“Giving a Lift to Those in Need”

Docket Management Facility February 8, 2010

US Department of Transportation

1200 New Jersey Avenue, SE

West Building Ground Floor

Room W12-140

Washington, DC 20590

Subject: Petition for Exemption from 14 CFR Part 21 Section 21.27(a) for Boeing Model C-17 

Cargo Aircraft.

Pursuant to Federal Aviation Administration procedure for processing petitions for rule making 

(Title 14 CTR Part II Subpart A), Humanitarian Air Logistics, Inc (HAL) a proposed user of Boeing 

Model C-17 military aircraft upon any approval of requested exemption, hereby files subject 

petition for an exemption from the requirements of FAR 21.27(a) for humanitarian and 

commercial use of the C-17. 

Rule from which relief is sought

Part 21 Section 27 -- Issue of type certificate, surplus aircraft of the Armed Forces states in 

21.27(a) that “Except as provided in paragraph (b) of this section an applicant is entitled to a 

type certificate for an aircraft in the normal, utility, acrobatic, commuter, or transport category 

that was designed and constructed in the United States, accepted for operational use, and 

declared surplus by, an Armed Force of the United States, and that is shown to comply with 

applicable certification requirements in paragraph (f) of this section.”

Nature of relief sought

Relief is sought to allow certification of the Boeing Model C-17 military cargo/transport aircraft 

under 14 CFR 21.27 without the need for the aircraft to be accepted for operational use and 

declared surplus by the Armed Force of the United States.

Description of C-17 aircraft requested

The C-17 is a military cargo/transport aircraft operated by the United States Air Force. The 

aircraft provides the US Air Force with flexibility, speed, room for heavy and oversize cargo, and 

landing capability into short and/or austere fields. The aircraft is powered by four Pratt & 

Whitney F117-PW-100 turbofan jet engines, essentially the same PW2000 series powerplants 

as certified on the Boeing Model 757 aircraft.
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The flight deck features two Head-Up Displays (HUD’s) that serve as Primary Flight Displays and 

are designed to enhance the aircraft’s flight safety by providing primary flight information in a 

heads-up environment.

Although designed and utilized for military transport in the U.S. Department of Defense (DoD) 

operations, a much harsher operational environment than is typically experienced by 

commercial aircraft, the C-17 has been used in numerous humanitarian and disaster relief 

applications around the world. The unique design features of the C-17 make it ideally suited to 

provide commercial cargo delivery capabilities not available in any other airplane type certified 

by the FAA. 

Information provided in support of petition

Airlift capability is critical to the Pentagon’s strategy for protecting U.S. national security 

interests around the world. The C-17 plays an important role in those operations, enabling the 

Armed Services to perform previously impossible tasks – to transport oversized, heavy 

equipment and large quantities of material to places where it is most needed and that in the 

past could not be served by large aircraft.

The C-17 was designed, built and tested to a rigorous set of standards specified by the USAF. It 

entered operational service in June 1993 and has a long and enviable safety record. It continues 

to prove its airworthiness in difficult operational conditions for the DoD. The C-17 has proven 

to be a highly reliable aircraft, demonstrating mission-capable rates exceeding the USAF’s 

minimum performance specification and approaching those for commercial transport category 

aircraft. 

There is an annual debate in Congress and the Pentagon about the need for additional airlift 

capacity in the U.S. military and the kinds of aircraft required. Although the C-17 is currently in 

production, the FY11 DoD Budget has the program being terminated. 

One of the areas a civil C-17 can be utilized is in the Civilian Reserve Air Fleet (CRAF) program

which relies on three key features. 

1. The CRAF must satisfy a portion of the wartime requirement for oversize airlift, a 

capacity that does not currently exist in the CRAF fleet of U.S. air carriers.

2. The oversize aircraft must be available and certified for commercial use.
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3. Industry must be willing to invest in and manage this new U.S. Business. Industry 

validated studies conducted by USAF consultants provided evidence that there is a 

viable commercial oversize air cargo market for the C-17 aircraft. 

Due to the lack of commercial oversize capabilities here in the United States -- the DoD and U.S. 

corporations have regularly contracted with foreign air carriers operating oversize heavy-lift 

aircraft. For example, between FY 06 to FY 08, the DoD has used former Soviet military An-124 

aircraft to carry out 887 flights for an estimated cost to taxpayers of $706 million and the 

amount of money and number flight is growing each year. During the same timeframe, the DoD 

has also contracted IL-76 cargo aircraft to carry out 4,967 flights for a cost to taxpayers of $294 

million. (See Exhibit 1)

According to Boeing (by commercial standards) the C-17 is an expensive aircraft when 

considering its payload and range capability. And based on previous estimates, strict 

compliance to FAR 25 would impose a severe financial burden that makes acceptance of the 

aircraft by the civil market problematical and likely unattainable. In addition, with the relatively

small number of aircraft over which to spread development costs, the price to a commercial 

customer becomes prohibitive. 

In addition, recent actions by the WTO make any investment in a commercial BC-17 highly 

unlikely. From information available, Boeing no longer has any interest or intention to create a 

BC-17. Thus, if our nation wishes to find a way to reduce the reliance of foreign carriers 

operating oversize aircraft and meet the demand for the ‘oversize’ short airfield market (SAM)

the USAF version of the C-17 is the only available aircraft.

Boeing has previously stated to the FAA that utilizing FAR 21.27 for the certification process will 

minimize the changes from the USAF configuration, thus reducing the development and 

certification costs while maintaining substantially the same level of airworthiness. Granting this 

exemption will facilitate minimizing any certification cost and result in an affordable aircraft 

that can also fulfill the humanitarian, commercial, and CRAF roles during contingency

operations and provide our nations businesses with an oversize airlift capability that is currently 

lacking anywhere in the world.

A precedent for granting an exemption of this nature can be found in Exhibit No. 2 with the 

1964 approval by the FAA of Lockheed’s request for the C-130E. 
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Reasons for granting an exemption to Humanitarian Air Logistics for use of C-17

In its September 23, 2008 denial to Boeing for an exemption to 14 CFR Part 21 Section 21.27(a) 

for the C-17 (See Exhibit No. 3), the FAA stated Boeing had not provided sufficient information 

to substantiate the civil use of the C-17/BC-17 aircraft required to fulfill the need for such an 

exemption. The FAA also stated in that denial, that they consider the following two main points 

in granting any such petition for an exemption.

1. Why granting the request would be in the public interest, and 

2. The effect on safety.

Our nonprofit company Humanitarian Air Logistics (HAL) offers the following justifications to

substantiate the meeting of those two objectives listed above. 

1. The use of a civil C-17 will provide continued coverage for humanitarian and disaster 

‘oversize’ airlift support both here in the United States and internationally. Under Title 

10 Sec. 2561, the Department of Defense is permitted to provide transportation for 

humanitarian and other assistance but only if other sources to provide such 

transportation are not readily available. Thus, if civil C-17’s were available, the DoD 

must defer to the use of that aircraft before using their aircraft. If denied this 

exemption, the FAA would be preventing our nonprofit, non-governmental company 

from meeting the public interest in providing domestic and international humanitarian 

and disaster transportation assistance as envisioned by Sec. 2561.

(See Exhibit 4) 

2. In Public Law 110-417 Sec. 1037, the Congress had asked the Secretary of Defense to 

‘determine’ if it is the national interest to have a civil C-17. In the language from that 

law he is tasked to work with the Secretary of Transportation on achieving type 

certification of a commercial variant of the C-17 under Section 21.27 of Title 14, Code of 

Federal Regulations. We will show that it is the public interest to allow that certification 

for our use of the civil C-17. (See Exhibit 5)

3. According to a FOIA document provided to us by the USAF Air Mobility Command (AMC) 

in the last three years (FY06-FY08) the USAF has flown over 6,400 flight hours in support 

of humanitarian airlift worldwide on behalf of the American people. The majority of 

those flights were carried out by the C-17. It’s unique ability to land and take-off from 
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short austere runways, proven reliability and safety record provides the federal 

agencies and non-governmental organizations (NGO’s) with a valuable tool in providing 

needed supplies and oversized equipment directly to the front line in a disaster as 

evidenced by the recent earthquake in Haiti. This ability cannot be easily duplicated with 

any other aircraft. It is a capability that has benefited people the world over time and 

again and it is in the public interest to have this capability available for our use. 

(See Exhibit 6)

4. The USAF is seriously short of flight crews and has recently asked retired military pilots 

who have not yet reached their 61st birthday, to reenter active duty service and fly for 

the USAF. This lack of flight crews can be viewed as a potential national security 

problem. Providing the exemption to HAL will allow us to operate civil C-17’s for 

humanitarian flights and that in turn, will allow the USAF to free up its flight crews. That 

changeover would be in the public interest because these Air Force flight crews are 

badly needed for the defense of this nation. (See Exhibit 7)

Full RAND report found here: http://www.rand.org/natsec_area/products/afpilot.html

5. The President, Vice President, Secretary of State, Secretary of Defense, Chairman of the 

Joint Chiefs, and Chairman of the Senate and House Foreign Affairs Committees all 

agree that the DoD needs to shift the majority of its involvement in foreign stability 

operations back to non-military organizations. That includes humanitarian relief 

operations back to civilian governmental agencies like USAID and non-governmental 

organizations (NGO’s) like ours. In its 2009 Quadrennial Roles and Missions Review 

Report, the DoD speaks about this shift in policy which has been coined by the Obama 

Administration as ‘smart power’ while others still use the older term of ‘soft power’. 

One of the shortcomings in using the military for these efforts is that it has been 

recognized by various NGO’s, the Congress and even Secretary Gates that the U.S. 

military is not always a welcome sight in humanitarian operations. In some countries, 

their very presence has put relief workers and the disaster victim’s very lives at risk. 

Because the C-17 is an important part of those humanitarian airlift efforts (by the DoD) 

removing the DoD from some of these situations would mean the loss of that unique 

airlift capability. However, by allowing HAL to operate the C-17 will remedy this 

dilemma.

Take the case of the U.S. military attempting to provide humanitarian support to Burma 

(Myanmar) after a deadly cyclone in 2008. The military rulers of that country were very 

reluctant to allow U.S. military airlift support into that country. In the end, Secretary 
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Gates is quoted (below) as saying that ‘tens of thousands’ needlessly died because of 

their (Myanmar’s) refusal to allow a larger and more concerted airlift. We believe that 

with our non-military aircraft such as the civil C-17 providing airlift, that concern would 

likely have been avoided. 

Myanmar's obstruction of international efforts to help cyclone victims cost "tens of 

thousands of lives," Defense Secretary Robert Gates said Saturday in his strongest 

condemnation to date of the military government there. With U.S., British and French 

Navy ships off the coast of Myanmar poised to leave because they have been blocked 

from delivering assistance to the ravaged country, Gates said the U.S. will not forcefully 

bring in supplies without permission of the government, and will continue to "respect

the sovereignty" of Myanmar. (Emphasis added – AP article by Lolita C. Baldor linked 

below)

http://seattletimes.nwsource.com/html/nationworld/2004449301_webgates30.html

Another example of this issue was when the DoD sent C-17’s into the Country of Georgia 

to provide humanitarian airlift during the recent conflict between Georgia and Russia. 

The Russian government accused the U.S. Government of using those humanitarian 

flights to re-arm the Georgians. If HAL had provided those flights, that highly charged 

accusation would have been rendered moot. 

Finally, the ongoing humanitarian relief efforts in Haiti have caused some to call the 

highly visible control of the airport there and (purported) prioritization in favor of US 

military aircraft a problem. If we had use of the C-17, HAL would have been able to 

provide much of the oversize relief airlift in lieu of using the USAF’s C-17’s.

These few examples show that our proposed operation of a civil C-17’s would mitigate

political tensions and save human lives. That is clearly in the public interest because it 

creates goodwill and in turn assists the U.S. Governments use of ‘smart power’ to 

reduce the threat of terrorism against this nation.

6. In 2007, Boeing produced an operational study justifying the use of ten (10) civil 

C-17’s. This Boeing study was derived from a 2003 report commissioned by the USAF. 

