of the contract, the agency head must provide 

congressional defense committees a financial risk assessment of not budgeting for cancellation 

costs, including the cancellation ceiling amounts for each contract year. 10 U.S.C. § 2306c(d)(5).

• Air Force says cancellation costs will be substantial during preparatory period and decrease annually.

• Relief from a requirement to certify that contracting for the service is the most cost-effective means of 

obtaining the service

• The Air Force anticipates that potential vendors will seek indemnification under Public Law 85-804 for 

potential tort liability to third parties for personal injury or property damage resulting from aerial refueling 

operations.

• Instead, the Air Force recommends that Congress authorize government insurance for the service 

providers under 49 U.S.C. Chapter 443.
Enclosure: Briefing Slides 

Page 16 GAO-10-124R 

14

Observations on the Air Force Commercial Fee-For-Service Air 

Refueling Pilot Program

Review and Approval Process for Service Acquisitions 

• In February 2009, OSD AT&L published guidance on review criteria for the acquisition of services, 

specifically stating that AT&L will review and approve all proposed acquisitions for services over $1B as 

well as those categorized as “Special Interest”. 

• According to Air Force and OSD officials, service acquisitions that are less than $1B, but are complex, 

have high congressional interest, and entail a large commitment of resources, may warrant a “Special 

Interest” designation.

• According to the OSD guidance, this designation entails specific oversight procedures, including the 

review and approval of the acquisition strategy as well as a peer review panel, which involves the Director 

of the Defense Procurement, Acquisition Policy and Strategic Sourcing.

• As of August 2009, the Air Force Fee-For-Service Air Refueling pilot program has not been designated 

“Special Interest”. However, according to both the Air Force response as well as Air Force and OSD 

officials, this pilot program is anticipated to be designated “Special Interest’. According to OSD AT&L, 

review and approval of the acquisition strategy would occur prior to the issuance of a draft Request for 

Proposal.

• According to an OSD official, because the Fee-For-Service Air Refueling pilot program has been 

legislatively required, it is unclear what impact this designation would have in the pre-award period. 

(351408)

(351408) 
This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately. 
The Government Accountability Office, the audit, evaluation, and GAO’s Mission investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help 

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost Obtaining Copies of is through GAO’s Web site (www.gao.gov). Each weekday afternoon, GAO 

GAO Reports and posts on its Web site newly released reports, testimony, and 

correspondence. To have GAO e-mail you a list of newly posted products, Testimony go to www.gao.gov and select “E-mail Updates.” 

Order by Phone 	 The price of each GAO publication reflects GAO’s actual cost of 

production and distribution and depends on the number of pages in the 

publication and whether the publication is printed in color or black and 

white. Pricing and ordering information is posted on GAO’s Web site, 

http://www.gao.gov/ordering.htm. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 

TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, 

MasterCard, Visa, check, or money order. Call for additional information. 

Contact: To Report Fraud, 

Waste, and Abuse in Web site: www.gao.gov/fraudnet/fraudnet.htm 

E-mail: fraudnet@gao.gov

Federal Programs Automated answering system: (800) 424-5454 or (202) 512-7470 

Ralph Dawn, Managing Director, dawnr@gao.gov, (202) 512-4400 Congressional U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Relations Washington, DC 20548 

Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800 Public Affairs U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, DC 20548