That USAF report performed by the Council for Logistics Research (CLR) confirmed there 

is a commercial need for these aircraft and that there is a sufficient market and income 

to justify the use of civil C-17’s. This comprehensive study substantiated the need of this 

service especially in government operations and oil exploration. It is in the public 
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interest and this nation’s security to facilitate the exploration and development of 

alternate sources of energy to reduce our dependence on foreign oil. The Obama 

Administration has made this a key imperative. Below is an excerpt which outlines the 

background and conclusion of the CLR report.

BACKGROUND:

The November 2000 Commercial Application of Military Airlift Aircraft (CAMAA) report 

recommended a proposal that would allow the Department of Defense to leverage 

military airlift aircraft if such aircraft were available in the commercial market. The 

report suggested a unique military-commercial risk-sharing strategy to introduce a 

commercialized C-17, or BC-17X, into the market for transporting heavy and/or outsize 

goods (the Heavy Outsize Market, or HOM), which is currently being served by Russianmade AN-124s. 

CONCLUSIONS:

As a follow-up to the initial study, this Risk Reduction Report on the Short Austere 

Market (SAM) was commissioned to determine if there are current commercial markets 

closely aligned with unique BC-17X operational characteristics that might mitigate 

commercial market-entry risks for potential BC-17X operators and thus reduce the risk 

of the CAMAA concept. This SAM study, completed in 2003, concludes that the SAM, 

the market for transporting heavy and/or outsize equipment and material loads to 

short, austere airfields, is large enough and has a yield sufficient to maintain a profitable 

operation for at least ten BC-17X aircraft, validating the commercial market premise of 

the CAMAA initiative. Consequently, the previous study’s findings that the Department 

of Defense’s outsize airlift requirements could be fulfilled, in part, by leveraging the BC17X in the commercial market, can be viewed as well founded and as a viable business 

concept worthy of detailed implementation studies. 

(Executive Summary page of CLR report – See Exhibit 8)

In its own petition, Boeing cited the Commission on the future of the United States Aerospace

Industry Final Report of 2002 which concludes in its first recommendation, “the integral role 

aerospace plays in the United States economy....security....mobility, and....values makes global 

leadership in aviation and space a national imperative.” They go on to say “It is essential to the 

United States International competitiveness in the aerospace industry (and the commercial and 

trade advantages that derive from that position) that U.S. companies manufacture and operate 

aircraft such as the C-17 in commercial service. An aircraft that can penetrate relatively 

untapped air cargo markets of now and in the future, service the U.S. industrial base and play 

an important role in fostering U.S. national and public interests.” (See Exhibit 9)
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7. Because we are an approved 501 (c) (3) nonprofit organization, we are exempt from 

paying federal income taxes. This provides us with a unique opportunity to use all funds 

generated by commercial use of the C-17 aircraft to offset most if not all of the 

operational costs associate with the humanitarian flights we plan to operate on behalf 

of the U.S. Government. In those same last three years we previously mentioned that

the average annual amount spent on humanitarian flights by the AMC was $30 million. 

By operating the civil C-17 in commercial use, we can likely provide American taxpayers 

with this humanitarian service at little or no cost. That is a direct benefit to the public 

interest because that contribution will (in a small way) help to bring the nation’s budget 

into balance.

8. As we have shown (in Exhibit 1) hundreds of millions of dollars are being spent annually 

on chartering foreign operated An-124 heavy-lift aircraft for the DoD and commercial 

users. The U.S. Department of Transportation routinely provides emergency exemptions 

to these foreign carriers for charter flights into U.S. airspace because there is currently 

no oversize airlift capability here. (See Exhibit 10)

Our presence in the U.S. market with civil C-17’s would reduce the need for many of 

those foreign charter flights and in addition, allow the DoD and other federal agencies 

to meet the provisions of the Buy America Act. This would be in the public interest

because it will provide much needed employment opportunities here and reduce the 

reliance on foreign companies for DoD charter flights. 

In a September 2009 report (GAO 09-625) the GAO voiced their concern that the use 

and reliance on these foreign carriers by the DoD is a potential national security 

problem and that it would be in the national interest to correct this. 

“Additionally the potential absence of sufficient oversize cargo capability could 

potentially jeopardize national security by preventing DOD from accomplishing its 

missions due to an inability to move outsized cargo into areas of crisis within the time 

frames the commanders need it to arrive”. (See Exhibit 11 and pg. 20 of GAO report)

9. The record will show that wildfires are an increasingly serious threat in the Western and 

Southwestern part of this nation. The civil C-17 can provide critical airlift support for 

these efforts. For example, the aircraft can be used to fly fire trucks and their crews to 

the nearest suitable airport instead of having them drive hours or even days from 

around the country to the site of the fire. This type of oversize airlift support will help to 

mitigate the imminent threat of life and property and that is in the public interest. 
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10. When compared to the An-124, the C-17 has a better safety record. Records show that 

the An-124 has had four serious accidents resulting in over 90 fatalities to both 

passengers and individuals on the ground. Allowing the civil use of the C-17 which has 

over 1,000,000 hours of flight with a better safety record is in the public interest. 

(For list of accidents see the web-site below) 

http://aviationsafety.net/database/dblist.php?field=typecode&var=04C%&cat=%1&s

orteer=datekey&page=1

11. The preceding statements provide sufficient justification to approving an abbreviated 

certification process. The continued allowance of emergency exemptions to facilitate 

the use of foreign oversize heavy-lift aircraft in American airspace increases the risk of 

its citizens and also takes much needed jobs from this troubled economy. It is in the 

public interest to mitigate any possible safety risk and create new jobs as soon as 

practicable by allowing HAL to operate a civil C-17.

12. In its denial to Boeing, the FAA stated it does “not consider statements of positive 

economic impact, on the local or national scale, to be a persuasive argument in the 

justification that the petition is in the public interest”. While we understand that logic as 

it relates to matters of aviation safety, in today’s dire economic climate, any jobs that 

our company provides would be in the public interest. There can be no doubt that 

reducing the very high levels of unemployment in this nation is a national priority and

both the White House and Congress have made that their number one priority. Our 

operations should directly employ between 250-300 people not counting those who 

work for directly Boeing and the C-17 suppliers. That increase in employment or 

retention of jobs would clearly be in the interest of the public especially those looking 

for a job.

13. In 1964 the FAA granted an exemption to the Lockheed Aircraft Corporation for its 

Model C-130E, a military transport aircraft that had not been declared surplus by the 

Armed Services. The justifications Lockheed apparently provided to the FAA is very 

similar to those stated in this petition. It is a factual matter that the technology used in 

the C-17 is more advanced and reliable then that available in 1964. For example, in 1964 

the C-130E did not have Heads-Up display, TCAS, Enhanced GPWS/Weather Radar, GPS 

and other features developed over the past 45 years. All features that have markedly 

improved the safety of flight such as preventing controlled flight into terrain (CFIT). 

Equipped with less advanced avionics, the FAA found (in 1964) the C-130E aircraft 
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“would not adversely affect safety” and approved the exemption. It is not a stretch to 

say that with the newer technology that is installed on the C-17 this aircraft is 

comparable more safe than the C-130E was in 1964. And that aircraft was deemed safe 

for an exemption. 

As we stated earlier, the engines used on the C-17 are derivatives of those found on the 

Boeing Model 757, an aircraft which is used daily in twin-engine ETOPS operations all 

over the world. Only an engine that can provide such reliability could be approved for 

twin-engine ETOPS service. The C-17 airframe with those reliable engines and advanced 

avionics provides a winning combination that enhances safety. 

14. We compared the number of air-carrier accidents with the number of departures from 

1970 -2004. The data shows a continuing and positive trend-line of decreasing 

accidents while the number of flights grows. This continuing improvement can be 

attributed in part to advancing technology being used in both commercial (and military) 

aircraft. (See Exhibit 12) 

15. In its denial to Boeing for its exemption, the FAA stated that Boeing failed to provide “an 

affirmative statement from any arm of the Department of Defense supporting this claim 

nor have these agencies supported Boeing’s position”. In a February 26, 2008 letter 

from the Assistant Secretary of Defense for Homeland Security to HAL, his principal 

deputy stated the following:

You are 100 percent correct in your conclusion that the U.S. Government should 

seek a more efficient and effective means of providing humanitarian support in 

response to catastrophic international and domestic disasters. (See Exhibit 13)

Next in a June 12, 2009 letter, the Commander of the U.S. Pacific Command stated the 

following:

Humanitarian Air Logistics could potentially add to existing capabilities and 

provide greater flexibility in choices for USTC to support these assistance and 

relief operations. (See Exhibit 14) 

As we shared with the DoD and others, one of the key capabilities to achieve this 

“efficient and effective means” is to have the use of oversize heavy-lift capable aircraft 

such as the C-17 available for our use.
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The type certification of the Boeing model C-17 under FAR 21.27 prior to it being declared 

surplus is in the public interest

As we have shown in the preceding statements, some in the Department of Defense have 

agreed there is a need for more improvements to the way humanitarian disaster and relief 

efforts are carried out. Those two letters from the DoD show that HAL can contribute a key 

portion of that change. To meet that challenge we have a critical need for the C-17 as it can 

provide the unique means in which to transport helicopters (without breaking them down for 

shipment and thus saving time to get them into service and begin saving lives), large support 

type vehicles, and other critical logistical equipment that cannot be carried in standard 

transport aircraft.

Just recently, the FAA had to charter an An-124 to fly its mobile control tower from the U.S. to 

Haiti simply because there was no U.S. carrier able to do so. If we had a civil C-17, we would 

have likely provided that humanitarian service. 

With the additional C-17’s that will be produced for our use in the humanitarian and 

commercial oversized air cargo market, long-term well paying U.S. jobs will be created by HAL 

along with the other jobs preserved by the aircraft’s manufacturer and suppliers. The revenue 

we hope to generate from the oversize heavy lift market will be used to offset the $30 million 

annual cost of humanitarian airlift operations currently conducted by the DoD. No longer 

having to fund this amount will help to balance the U.S. budget. 

In a recently publicized meeting with U.S. Senate Democrats, President Obama pointed out that 

all efforts -- even those that save just a few million dollars must be pursued by Congress to help 

eliminate the deficit. We would be proud to be able to help in this effort once this exemption is 

granted. The C-17’s we propose to operate will benefit the public by providing a safe alternative

for transport of heavy and outsized cargo while facilitating operations into two to three times 

as many airports due to its short and austere airfield capability.

Both (Lockheed) and Boeing stated in their exemption petitions that production and sale of 

additional C-17 and (C-130E) aircraft would be a direct financial advantage to the U.S. 

Government either as an offset in a USAF C-17 recapitalization program or as a reduction in the 

acquisition cost of new C-17’s due to the economic advantage associated with a C-17 

production rate that includes additional C-17’s. The U.S. taxpayer is the ultimate beneficiary 

and even the FAA agreed with that assessment in its approval of the C-130E exemption from 

1964.
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Boeing also stated it will be able to provide more effectively, solutions to any problems posed 

by operational services because of the availability of technical and production competence for 

an airplane that is used in both military and commercial service.

Summary of HAL petition

This petition addresses the requirements of FAR 21.27, Section 21.27(a). It requests that the 

model C-17 be exempt from the requirement for the aircraft to be accepted for operational use 

and declared surplus by an Armed Forces of the United States. As shown in justification No. 13, 

a precedent exists for granting such an exemption. The C-17 aircraft has demonstrated, under 

severe operating conditions an outstanding safety record and we have shown that granting of 

this exemption will be in the public interest because:

1. It will not adversely affect flight safety.

2. Will facilitate the most cost effective use of the C-17 for humanitarian and commercial 

service.

3. Address any national security concerns over the use of foreign aircraft for ‘oversize’ 

charter flights by the DoD as expressed by the GAO and shared with Congress.

4. Contribute to the enhancement of the CRAF program.

5. Fulfill the ‘Sense of Congress’ (found in PL. 110-417 Sec. 1037) whereby the Secretary of 

Transportation was encouraged to consider providing such an exemption under 

21.27(a).

6. Reduce the dependence on USAF pilots for humanitarian flights and help to mitigate any 

shortages of said pilots.

7. Take advantage of the advanced technology in the C-17 to increase the level of flight 

safety found in the U.S. airspace over that of older less advanced airframes found with 

foreign operators utilizing U.S. airspace.
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Due to the ongoing humanitarian and disaster efforts in Haiti and nationwide effort here in our 

country (and this company) to create jobs, we respectfully request an expedited review and 

approval of our petition including the bypassing of the comment period. In Boeing’s petition, 

the FAA stated that it received 84 comments all in favor of the petition. It seems likely that the 

public would see this project in a similarly positive way and thus taking additional time to wait 

for those comments would be unnecessary.

Accordingly, pursuant to the provisions of 14 CFR, Part 11, Subpart A, Humanitarian Air 

logistics, Inc. hereby petitions for an exemption from the requirement for the Boeing Model 

C-17 Cargo/Transport Aircraft to be accepted for operational use and declared surplus, prior to 

being eligible for certification under 14 CFR 21.27. The exemption would be for domestic and 

international use of the aircraft.

If you have any questions please contact me at 650.855.4332.

Sincerely,

Paul D. Asmus

President & Founder

Attachments: Petition Exhibits

Contact Information

Paul D. Asmus

Humanitarian Air Logistics, Inc.

PO Box 61088

Palo Alto, CA 94306

Ph: 650.855.4332

Fax: 650.326.2070
“Giving a Lift to Those in Need”

SUMMARY FOR FEDERAL REGISTER

Subject: Petition for Exemption from 14 CFR Part 21 Section 21.27(a) for Boeing Model C-17 

Transport/Cargo Aircraft.

Brief Description of Exemption Request: Humanitarian Air Logistics, Inc a proposed user of 

Boeing Model C-17 military aircraft upon any approval of requested exemption, hereby files 

subject petition for an exemption from the requirements of FAR 21.27(a) for humanitarian and 

commercial use of the C-17. 

Argument for Request: 

1. Approval of exemption will not adversely affect flight safety.

2. Will facilitate the most cost effective and efficient use of the C-17 for humanitarian and 

commercial service currently not available.

3. Address any national security concerns over the use of foreign aircraft for ‘oversize’ 

charter flights by the DoD as expressed by the GAO and shared with Congress.

4. Contribute to the enhancement of the CRAF program.

5. Fulfill the ‘Sense of Congress’ (found in PL. 110-417 Sec. 1037) whereby the Secretary of

Defense and Secretary of Transportation were encouraged to consider providing such 

an exemption under 21.27(a).

6. Reduce the dependence on USAF pilots for humanitarian flights and help to mitigate 

any shortages of said pilots.

7. Take advantage of the advanced technology in the C-17 to increase the level of flight 

safety found in the U.S. airspace over that of older less advanced airframes found with 

foreign charter operators utilizing the same airspace.

8. All these preceding justifications are in the public interest.

PO Box 61088 · Palo Alto, CA 94306 · Ph: 650.855.4332 · Fax: 650.326.2070
Exhibits Cover Sheet

For exhibits click on Bookmarks tab on top left side of document window
UNITED STATES TRANSPORTATION COMMAND 

508 SCOTT DRiVE 

SCOTT AIR FORCE BASE, ILLINOIS 622255357 

26 May 2009 

Mr. Paul D. Asmus, President 

Humanitarian Air Logistics 

P.O. Box 61088 

Palo Alto CA 94306 USTRAN SCOM FOIA 09-55 

Dear Mr. Asrnus 

This is an interim response to your Freedom of Information Act (FOIA) request of 1 1 

March 2009, in refwcnce to records on cargolcharter flights performed by Volga-Dnepr and 

Polet Airlincs on behalf of thc Department of Dcfense for FYs 04- OX. Your request is being 

processed in accordance with Department of Defense Regulation 5400.7, DOD FOTA Program. 

We are releasing in full a one page extract from Commercial Operalions Integrated 

System (COINS) that is responsive to questions I and 2 of your requcst. No awards wcrc rnade 

to Polet prior to FY 06. 

There are no assessed fees associated with this relcase. Once all staff actions are 

complett: on your request for copies of the most current contracts with Volga-Dnepr and Polet, 

you will receive a final response. 

' JOLW J. BJEN 

Chief, Command Information Management 

United States Transportation Cammand 

At tachrnent 

COINS Extract (1 pagc) 
Total trips FYW-08 

Trips 

26 

45 

Total Dollars 
http://aes.faa.gov/Form/Doc.asp?SelExemptID=3829

 Exemption No. 319 

 UNITED STATES OF AMERICA 

 FEDERAL AVIATION AGENCY 

 WASHINGTON, D.C. 

 * * * * * * * * * * * * * * * * * * 

 * 

 In the matter of the petition of * 

 * 

 LOCKHEED AIRCRAFT CORPORATION * Regulatory Docket 

 * No. 3041 

 for an exemption from Part 9a of * 

 the Civil Air Regulations * 

 * 

 * * * * * * * * * * * * * * * * * * 

 GRANT OF EXEMPTION 

 Lockheed Aircraft Corporation, acting for its division, 

 Lockheed-Georgia Company, requested an exemption from Section 

 9a.1 of Part 9a of the Civil Air Regulations by petition dated 

 January 10, 1964. The purpose of the exemption is to permit 

 type certification under Part 9a of a military transport 

 airplane designated by the United States Air Force as Model 

 C-130 even though that airplane has not been declared as 

 surplus by the Air Force. This airplane is powered by four 

 turbine engines, and is currently being produced for the Air 

 Force and is programmed for production for several more years. 

 Pursuant to the eligibility provisions of Section 9a.1, 

 type certification under Part 9a is restricted to airplanes 

 designed and constructed in the United States, accepted for 

 operational use by the military services of the United States 

 and declared surplus by such military service. The Model 

 C-130E airplane is not eligible for type certification under 

 Part 9a because it has not been declared surplus by the 

 United States Air Force. 

 The petitioner indicates that domestic and foreign 

 operators have expressed intentions to procure this airplane 

 if it is type certificated in accordance with airworthiness 

 requirements which would make it generally eligible for 

 operations for compensation and hire. Airplanes certificated 

 under Part 9a in the transport category would be eligible for 

 carriage of passengers and cargo for compensation and hire. 

 Under the currently effective regulations, eligibility of the 

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 Model C-130E airplane for such operations can be established 

 only on the basis of type certification under the transport 

 category requirements of Part 4b of the Civil Air Regulations. 

 The petitioner contends that type certification of the Model 

 C-130E airplane under Part 4b would be prohibitively costly 

 and burdensome. 

 If an application were to be made for type certification 

 of the Model C-130E airplane under Part 4b, the airplane would 

 be subject to all of the currently effective requirements of 

 Part 4b including Amendment 4b-12. (Amendment 4b-13 is not 

 applicable to this airplane.) On the other hand, if the Model 

 C-130E airplane were accepted for operational use by the Air 

 Force prior to October 1, 1959, and the requested exemption 

 were granted, type certification under Part 9a would require 

 compliance to be shown with the requirements of Part 4b 

 including amendments up to Amendment 4b-11. 

 A grant of this exemption would permit the petitioner to 

 apply for certification of the Model C-130E airplane under the 

 provisions of Part 9a. The petitioner argues that the benefits 

 of certification under Part 9a would eventually be derived when 

 the airplane is declared surplus by the Air Force. In addition, 

 the petitioner claims that type certification of the Model 

 C-130E airplane under the Civil Air Regulations prior to it 

 being declared surplus is in the public interest because: 

 (1) Production and sale of such airplanes would be 

 of direct financial advantage to the United States Government 

 by reducing the price of U.S. military airplanes currently 

 produced by the petitioner. 

 (2) The United States Government would recover more 

 money when airplanes similar to the Model C-130E airplane are 

 declared surplus and are subsequently sold. 

 (3) Petitioner will be able to provide more 

 effectively for solutions to any problems posed by operational 

 services because of the availability of technical and 

 production competence. 

 (4) Purchasers of such airplanes would be assured 

 by the petition of timely, comprehensive, and continuing 

 technical and logistic support. 

 The petitioner also contends that granting of the 

 requested exemption would not interfere with future U.S. 

 Government procurement requirements for Model C-130E 

 airplanes and that certification of this airplane under the 

 Civil Air Regulations while the airplane is at the same time 

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 being built for military use is strictly in accordance with 

 the national policy being presently applied to the USAF 

 Model C-141A cargo jet airplane. 

 In further support of its request, the petitioner states 

 that: there is a need for commercial cargo operations for 

 the Model C-130E airplane; the airplane would provide to 

 commercial operators an economic potential superior to 

 existing piston-powered cargo airplanes; sales of the Model 

 C-130E airplane to domestic commercial operators is in the 

 interest of national defense; and sales to friendly foreign 

 countries would tend to improve our balance of payments. 

 In consideration of the requested exemption, the Agency 

 solicited views and comments from the Department of State, 

 Department of Commerce, Civil Aeronautics Board, and the 

 Department of Defense. Responses received from these agencies 

 indicated that granting of the requested exemption with respect 

 to the Model C-130E airplane would be in the national interest 

 or has a potential therefor. 

 In addition, this Agency believes that the Model C-130E 

 airplane has parformance and cargo-handling capabilities which 

 would make it particularly suitable for commercial use. 

 In consideration of the foregoing, I find that granting of 

 the exemption request by the petitioner would be in the public 

 interest and would not adversely affect safety. Therefore, 

 pursuant to the authority contained in Sections 313(a) and 

 601(c) of the Federal Aviation Act of 1958 which has been 

 delegated to me by the Administrator (14 CFR 11.53), 

 Lockheed-Georgia Company, a division of Lockheed Aircraft 

 Corporation, is hereby granted an exemption from Section 9a.1 

 of the Civil Air Regulations to permit the Lockheed airplane 

 designated by the United States Air Force as Model C-130E to be 

 eligible for type certification under Part 9a of the Civil Air 

 Regulations, notwithstanding the fact that it has not been 

 declared surplus by the military services of the United States. 

 /s/ W. Lloyd Lane 

 Acting Director 

 Flight Standards Service 

 Issued in Washington, D.C., on April 23, 1964. 

 915A 

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AIR-06-497-E

Exemption No. 9759

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

FEDERAL AVIATION ADMINISTRATION

WASHINGTON, DC 20591

In the matter of the petition of

THE BOEING COMPANY

for an exemption from § 21.27(a) of 

Title 14, Code of Federal Regulations

Regulatory Docket No. FAA-2006-25210

DENIAL OF EXEMPTION

 By letters submitted on March 22, 2006 and November 29, 2007, R.P. Ciesla, BC-17 

Program Manager, The Boeing Company (Boeing), 2401 E. Wardlow Road, Long Beach, 

California 90807, petitioned the Federal Aviation Administration (FAA) on behalf of 

Boeing for an exemption from § 21.27(a) of Title 14, Code of Federal Regulations 

(14 CFR). The proposed exemption, if granted, would allow Boeing’s Model BC-17 

aircraft to be exempt from the eligibility requirements of § 21.27(a), specifically, the need 

for the aircraft to be “accepted for operational use, and declared surplus by an armed 

force of the United States.” Boeing seeks development of the Model BC-17 aircraft for 

sale to civilian customers. 

The petitioner requests relief from the following regulation:

Section 21.27(a) prescribes, for issue of type certificate[s]: surplus aircraft of the 

Armed Forces.

(a) Except as provided in paragraph (b) of this section an applicant is 

entitled to a type certificate for an aircraft in the normal, utility, acrobatic, 

commuter, or transport category that was designed and constructed in the 

United States, accepted for operational use, and declared surplus by, an 
2

Armed Force of the United States, and that is shown to comply with the 

applicable certification requirements in paragraph (f) of this section. 

The petitioner supports its request with the following information:

In its petition, Boeing lists the relief requested and describes the capabilities of its 

model BC-17 aircraft. Boeing applied for FAA type certification of the BC-17, 

which is a commercial derivative of the U.S. Air Force C-17 Globemaster cargo 

aircraft. Boeing requests the aircraft be eligible for FAA type certification even 

though it has not been accepted for operational use and declared surplus by an 

armed force of the United States as required by § 21.27(a). 

Boeing states the U.S. Air Force has conducted studies that conclude there is a 

viable commercial market for the BC-17. The aircraft is versatile, uniquely 

capable, and equipped with powerplants similar to those installed on the Boeing 

757 aircraft. Its operational service for the military began in 1993 and the aircraft 

was designed and built to U.S. Air Force standards. The 148 aircraft in service 

have completed 1,000,000 flight hours with an excellent safety record. The 

aircraft uses modern Primary Flight Display equipment that enhances flight safety. 

In typical commercial applications, the BC-17 will have delivery capabilities that 

are not available in any other airplane certificated by the FAA. The BC-17 would 

replace U.S. military aircraft currently engaged in humanitarian relief operations 

to victims of disaster, and its use will help fulfill the U.S. foreign policy 

objectives. Its ability to operate in austere environments increases the number of 

locations where project work such as; oil and gas development, pipelines, and 

refinery projects is possible, offsetting the loss of projects in areas of political 

instability, hostilities, or other geopolitical problems. The aircraft will benefit the 

public by its use in transporting spent nuclear fuel and for fighting forest fires.

The BC-17 will continue to support military operations as part of a Civilian 

Reserve Air Fleet (CRAF), should the BC-17 be needed to support military 

operations in excess of the foreseen military production schedule of 180 aircraft. 

The BC-17 would support CRAF initiatives because an equivalent aircraft does 

not exist in the civilian fleet. 

Boeing states the marketability of the BC-17 will depend on cost. Compliance 

with § 21.21 requirements will raise production costs and would restrict sales of 

the BC-17 in the civilian market. The provisions of § 21.27 reduce certification 

and production costs by minimizing required changes from the aircraft’s military 

configuration. Boeing prefers this method to ensure marketability of the aircraft 

and shorten the certification schedule. Boeing states many commercial operators 

are forced to use foreign-registered aircraft for large cargo operations which are 

designed to different safety standards than the BC-17. The aircraft would provide 

a domestic alternative to the commercial market currently monopolized by the
3

Russian Antonov AN-124 cargo aircraft. Boeing cites a 2002 report from the 

Commission on the Future of the United States Aerospace Industry in support of 

its plans for the BC-17.

The petition is in the public interest because certification of the BC-17 

under § 21.27 would represent a financial advantage to the U.S. Government, and 

civilian operations of the BC-17 aircraft would improve operational service for 

the C-17. Domestic employment would benefit from the jobs created for civilian 

production of the aircraft, which would generate increased tax revenues. Finally, 

the BC-17 would provide a safe alternative for large cargo operations, especially 

for operations into smaller airports.

Boeing includes in its petition separate descriptions of the BC-17 and C-17 

aircraft in used and new designations. It also defines the Class I and Class II 

configurations for the BC-17.

 A summary of the petition was published in the Federal Register on July 10, 2006 

(71 FR 40776). The FAA received 84 comments. All comments were in support of 

granting the exemption. Eleven were from various air cargo companies, two were from 

air carriers, one was from a consulting firm and the remainder of the comments were 

submitted from individuals.

The FAA's analysis is as follows:

The FAA has reviewed the petitioner’s supporting information and we find the 

circumstances presented by the petitioner do not justify a grant of exemption. 

When considering a petition for exemption, the FAA considers two main

points: 1) why granting the request would be in the public interest and 2) the 

effect on safety.

The FAA finds Boeing’s public interest argument insufficient and does not 

support a grant of exemption. While the petition asserts certification would 

reduce costs for the military, improve operational service for the Air Force C-17 

and the viability of CRAF, it does not include an affirmative statement from any 

arm of the Department of Defense supporting this claim nor have these agencies 

independently supported Boeing’s petition. The FAA has the responsibility to 

assign and maintain safety in air commerce; it does not have the necessary 

knowledge to validate that the military applications presented in the petition are, 

in fact, in the public interest. 

The petition also asserts that granting the exemption would benefit the public by 

providing a safe alternative, in lieu of the foreign-registered and certified AN-124,

for transport of heavy and outsize cargo for commercial and government
4

customers while facilitating operations into short field and austere airports. 

Although Boeing has asserted that there is a compelling need to provide outsized 

cargo civil service to smaller airports, it has not provided any information to 

substantiate that civil use of the BC-17 to fulfill this need is in the public interest. 

Without a compelling reason, the FAA does not find that circumventing the 

normal certification process through an exemption to § 21.27(a) is justified.

The petition asserts that U.S. jobs will be created by the entry of the BC-17 into 

civil service. As most petitions of exemption could cite economic benefit to some 

degree, the FAA does not consider statements of positive economic impact, on the 

local or national scale, to be a persuasive argument in the justification that the 

petition is in the public interest.

The alternative argument made by Boeing that an abbreviated certification process 

would be in the public interest is not sufficiently compelling to justify an 

exemption. 

The FAA’s Decision:

In consideration of the foregoing, I find that a grant of exemption would not be in 

the public interest. Therefore, pursuant to the authority contained in 49 U.S.C. §§ 40113 

and 44701, delegated to me by the Administrator, the petition of The Boeing Company 

for an exemption from 14 CFR § 21.27(a) is hereby denied. 

Issued in Washington, DC, on September 23, 2008.

Sincerely,

/s/

John H. Hickey

Director, Aircraft Certification Service
TITLE 10 > Subtitle A > PART IV > CHAPTER 152 > § 2561

§ 2561. Humanitarian assistance

(a) Authorized Assistance.—

(1) To the extent provided in defense authorization Acts, funds authorized to be 

appropriated to the Department of Defense for a fiscal year for humanitarian assistance 

shall be used for the purpose of providing transportation of humanitarian relief and for other 

humanitarian purposes worldwide. 

(2) The Secretary of Defense may use the authority provided by paragraph (1) to transport 

supplies intended for use to respond to, or mitigate the effects of, an event or condition, 

such as an oil spill, that threatens serious harm to the environment, but only if other 

sources to provide such transportation are not readily available. The Secretary may require 

reimbursement for costs incurred by the Department of Defense to transport supplies under 

this paragraph. 

(b) Availability of Funds.— To the extent provided in appropriation Acts, funds 

appropriated for humanitarian assistance for the purposes of this section shall remain 

available until expended. 

(c) Status Reports.—

(1) The Secretary of Defense shall submit to the congressional committees specified in 

subsection (f) an annual report on the provision of humanitarian assistance pursuant to this 

section for the prior fiscal year. The report shall be submitted each year at the time of the 

budget submission by the President for the next fiscal year. 

(2) Each report required by paragraph (1) shall cover all provisions of law that authorize 

appropriations for humanitarian assistance to be available from the Department of Defense

for the purposes of this section. 

(3) Each report under this subsection shall set forth the following information regarding 

activities during the previous fiscal year: 

(A) The total amount of funds obligated for humanitarian relief under this section. 

(B) The number of scheduled and completed transportation missions for purposes of 

providing humanitarian assistance under this section. 

(C) A description of any transfer of excess nonlethal supplies of the Department of Defense 

made available for humanitarian relief purposes under section 2557 of this title. The 

description shall include the date of the transfer, the entity to whom the transfer is made, 

and the quantity of items transferred. 

(d) Report Regarding Relief for Unauthorized Countries.— In any case in which the 

Secretary of Defense provides for the transportation of humanitarian relief to a country to 

which the transportation of humanitarian relief has not been specifically authorized by law, 

the Secretary shall notify the congressional committees specified in subsection (f) and the 

Committees on Appropriations of the Senate and House of Representatives of the 

Secretary’s intention to provide such transportation. The notification shall be submitted not 

less than 15 days before the commencement of such transportation. 

(e) Definition.— In this section, the term “defense authorization Act” means an Act that 

authorizes appropriations for one or more fiscal years for military activities of the 

Department of Defense, including authorizations of appropriations for the activities 

described in paragraph (7) of section 114 (a) of this title. 

(f) Congressional Committees.— The congressional committees referred to in 

subsections (c)(1) and (d) are the following: 

(1) The Committee on Armed Services and the Committee on Foreign Relations of the 

Senate. 

(2) The Committee on Armed Services and the Committee on International Relations of the 

House of Representatives. 
PUBLIC LAW 110–417—OCT. 14, 2008 122 STAT. 4597 

to the access of unmanned aerial systems of the Department 

of Defense to the National Airspace System. 

(8) Joint management attention at the highest levels of 

the Department of Defense and the Federal Aviation Administration may also be required on other important issues, such 

as type ratings for aerial refueling aircraft. 

(b) SENSE OF CONGRESS.—It is the sense of Congress that 

the Secretary of Defense should seek an agreement with the 

Administrator of the Federal Aviation Administration to jointly 

establish within the Department of Defense and the Federal Aviation Administration a joint Department of Defense–Federal Aviation 

Administration executive committee on conflict and dispute resolution which would— 

(1) act as a focal point for the resolution of disputes on 

matters of policy and procedures between the Department of 

Defense and the Federal Aviation Administration with respect 

to— 

(A) airspace, aircraft certifications, and aircrew 

training; and 

(B) other issues brought before the joint executive committee by the Department of Defense or the Department 

of Transportation; 

(2) identify solutions to the range of technical, procedural, 

and policy concerns arising in the disputes described in paragraph (1); and 

(3) identify solutions to the range of technical, procedural, 

and policy concerns arising in the integration of Department 

of Defense unmanned aerial systems into the National Airspace 

System in order to achieve the increasing, and ultimately routine, access of such systems into the National Airspace System. 

SEC. 1037. SENSE OF CONGRESS ON SALE OF NEW OUTSIZE CARGO, 

STRATEGIC AIRLIFT AIRCRAFT FOR CIVILIAN USE. 

(a) FINDINGS.—Congress makes the following findings: 

(1) The 2006 Quadrennial Defense Review and the 2005 

Mobility Capability Study determined that the United States 

Transportation Command requires a force of 292 to 383 organic 

strategic airlift aircraft, augmented by procurement of airlift 

service from commercial air carriers participating in the Civil 

Reserve Air Fleet, to meet the demands of the National Military 

Strategy. Congress has authorized and appropriated funds for 

316 strategic airlift aircraft. 

(2) The commander of the United States Transportation 

Command has testified to Congress that it is essential to safeguard the capabilities and capacity of the Civil Reserve Air 

Fleet to meet wartime surge demands in connection with major 

combat operations and that procurement by the Air Force of 

excess organic strategic airlift aircraft could be harmful to 

the health of the Civil Reserve Air Fleet. 

(3) The C–17 aircraft is used extensively by the Air Mobility 

Command in the Global War on Terror. Production of the 

C–17 aircraft is scheduled to cease in August, 2010. 

(4) The Federal Aviation Administration has informed Congress that no fewer than six commercial operators have 

expressed interest in operating a commercial variant of the 

C–17 aircraft. Commercial sale of the new C–17 aircraft would 

require that the Department of Defense determine that it is 


etreine on CSHP91QD1 with PUBLIC LAWS
122 STAT. 4598 PUBLIC LAW 110–417—OCT. 14, 2008 

in the national interest for the Federal Aviation Administration 

to proceed with the issuance of a type certificate for C-17 

aircraft in accordance with section 21.27 of title 14, Code of 

Federal Regulations. 

(5) New C–17 aircraft sold for commercial use could be 

made available to the Civil Reserve Air Fleet, thus strengthening the capabilities and capacity of the Civil Reserve Air 

Fleet. 

(b) SENSE OF CONGRESS.—It is the sense of Congress that 

the Secretary of Defense, in consultation with the Secretary of 

Transportation, should— 

(1) review the benefits and feasibility of pursuing a new 

production commercial cargo capability with new C–17 commercial variant aircraft and determine whether such capability 

is in the national interest; and 

(2) if the Secretary of Defense determines that such a 

capability is in the national interest, take appropriate actions 

to coordinate with the Federal Aviation Administration to 

achieve the type certification for a commercial variant of the 

C-17 required by section 21.27 of title 14, Code of Federal 

Regulations. 

Subtitle E—Studies and Reports 

SEC. 1041. REPORT ON CORROSION CONTROL AND PREVENTION. 

(a) REPORT REQUIRED.—The Secretary of Defense, acting 

through the Director of Corrosion Policy and Oversight, shall prepare and submit to the Committees on Armed Services of the 

Senate and the House of Representatives a report on corrosion 

control and prevention in weapons systems and equipment. 

(b) MATTERS COVERED.—The report shall include the comments 

and recommendations of the Department of Defense regarding 

potential improvements in corrosion control and prevention through 

earlier planning. In particular, the report shall include an evaluation and business case analysis of options for improving corrosion 

control and prevention in the requirements and acquisition processes of the Department of Defense for weapons systems and equipment. The evaluation shall include an analysis of the impact of 

such potential improvements on system acquisition costs and life 

cycle sustainment. The options for improved corrosion control and 

prevention shall include corrosion control and prevention— 

(1) as a key performance parameter for assessing the selection of materials and processes; 

(2) as a key performance parameter for sustainment; 

(3) as part of the capability development document in the 

joint capabilities integration and development system; and 

(4) as a requirement for weapons systems managers to 

assess their corrosion control and prevention requirements over 

a system’s life cycle and incorporate the results into their 

acquisition strategies prior to issuing a solicitation for contracts. 

(c) DEADLINE.—The report shall be submitted not later than 

120 days after the date of the enactment of this Act. 

(d) REVIEW BY COMPTROLLER GENERAL.—The Comptroller General shall review the report required under subsection (a), including 

the methodology used in the Department’s analysis, and shall provide the results of the review to the Committees on Armed Services 


etreine on CSHP91QD1 with PUBLIC LAWS
DEPARTMENT OF THE AIR FORCE 

HEADQUARTERS AIR MOBILITY COMMAND 

5 Mar 09 

HQ AMClA60BR (FOIA) 

203 W. Losey St., Room 3600 

Scott AFB IL 62225-5223 

Mr. Paul D. Amus 

Humanitarian Air Logistics 

P. 0. Box 61088 

Palo Alto CA 94306 

Dear Mr. Amus 

This letter is in response to your 1 1 December 2008, Freedom of Information Act (FOIA) 

request for the following: 

1. The total number of domestic and international humanitarian missions performed by 

AMC for FY06,07 and 08. 

2. The number of flight hours for each model of aircraft used on these humanitarian 

flights (C-5, C-17 and C-130). 

3. The total amount of money spent by the AMC on humanitarian missions for FY06,07 

and 08. 

4, Also to include the FY09 AMC aircraft charter rates for the C-5, C-17 & C-130 aircraft. 

This information is releasable and attached. The fee for processing your request is waived. 

Our point of contact is Ms. Candice Velazquez at (6 18) 229-57 10 or e-mail to 

amca6.a6obr(13,scott.af.mil. 

Sincerely 

Command Records Manager 

Operations Division 

Attachment: 

Releasable information 

UNRIVALED GLOBAL REACH FOR AMERICA ... ALWAYS! 

AMC FOIA 2009-0038 
678th Tanker Airiift Control Center 

DATA DIVISION 

618 TACClXOND 

COMM: (618) 229-3865 (DSN: 779) 

Scott Air Force Base, Illinois 

tmose: Provide a summary of AMC Humanitarian mlssions for FY06 to FYO8. Note: Thls summary does not include Guanl 

~d Reserve nonAMC missions. 

sared For: Mr. Paul D Asmus, Humanitarian Air Logistics, Palo Alto, CA 94306 

eoared Bv: 618th TACCIXOND. DSN: 779-3865, Scott AFB. 11. Data current as of 7 Jan 2008. 

If the 105 FY06 Commercial Missions, 28 Missions Were Contracted by State Dept and Not AMC 
xi

SUMMARY

The Air Force has been losing unprecedented numbers of experienced pilots, who are leaving at the end of their initial active duty

service commitment (ADSC) and at the end of the initial bonuspayback period. These losses apparently occur because (1) employment opportunities are excellent in the private sector and (2) continued high tempos for contingency support operations are degrading

their quality of life. In the face of high losses and difficulty in training

new pilots and absorbing them into operational units, the Air Force

faces a growing shortfall. As widely reported, the Air Force reached a

shortfall of 1000 pilots in FY1999 and projects a shortfall twice that

size by FY2002, which will stay that large (or larger) through FY2007.

Throughout the period, about half of the shortfall occurs in fighters.

Moreover, because the Air Force hired and trained insufficient numbers of new pilots during its major force drawdown in the early

1990s, the shortfall is most critical among those who collectively

must fill key staff and cockpit jobs and provide instruction and leadership to newcomers in operational and training units. Because almost all new pilots must be assigned to operational units, experience

levels in these units will continue to decrease.

Our analytical model of the training required in operational units

indicates that fighter squadrons may need up to 25 percent more

flying hours to provide continuation and upgrade training as they

lose experienced pilots and gain inexperienced ones. Although inexperienced pilots need more flying hours than do experienced pilots,

an experienced, qualified pilot must provide essential supervision

and thus must fly as part of virtually every flying training activity. As
xii The Air Force Pilot Shortage

squadrons include more newcomers and fewer experienced pilots,

each experienced pilot must fly more to oversee and develop the inexperienced pilots. Our model runs confirmed that units with experience levels1 below 60 percent cannot distribute sorties uniformly

to all assigned pilots.

Consequently, unless sorties and flying hours are increased, each inexperienced pilot will fly a smaller share of the squadron’s sorties as

newcomers replace experienced pilots. This creates an aging rate

deficit (ARD), or slowdown in the inexperienced pilots’ accumulation

of training and experience. Deficits of even one or two flying hours

per month exacerbate the experience problem—inexperienced pilots

then take longer to become experienced. Recent Air Force objectives

were to ensure that operational fighter units kept the experienced

portion of their squadron-assigned (RPI-1) pilots above 45 percent,

with an “absolute” minimum of 40 percent. When ARDs are taken

into account, however, our analysis indicates that it will be extremely

difficult to stabilize experience near these levels. There aren’t

enough sorties to allow inexperienced wingmen to age fast enough

[without a sizable sortie or aircraft utilization rate (UTE) increase] to

keep the unit from becoming even less experienced. Even if there are

enough pilots to fill all of the cockpits, the experience problem is

serious enough to compromise the ability of fighter units to

accomplish their primary missions and meet their Air Expeditionary

Force (AEF) demands.

There are only a few options to alleviate the experience problem.

The most obvious is for units to fly more, but the additional flying

hours need to be programmed into the Air Force budget. This difficult and time-consuming process is complicated by the recent

inability of fighter units to generate enough training sorties to fly

their currently programmed hours. Reduced UTE rates have been

dropping for several reasons: reduced funding for engines and other

______________

1A unit’s experience level is basically the percentage of its assigned pilots who are experienced. Although pilot experience is formally defined in terms of hours flown, the

majority of pilots meet this requirement near the end of their initial operational flying

tour. Thus (in layman’s terms) an experienced pilot is one who has completed an operational assignment in the unit’s primary mission aircraft. Our experience level calculations include only the unit’s primary assigned pilots [those with a rated position

indicator (RPI) code of RPI-1]. The excluded pilots carry supervisory (or staff) RPI

codes and cannot be inexperienced.
Summary xiii

spare parts, reduced depot support, and lower experience levels for

the flightline maintenance personnel responsible for generating the

sorties.

If the Air Force cannot program and fly more hours, the only assured

solution is to reduce the number of new fighter pilots absorbed each

year into operational units, a notion that is counter to correcting its

largest peacetime pilot shortfall. Such a policy would provide a reasonable long-term solution only in combination with improved

retention and reduced requirements. The Air Force is indeed

examining expanded pilot bonus opportunities and other retention

initiatives, and it is also investigating alternative manning options,

but it is unlikely that the shortfall and resulting experience problem

can be corrected by these initiatives alone. Because operational

units in the Guard and Reserve have much higher experience levels

than active units, we were drawn to look at Total Force alternatives.

We examined several options. The first was a follow-on to PROJECT

SEASON, a program implemented in the early 1980s in response to

the last serious peacetime pilot shortage. The others involve using

Guard and Reserve pilots in associate instructor pilot (Associate IP)

programs that could free additional experienced active duty pilots for

other assignments. All of these programs need to be evaluated in the

context of increasing manning problems for Guard and Reserve

units.

The first option sends new active duty pilots to Guard or Reserve

units to gain experience there. This opens more cockpits for experienced pilots in active squadrons, maintaining a higher experience

level while increasing the reserve components’ responsibility for absorbing and training new pilots. The ratio of newcomers to experienced pilots in Guard and Reserve units would remain low, but the

units would require additional resources to provide the training and

supervision required by the additional active duty pilots. If some 40

inexperienced fighter pilots per year were absorbed in Guard and

Reserve units, it would correspond to a UTE increase of sufficient

magnitude to eliminate the aging rate deficit.

Associate programs that place experienced reserve pilots in active

units can increase the number of available experienced pilots and

help to alleviate the overall shortfall. Associate IP programs in un-
xiv The Air Force Pilot Shortage

dergraduate flying training (UFT) units and Formal Training Units

(FTUs) are also appealing because they fill cockpit requirements with

experienced pilots. These alternatives show promise, but they must

be implemented carefully and evaluated thoroughly to deal with

cultural issues and prevent unintended consequences.

Guard and Reserve units themselves face a dynamic recruiting and

retention challenge. Many pilots will leave the active component

and be available to join reserve-component units within the next two

or three years, but then the active component’s smaller cohorts will

begin coming to the end of their service commitments. Effective

implementation of Associate IP programs requires that they move

now to take advantage of the “window of opportunity” presented by

the current profuse losses from active duty. Once the separationeligible cohorts become smaller, the hiring pool will dwindle, and it

will be too late to implement these programs.

The same window of opportunity could provide additional supervisors for active-component pilots involved in a Total Force exchange.

If participating Guard and Reserve units received additional manning and grade authorizations, they could hire separating instructor

pilots as overages2 to provide some of the required supervision.

Pilots in this category could also provide a hedge against hiring difficulties that the Guard and Reserve might expect when active duty

loss rates drop off.

The results of our analysis were considered in the Four-Star Rated

Summit that the Air Force convened in April 1999. The following actions were among the policy decisions resulting from that summit:

• Set 55 to 60 percent as the low-end experience-level goal for

fighter units

• Reduced fighter FTU production to 330 per year, with 30 new

pilots to be absorbed in Guard and Reserve units

______________

2In order to hire these pilots, the units would require approval to exceed existing

manpower (and grade authorizations).
Summary xv

• Supported the UFT Associate IP program

• Examined the feasibility of using Associate IPs in FTUs.

These are essential steps to prevent the lack of experience problem

from becoming unmanageable. It is important to recognize,

however, that retention must improve significantly and alternative

manning options must be effective if production levels are to be sustained at 330 fighter pilots per year. We hope the Air Force will pursue the Total Force initiatives despite the implementation problems.

These policies can be effective, however, only if the UTE rate problem is resolved in time to ensure that operational units will be able to

fly their programmed flying hours starting in FY00. If the units underfly by as little as two hours per crew per month (on average), the

aging rate problem remains and experience falls to unmanageable

levels.
UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION 

OFFICE OF THE SECRETARY 

WASHINGTON, D.C. 

Issued by the Department of Transportation on January 21, 2010 

NOTICE OF ACTION TAKEN -- DOCKET DOT-OST-2010-0016 ________________________________________________________________________________________________________________________________ 

This serves as notice to the public of the action described below, taken by the Department official indicated (no additional 

confirming order will be issued in this matter). 

Applicant: VOLGA-DNEPR J.S. CARGO AIRLINE (Volga-Dnepr) Date Filed: January 18, 2010 

Relief requested: Exemption from 49 USC § 40109(g) to permit the applicant to operate three, one-way, all-cargo charter flights, 

using its AN-124-100 aircraft, carrying outsized cargo on behalf of U.S. TRANSCOM, on or around February 8-13, 2010. The 

applicant states that the flights would operate as follows: 1) one flight between March ARB, California, and Kona International

Airport at Keahole, Hawaii, on February 8, 2010, carrying a combination of UH-1N and AH-1W helicopters and support 

equipment; and 2) two flights between Kaneohe MCAS, Hawaii, and March ARB, California, on February 10 and 12, 2010, both 

carrying a combination of UH-1N and AH-1W helicopters and support equipment. The applicant asserts that U.S. TRANSCOM 

needs the subject lift to ensure the smooth rotation of equipment without disruption to operational missions; that the U.S. 

TRANSCOM organic lift scheduled to transport the cargo was diverted to other areas; that the cargo is too large for transportation 

on any commercially available U.S. aircraft; and that surface transportation is not feasible because of the nature of the cargo and 

the urgency of the shipment. 

Applicant representative: Colon Miller, 832-585-8611 DOT analyst: Robert J. Finamore, 202-366-2405 

Responsive pleadings: Volga-Dnepr served its application on those U.S. carriers operating large all-cargo aircraft. Each carrier 

indicated that it did not have aircraft available to conduct the proposed operations and that it had no comment or did not oppose 

grant of the requested authority. 

Statutory Standards: Under 49 USC § 40109(g), we may authorize a foreign air carrier to carry commercial traffic between U.S. 

points (i.e., cabotage traffic) under limited circumstances. Specifically, we must find that the authority is required in the public 

interest; that because of an emergency created by unusual circumstances not arising in the normal course of business the traffic 

cannot be accommodated by U.S. carriers holding certificates under 49 USC § 41102; that all possible efforts have been made to 

place the traffic on U.S. carriers; and that the transportation is necessary to avoid unreasonable hardship to the traffic involved (an 

additional required finding, concerning emergency transportation during labor disputes, was not relevant here). 

DISPOSITION

Action: Approved. Action date: January 21, 2010 

Effective dates of authority granted: February 8-13, 2010. 

Basis for approval: We are granting Volga-Dnepr’s request to operate the proposed one-way flights (described above), on behalf

of U.S. TRANSCOM. We found that its request met all the relevant criteria of 49 USC § 40109(g) for the grant of an exemption 

of this type, and that the grant was required in the public interest. Specifically, we were persuaded that the need to move the cargo 

to ensure the smooth rotation of equipment without disruption to operational missions; the fact that the U.S. TRANSCOM organic 

lift scheduled to transport the cargo was diverted to other areas; and the unique, outsized nature of the cargo, constituted an

emergency not arising in the normal course of business. Moreover, based on the representations of the U.S. carriers, we 

concluded that no U.S. carrier had aircraft available that could be used to conduct the operations at issue here. We also found that 

grant of this authority would prevent unreasonable hardship to U.S. TRANSCOM. Finally, we found that the applicant was 

qualified to perform its proposed operations. 

Except to the extent exempted/waived, this authority is subject to our standard exemption conditions (attached) and to the condition 

that the applicant must comply with FAA-approved flight routings for the authorized operations. We may amend, modify, or 

revoke the authority granted in this Notice at any time without hearing at our discretion. 

Action taken by: Susan L. Kurland 

Assistant Secretary for Aviation 

 and International Affairs 

An electronic version of this document is available on the World Wide Web at: 

http://www.regulations.gov
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

September 2009

MILITARY AIRLIFT

DOD Should Take Steps to Strengthen Management 

of the Civil Reserve Air Fleet Program 

Highlights of GAO-09-625, a report to 

congressional committees 

To move passengers and cargo, the 

Department of Defense (DOD) 

must supplement its military 

aircraft with cargo and passenger 

aircraft from commercial carriers 

participating in the Civil Reserve 

Air Fleet (CRAF) program. Carriers 

participating in CRAF commit their 

aircraft to DOD to support a range 

of military operations. In the Fiscal 

Year 2008 National Defense 

Authorization Act, Congress 

required DOD to sponsor an 

assessment of CRAF and required 

GAO to review that assessment. 

GAO briefed congressional staff on 

its observations. As discussed with 

the staff, GAO further analyzed 

some of the issues identified in its 

review. This report assesses 

(1) the extent to which DOD has 

assessed potential risks to the 

CRAF program, and (2) the extent 

to which DOD’s management of 

CRAF supports program objectives. 

For this engagement, GAO 

reviewed DOD-sponsored CRAF 

study reports and interviewed 

study leadership. GAO also 

interviewed over 20 of 35 CRAF 

participating carriers that 

responded to a request for a 

meeting, DOD officials, and 

industry officials. 

What GAO Recommends

GAO is recommending that DOD 

(1) conduct risk assessments on 

two CRAF passenger and cargo 

issues and (2) develop policies to 

strengthen its management of the 

CRAF program. In comments on a 

draft of this report, DOD disagreed 

with the first recommendation and 

agreed with the second. 

DOD needs to establish the level of risk associated with declining charter 

passenger capabilities and DOD’s increased need to move very large cargo. 

Although DOD depends on CRAF charter passenger aircraft to move more 

than 90 percent of its peacetime needs, there has been nearly a 55 percent 

decline in this CRAF capacity since 2003. In addition, since 2003, DOD’s large 

cargo movement needs have increased with the acquisition of over 15,000 

Mine Resistant Ambush Protected vehicles. Since there are no U.S. 

commercial cargo aircraft capable of moving cargo this size into Iraq and 

Afghanistan, DOD is using foreign-owned carriers to assist its military aircraft 

in such movements. However, there are scenarios where foreign-owned 

carriers may be unwilling or not allowed to fly. As a result, the lack of a 

commercial U.S. outsized cargo capability might restrict DOD’s ability to meet 

its large cargo airlift needs in a timely manner. DOD has not quantified the 

risks these challenges pose to the CRAF program’s ability to meet DOD’s 

future transportation requirements because DOD has not completed risk 

assessments as described in the 2008 National Defense Strategy. Until risk 

assessments are conducted, DOD will not be sufficiently informed about 

potential risks in the CRAF charter passenger segment and in very large cargo 

airlift capability that could prevent DOD from managing its future airlift needs 

and the CRAF program effectively. 

DOD’s management of CRAF has not provided CRAF participants with a clear 

understanding, which could strengthen the program’s ability to support its 

objectives, in some critical areas of the program. Although internal controls 

such as policies can help meet program objectives, CRAF business partners 

do not have a clear understanding of DOD’s expectations concerning four 

CRAF objectives—an enhanced mobilization base, modernization, increased 

air carrier participation, and communication—because DOD has not 

developed policies in these four areas. First, DOD has not developed policies 

regarding the enforcement of its business rules, such as the 60/40 rule that 

states that participants should fly only 40 percent of their total business for 

DOD. DOD does not consistently enforce this rule and this may decrease the 

mobilization base since it is difficult for carriers to size their fleets to meet 

DOD demands. Second, DOD has not developed policies or economic 

incentives that promote CRAF modernization and this may hinder CRAF 

carriers from modernizing their aircraft. Third, DOD has not developed 

policies regarding oversight of the distribution of its peacetime airlift 

business, the primary incentive to carriers for participating in CRAF. DOD has 

no involvement in this distribution, and the perceptions of some carriers that 

this process is unfair could ultimately reduce carrier participation in CRAF. 

Fourth, DOD has not developed policy concerning communication with the 

carriers on CRAF studies or proposed changes to the CRAF program. DOD 

has not always communicated with carriers prior to implementing changes or 

completing studies. Until DOD develops policies that provide carriers with a 

clear understanding of CRAF, DOD cannot provide reasonable assurance that 

CRAF will meet its primary objective of providing critical airlift. 

View GAO-09-625 or key components.

For more information, contact William Solis, 

(202) 512-8365, solisw@gao.gov. 
Dedicated to the memory 

of 

Robert W. Baker

Bob was a member of the Commercial Review Board and 

a leading airline authority who taught the airline industry 

the need to change. One of his last projects was his work

on this study. Mr. Baker died on April 20, 2003 and will 

be deeply missed. BC-17X Case Studies and SAM Forecast

Council for Logistics Research, Inc.

1111 Jefferson Davis Hwy

Arlington, VA 22202

RISK REDUCTION REPORT ON THE SHORT AUSTERE MARKET

This report is for information only. No Boeing, CLR, or US Government commitment to sell, 

loan, lease, co-develop, or co-produce defense articles or services is implied or intended.
This report was cleared for public release by the U.S. Air Force on September 8, 2003 i

This report is for information only. No Boeing, CLR, or US Government commitment to sell, 

loan, lease, co-develop, or co-produce defense articles or services is implied or intended.

Executive Summary

BACKGROUND:

The November 2000 Commercial Application of Military Airlift Aircraft (CAMAA) 

report recommended a proposal that would allow the Department of Defense to leverage military 

airlift aircraft if such aircraft were available in the commercial market. The report suggested a 

unique military-commercial risk-sharing strategy to introduce a commercialized C-17, or BC17X, into the market for transporting heavy and/or outsize goods (the Heavy Outsize Market, or 

HOM), which is currently being served by Russian-made AN-124s. 

CONCLUSIONS:

As a follow-up to the initial study, this Risk Reduction Report on the Short Austere 

Market (SAM) was commissioned to determine if there are current commercial markets closely 

aligned with unique BC-17X operational characteristics that might mitigate commercial marketentry risks for potential BC-17X operators and thus reduce the risk of the CAMAA concept. 

This SAM study, completed in 2003, concludes that the SAM, the market for transporting heavy 

and/or outsize equipment and material loads to short, austere airfields, is large enough and has a 

yield sufficient to maintain a profitable operation for at least ten BC-17X aircraft, validating the 

commercial market premise of the CAMAA initiative. Consequently, the previous study’s 

findings that the Department of Defense’s outsize airlift requirements could be fulfilled, in part, 

by leveraging the BC-17X in the commercial market, can be viewed as well founded and as a 

viable business concept worthy of detailed implementation studies. 

METHODOLOGY:

The analysis underlying this conclusion divided the potential BC-17X SAM into 

segments and concentrated on the SAM Project Market—the market for transporting heavy 

and/or outsize and material loads to short, austere airfields for large, international construction 

and development projects (including, but not limited to, energy, infrastructure, and mining 

projects). Other outsize-capable and wide-body aircraft cannot access these austere locations, 

and other aircraft that can land at short or austere airfields are not able to carry the outsize 

freight, volume of cargo, or tonnage needed to make these projects profitable. This makes the 

BC-17X not only well suited for use in these projects, but also, potentially, the exclusive best 

choice.

Two potential risks were noted: economic and geopolitical. Neither was considered 

critical at this time. The SAM Project Market is heavily weighted in the energy sector and most 

projects are located in developing countries, but the market for oil and gas development, 

pipeline, and refinery projects and the global demand for petroleum products are not projected to 

abate within the next 20 years. Geopolitically, the BC-17X’s ability to exploit austere 

environments increases the number of locations where project work is possible, offsetting the 

loss of projects in areas of political instability, hostilities, or other geopolitical problems. 

The BC-17X SAM Project Market Forecast is based on 11 SAM Project Market Case 

Studies of large international construction projects involving major corporations. These case 

studies provided data and parameters used to filter a project-market database and estimate a 2003

base year market of approximately $2.36 billion that will grow by more than thirty percent over 

the next ten years. Significantly, this market estimate does not include business from the SAM 

Supply-Chain Market, Special Mission Market, or Heavy Outsize Market, which were examined 

in additional case studies and represent additional sources of revenue for the BC-17X. Due to 

the differing nature of value calculations in these market segments, their potential values were 

not included in the current market estimate.
This report was cleared for public release by the U.S. Air Force on September 8, 2003 ii

Disclaimer on Cover applies

Table of Contents

1. Purpose and Structure of the Report.....................................................................................................................1

1.1 Purpose of the Report .........................................................................................................................................1

1.2 Structure of the Report........................................................................................................................................1

2. Background..............................................................................................................................................................3

2.1 Definitions ..........................................................................................................................................................3

2.2 Background.........................................................................................................................................................4

2.2.1 Background of the Global Air Cargo Market..............................................................................................4

2.2.2 History and Design of the BC-17X.............................................................................................................5

2.2.3 History of this Risk Reduction Report on the Short Austere Market..........................................................6

3. SAM Project Market Case Studies and Forecast .................................................................................................9

3.1 Overall Methodology ..........................................................................................................................................9

3.2 SAM Project Market Case Studies....................................................................................................................12

3.2.1 Case Study Methodology ..........................................................................................................................12

3.2.2 SAM Project Market Background.............................................................................................................16

3.2.3 SAM Project Market Case Studies............................................................................................................19

3.2.3.1 Sakhalin I Onshore Processing Facilities, Offshore and Onshore Pipelines, and Well Development 

Project ...........................................................................................................................................................19

3.2.3.2 Sakhalin II Phase 2 Pipeline Project..................................................................................................25

3.2.3.3 Wabu Gold Project............................................................................................................................30

3.2.3.4 Kashagan Oil and Gas Field Project..................................................................................................36

3.2.3.5 Qalhat, Oman Liquefied Natural Gas Refinery.................................................................................42

3.2.3.6 Villano Pipeline and Central Processing Facility Project..................................................................47

3.2.3.7 Tan Jung Jati B Power Plant Project .................................................................................................52

3.2.3.8 In Salah Gas Field Development.......................................................................................................59

3.2.3.9 Mackenzie Delta Gas Pipeline Project ..............................................................................................64

3.2.3.10 Chad-Cameroon Petroleum Development and Pipeline Project......................................................70

3.2.3.11 National Petroleum Reserve Alaska Project....................................................................................78

3.2.4 SAM Project Market Case Study Summary..............................................................................................83

3.3 The BC-17X SAM Project Market Forecast .....................................................................................................84

3.3.1 Forecast Methodology...............................................................................................................................84

3.3.2 Forecast Results........................................................................................................................................85

3.3.2.1 Phase One: Identifying the Quantity and Cost of BC-17X-Eligible SAM Projects ..........................85

3.3.2.2 Phase Two: Assessing the Current Value of the BC-17X SAM Project Market...............................90

3.3.2.3 Phase Three: Calculating a Ten-year BC-17X SAM Project Market Forecast..................................94

4. Additional Sources of Revenue...........................................................................................................................100

4.1 SAM Supply-Chain Market .............................................................................................................................100

4.1.1 Raytheon Polar Services’ Transport Service to Antarctica .....................................................................101

4.1.2 Worldwide Sodium Cyanide Distribution...............................................................................................104

4.2 Special Mission Market ..................................................................................................................................107

4.2.1 Aerial Firefighting ..................................................................................................................................107

4.2.2 Spent Nuclear Fuel Transportation .........................................................................................................111

4.2.3 Kabul Embassy Project...........................................................................................................................113

4.2.4 Humanitarian Relief to the Sudan ...........................................................................................................116

4.3 Heavy Outsize Market.....................................................................................................................................118

5. Implementation Issues for a Prospective BC-17X Operator ...........................................................................121

5.1 Summary of the Possible Financial Return of a Ten-Aircraft Fleet................................................................121
This report was cleared for public release by the U.S. Air Force on September 8, 2003 iii

Disclaimer on Cover applies

5.2 Risk .................................................................................................................................................................121

5.2.1 Economic Risks ......................................................................................................................................122

5.2.2 Geopolitical Risks...................................................................................................................................122

5.2.3 Competitive Aircraft Risks .....................................................................................................................124

5.3 Stabilizing Factors..........................................................................................................................................125

6. Review Board Comments....................................................................................................................................128

Bibliography.............................................................................................................................................................131

Biographies...............................................................................................................................................................134

Team Biographies.................................................................................................................................................134

Review Board Biographies...................................................................................................................................141
Risk Reduction Report on 

the Short Austere Market

Section 1:

Purpose and Structure of the Report
1

Disclaimer on Cover applies

1. Purpose and Structure of the Report

1.1 Purpose of the Report

The purpose of the Risk Reduction Report on the Short Austere Market is to present a realistic 

market forecast that assesses the potential contribution of a BC-17X fleet to the Commercial 

Application of Military Airlift Aircraft (CAMAA) program.

1.2 Structure of the Report

The report has six sections.

Section 1 outlines the goals and structure of the report.

Section 2 provides background information, including definitions (Section 2.1) and brief 

descriptions (Section 2.2) of the air cargo market, the BC-17X, CAMAA, and the Risk 

Reduction Report on the Short Austere Market. 

Section 3 contains the bulk of the market analysis, the BC-17X Short Austere Market (SAM) 

Project Market Forecast, and has two essential subsections. The first (Section 3.2) contains the 

SAM Project Market Case Studies, which provide data and establish the parameters for the SAM 

Project Market Forecast. The case studies also contain detailed descriptions of the kinds of work 

appropriate for the BC-17X. Using the information from the case studies, the next essential 

subsection (Section 3.3), builds a ten-year BC-17X SAM Project Market Forecast.

Section 4 describes additional sources of revenue for the BC-17X outside the SAM Project 

Market, including SAM Supply-Chain Projects (Section 4.1), Special Missions (Section 4.2), and 

Heavy Outsize Market (HOM) charters (Section 4.3). 

Section 5 analyzes the implications of implementing a BC-17X fleet as part of the CAMAA 

program from the perspective of a prospective BC-17X operator and covers possible financial 

return (Section 5.1), risk factors (Section 5.2), and stabilizing factors (Section 5.3). 

Section 6 presents comments on the Risk Reduction Report on the Short Austere Market from a 

review board of industry experts.
Risk Reduction Report on 

the Short Austere Market

Section 2:

Background
3

Disclaimer on Cover applies

2. Background

2.1 Definitions

Outsize Cargo: Cargo that is too large to fit into conventional commercial wide-body 

passenger/cargo aircraft.

Heavy Outsize Market (HOM): The market for transporting individual cargo pieces that are too 

heavy for and/or too large to fit on conventional commercial wide-body passenger/cargo aircraft.

Short, Austere Airfield: A short (4000-ft to 5000-ft), narrow (but at least 90-ft), hard-packed 

prepared airfield with limited cargo on-load and off-load capacity, little or no aircraft 

maintenance capability, and ramp areas and taxiways that will not accommodate large 

conventional wide-body cargo aircraft. The BC-17X can operate in short, austere airfields and 

does not require support equipment to load and unload cargo at austere sites.1 An internal study 

of the world’s airfields by the Council for Logistics Research found that the number of short, 

austere runways is more than three times as large as the number of international airports with 

long, wide runways. In addition, the study showed that the BC-17X can service more than half 

of the world’s 13,800 runways (while the AN-124 can only service approximately 2000 

runways) and that nearly 5000 runways around the world can only be serviced in an outsize 

capacity by the BC-17X.2

Short Austere Market (SAM): The market for transporting heavy and/or outsize equipment and 

material loads to short, austere airfields. This market is ideally suited for the BC-17X because 

other outsize-capable aircraft such as the AN-124 and existing wide-body aircraft such as the B747-400F, MD-11F, and DC-10-30 cannot access 

short or austere airfields. Additionally, other 

aircraft that can land at short or austere airfields 

(such as the L-100) cannot carry the outsize 

freight, volume of cargo, or tonnage required to 

make air shipment profitable for most austere 

projects. Prior to this study, the potential size of 

the SAM has yet to be fully explored, and, unlike 

the HOM, in which one-off charters are 

commonplace, the SAM has the potential to 

support repeated, scheduled deliveries.

Note that the term austere applies not only to airfield length, but to the 

entire runway operational environment. 

 1 The C-17 (the BC-17X’s military predecessor) can land on unprepared runways as short as 3,000 feet with a full 

load, but, because of FAA commercial certification and angle of landing requirements, the BC-17X will only be 

certified for 4000-foot prepared runways when it is first operational. It may be certified for shorter runways over 

time.

2 Council for Logistics Research, Inc., Worldwide Runway Analysis, 19 February 2003, p.3. See Appendix A for 

the entire study.

L-100
4

Disclaimer on Cover applies

SAM Project Market: The market for transporting heavy and/or outsize equipment and material 

loads to short, austere airfields for large, international construction and development projects, 

including, but not limited to, energy, infrastructure, and mining projects. 

SAM Supply-Chain Market: The market for heavy and/or outsize equipment and material loads 

to short, austere airfields as part of an ongoing logistics supply chain.

Special Mission Market: The market for transporting heavy and/or outsize equipment and 

material loads that emerges as a result of humanitarian concerns, environmental regulations, 

national security needs, or international law. Economic benefits, while they may exist, are 

secondary rationales for using the BC-17X. The missions in this market may or may not involve 

an austere airfield component.

2.2 Background

2.2.1 Background of the Global Air Cargo Market

In 2001, the commercial air cargo market was 137.4 billion revenue ton-kilometers (RTKs), but 

its rate of growth, though positively forecasted at 5.1 

to 7.8 percent annually, is inherently limited by 

airlift technology that is not tailored to meet the 

changing needs of modern global logistics.3

As Mike Eskew, Chairman of United Parcel Service, has stated, “Logistics today has got to sort 

through the excesses of commerce.”

 The 

bulk of today’s shipping volume travels to and from 

major airports in the bellies of passenger aircraft or 

on passenger-converted freighter aircraft. However, 

as global commercial development reaches into 

increasingly remote areas, opportunities for new, 

more dramatic growth in the air cargo market will be 

found in non-traditional markets that are inaccessible 

by today’s standard modes of commercial air transportation and difficult to reach by surface 

transportation. Moreover, according to both Boeing’s World Air Cargo Forecast 2002-2003 and 

the Commission on the Future of the United States Aerospace Industry, the majority of the 

forecasted growth in the traditional air cargo market will be captured by non-US carriers who 

have started to expand their cargo thinking through vertical logistics-chain alliances, mergers and 

acquisitions, and specialized equipment (such as the AN-124, AN-225, and A-400X) capable of 

serving these new developing markets.

4

 3 The Boeing Company, World Air Cargo Forecast 2002-2003, 

 Historically, the market has conspired to make logistics 

more complicated by developing new distribution channels, and currently globalization, 

technology, and deregulation are redefining the logistics business. In addition, supply-chain 

management goes far beyond the distribution of goods and is now, according to Eskew, “the 

http://www.boeing.com/commercial/cargo/flash.html, 2002.

4 “UPS’s Eskew Sees Logistics Golden Age Coming, Bringing Good Corporate

Governance With It,” Traffic World, 14 October 2002, p. 22.

AN-124 
5

Disclaimer on Cover applies

bedrock of the business plan.” For example, supply-chain disciplines such as rational investment 

and driving down inventory constitute a company’s natural defense against inefficiency; 

therefore, in effect, a company’s supply-chain strategy becomes its business plan. 5 As Eskew 

goes on to say, “Managing global commerce means effectively managing your supply chain. 

They’re more than mutually dependent ... they are synonymous. They’re also essential for 

continued economic development and opportunity around the world.”6

Such changes in logistics thinking, combined with globalization’s drive to develop increasingly 

austere locations, are expanding the air cargo market beyond its traditional passenger aircraft 

orientation. Furthermore, as the Commission on the Future of the United States Aerospace 

Industry concludes in its first recommendation, “the integral role aerospace plays in [the United 

States] economy, ...security, ...mobility, and ...values makes global leadership in aviation and 

space a national imperative.”7 As the United States stands “dangerously close to squandering the 

advantage bequeathed to [it] by prior generations of aerospace leaders,” 8

2.2.2 History and Design of the BC-17X

it is essential to its 

international competitiveness in the aerospace industry (and the commercial and trade 

advantages that derive from that position) that US companies manufacture and operate aircraft, 

such as the BC-17X, that can penetrate the relatively untapped air cargo markets of the future.

The unparalleled design of the BC-17X ideally matches the expanding needs of the global 

commercial market. In addition to accommodating approximately 87 tons (79 metric tons) in its 

20,900 cubic-foot (592 cubic-meter) cargo bay that is wide enough for two rows of large trucks 

side by side, this highly versatile aircraft can take off, land, deliver its cargo, and turn around on 

austere runways approximately 4,000 feet (1,200 meters) long and 90 feet (28 meters) wide. 

Moreover, landing in short distances is not the only capability that makes the BC-17X uniquely 

suitable to austere airfields. Powered by four Pratt & Whitney PW2000 series turbofans with full 

 5 Ibid.

6 Michael L. Eskew, Executive Speeches, 

http://www.pressroom.ups.com/execforum/speeches/speech/0,1402,38,00.html, 2002. 7 Commission on the Future of the United States Aerospace Industry, Final Report, 2002, p. vi. 8 Ibid.
6

Disclaimer on Cover applies

reverse capabilities and a combined 161,760 lbs (719.6kN) of thrust, the BC-17X has a cruise 

speed of 563 mph (906 kmph, or 489 knots) and a range of 2,500 nautical miles (4,630 km) at 

maximum payload without refueling. The engine thrust-reversing system can back the BC-17X 

up a 2 percent grade fully loaded, allowing the aircraft to park forward in tight ramp spaces, offload, and back out when the crew is ready to depart. This system also eliminates the jet blast and 

engine noise danger to crew members and equipment moving behind the aircraft during offloading and on-loading operations with the engines running. In addition, the thrust-reversing 

engines are mounted well above the ground. This design feature, combined with the high wing, 

directs the exhaust up and forward, greatly reducing blowing debris and the potential for foreign 

objects to be ingested by the engines.9 Furthermore, ready access to all areas of the aircraft 

without complicated or sophisticated ground equipment makes the BC-17X easy to maintain in 

austere airfields. (For example, a self-jacking capability allows for tire and brake changes on the 

main landing gear without having to rely on standard 

aircraft jacks, and fuel boost pumps can be removed 

and replaced without de-fueling and purging the fuel 

tanks.)10 

The United States Air Force has been taking 

advantage of the extraordinary capabilities of the BC17X’s military variant, the C-17, for a decade. The 

C-17 took off on its maiden flight on September 15, 

1991, and the first production model was delivered to 

Charleston Air Force Base, South Carolina, on June 

14, 1993. Since the first C-17 squadron was declared 

operationally ready on January 17, 1995, the Air 

Force’s C-17 fleet has logged over 400,000 flight hours. Its missions have included flying 

troops, equipment, and humanitarian aid to Operation Joint Endeavor in Bosnia, the Allied Force 

Operation in Kosovo, the war on terrorism in Afghanistan, and Operation Iraqi Freedom. The 

USAF’s initial contract with McDonnell Douglas/Boeing was for 120 C-17s to be delivered 

through 2004, but in early 2002 the order was increased to 180 planes through 2008. The 

wisdom of this decision was borne out when the aircraft proved indispensable during the war on 

terrorism in Afghanistan and Operation Iraqi Freedom. 

In May of 1995, the C-17 was awarded the Collier Trophy for the top aeronautical achievement 

of the year, and on February 4, 1999, President Clinton presented the Malcolm Baldrige National 

Quality Award to the manufacturer, The Boeing Company Airlift and Tanker Program. During 

routine flight testing at Edwards Air Force Base in 2001, the C-17 set 22 world records,

including payload to altitude, time to climb, and short takeoff and landing mark. (The aircraft 

successfully took off and landed in less than 1,400 feet while carrying a payload of 44,000 lbs to 

altitude.) In subsequent testing, the C-17 set 11 more records pending approval, bringing the 

total number of world records to 33. 

2.2.3 History of this Risk Reduction Report on the Short Austere Market

 9 The Boeing Company, C-17 Globemaster III: Technical Description and Planning Guide, 2002, p. 2-1. 10 Ibid, p. 6-1.

The C-17’s roll-on/roll-off cargo capabilities allow very 

large and heavy military equipment to be loaded 

quickly and efficiently.
7

Disclaimer on Cover applies

The November 2000 Commercial Application of Military Airlift Aircraft (CAMAA) report 

recommended a proposal that would allow the Department of Defense to leverage military airlift 

aircraft if such aircraft were used in the commercial market. The report suggested a unique 

military-commercial risk-sharing strategy to introduce the BC-17X into the commercial market.

If successful, the CAMAA initiative may provide a real and current solution to the Commission 

on the Future of the United States Aerospace Industry‘s recommendation that the US 

government “develop an air transportation system that simultaneously meets our civil aviation, 

national defense and homeland security needs.” 11 (See Appendix B for a point paper on other 

ways in which the CAMAA project seeks to fulfill the recommendations of the report.) 

Additionally, the CAMAA initiative supports the Department of Defense Transportation Policy

that “the DOD will foster an economically sound, safe, reliable, and efficient national 

transportation system and supporting infrastructure by using commercial transportation services 

and facilities to the greatest extent practicable, consistent with military needs.” 12

One of the goals of the November 2000 CAMAA Report was to identify and describe the 

commercial market for the BC-17X. To this end, it provided data on the BC-17X’s potential in 

the HOM, but time and resource constraints precluded the investigation of an even more 

significant market for the aircraft: the Short Austere Market (SAM). CAMAA then launched a 

risk reduction effort that, among other projects, investigated the BC-17X’s unique ability to 

develop and serve the SAM by delivering heavy and/or outsize cargo loads to short, austere 

airfields.

The first case study review of the SAM, completed in early 2001, consisted of a sample analysis 

of specific infrastructure development projects to determine the existence and viability of the 

SAM and the ability of the BC-17X to serve this market profitably. The initial Case Study 

Report established that a commercial SAM did exist and that companies would pay a premium 

for air transportation to SAM sites.

The findings of the first case study review were sufficiently compelling to prompt a more indepth case study project. As such, this report contains analyses of a representative sample of 

case studies to create both a description of BC-17X-appropriate SAM projects and the 

foundation for a compelling commercial forecast of the BC-17X’s potential in the SAM. 

 11 Commission on the Future of the United States Aerospace Industry, Final Report, 2002, p. vii.

12 Department of Defense, Department of Defense Transportation Policy, March 1990, p.1. See Appendix C for the 

full text of the policy.
Risk Reduction Report on 

the Short Austere Market

Section 3:

SAM Project Market

Case Studies and Forecast
9

Disclaimer on Cover applies

3. SAM Project Market Case Studies and Forecast

3.1 Overall Methodology

The market for the BC-17X has two major market segments: the SAM and the HOM (see Chart 

3.1). As explained above, this report concentrates on the SAM as the most substantial BC-17X 

market segment.

Chart 3.1

Within the SAM, the BC-17X has three main sources of revenue: the Project Market, the SupplyChain Market, and the Special Mission Market. The Project Market (the market for large, 

international construction and development projects—including, but not limited to, energy, 

infrastructure, and mining projects) is the main focus of this market analysis and the basis of the 

BC-17X SAM Project Market Forecast.

Several factors led to selecting the SAM Project Market as the foundation of the BC-17X 

forecast. Most importantly, it is a market segment that has the potential to be exclusive to the 

BC-17X because the projects tend to have outsize cargo requirements and be in austere locations 

difficult to reach by well-developed modes of surface transportation and not near large 

international airports. (See SAM Project Market Background in section 3.2.2.) Other outsizecapable aircraft (such as the AN-124) and existing wide-body aircraft (such as the B747F-400F, 

MD-11F, and DC-10-30) cannot access the austere locations, and other austere aircraft (such as 

the L-100) cannot carry the outsize freight, volume of cargo, or tonnage required to make air 

shipment profitable for most austere projects. Furthermore, the BC-17X is a self-contained 

cargo system that does not need support equipment to load and unload cargo at austere sites. 

Other characteristics of the SAM Project Market that make it well suited to the BC-17X are long 

project lead times, long project lengths, its ability to be developed quickly, and its potential to 

support repeated, scheduled deliveries.

BC-17X Extended Market

Short Austere Market Heavy Outsize Market

Project Market Supply Chain Special Mission One-Off Charter

Oil and Gas

Pipelines

Refineries

Power Plants

Mining

Raytheon Polar

Services

Sodium Cyanide

Distribution

Aerial Firefighting

Spent Nuclear

SAM Market

Forecast

Based On

Project Market

Sudanese Aid

Fuel

Kabul Embassy
10

Disclaimer on Cover applies

Recognizing the potential of the project market as a BC-17X opportunity is not new. In 1996, 

Boeing studied import and export data from the Port Import/Export Reporting System (PIERS) 

database. Looking only at oil drilling equipment, Boeing analyzed the uncontainerized seaborne 

cargo categorized as machinery, vehicles, and metals and concluded that ocean vessels carried 

nearly 4.5 million tons of oil project cargo in 1995. If, as Boeing estimated, only five percent of 

this cargo were available for BC-17X operators or other outsize aircraft operators, it would 

amount to over 234 thousand tons.13 

Looked at another way, that amount of 

cargo carried in BC-17Xs with an average 

70 percent load factor would generate over 

3,800 BC-17X missions annually. 

Depending on the number of hours 

required for each mission, this demand 

could support a BC-17X fleet of fifteen to 

twenty-five aircraft.14 While these 

numbers seem impressive, they did not 

engender a substantive response from the 

commercial airfreight industry.

The fundamental problem with Boeing’s 

original project market analysis was 

twofold. First, the study focused solely on 

the BC-17X’s outsize cargo capability (the 

HOM), which, in isolation, does not 

distinguish it from the lower-cost AN-124 

that already services the HOM on a oneoff basis. Second, there was no market 

motivation for choosing five percent of the 

available cargo as potential BC-17X 

business. The data alone, albeit 

representing a large quantity of potential business, did not indicate why BC-17X air 

transportation would be used instead of ocean transportation. 

This study addresses both shortcomings of the early analysis. First, it focuses on the SAM 

Project Market, a market that excludes other outsized cargo air transportation alternatives. 

Second, it contains case studies, detailed analyses of the ways in which the BC-17X is ideally 

suited to serve the SAM and the amount of revenue that can be generated by including the BC17X in real-world logistics chains.

The case study data is the starting point for a three-part BC-17X SAM Project Market Forecast. 

In the first step, the case study data is used to develop specific criteria by which to identify the 

quantity and cost of all BC-17X-eligible projects. Next, the percentage of the case study project 

costs that would be spent on the BC-17X is used to determine the size of the current BC-17X 

 13 The Boeing Company, Airlift and Tanker Division, Integrated Defense Systems, MD-17 General Briefing 

Update, 1998. 14 Mission lengths varied between 10 hours (two five-hour legs) and 16 hours (two eight-hour legs), and each BC17X could fly 2,500 hours annually.

The BC-17X can easily accommodate bulky cargo.
11

Disclaimer on Cover applies

SAM Project Market, or the amount of all BC-17X-eligible project money that could potentially 

be spent on the aircraft. To supplement this revenue-based approach to market definition, the 

forecast also uses the SAM Project Market Case Studies to make a rough estimate of the types 

and total volume of project shipments presently transported by ocean freight that would be 

eligible for BC-17X air delivery. Finally, the growth of the current BC-17X SAM Project 

Market is projected out ten years using global Gross Domestic Product. (A more detailed 

discussion of the BC-17X SAM Project Market Forecast methodology will precede the forecast 

analysis.)

BC-17X
12

Disclaimer on Cover applies

3.2 SAM Project Market Case Studies

3.2.1 Case Study Methodology

Many factors needed to be considered in selecting 

the SAM Project Market Case Studies. First, the 

case studies had to accurately represent the SAM 

Project Market (i.e., they had to be energy, mining, 

infrastructure, or other large construction projects 

with outsize cargo requirements in austere 

locations). Second, they had to meet the basic BC17X-favorable criteria established by the 2001 

preliminary case study review—a project cost of 

more than $100 million and a project duration of 

more than one year. Third, in order to be as 

diverse as possible, the case studies needed to be a 

mix of past, present, and future projects. Fourth, it 

was critical to analyze enough case studies for the 

forecast input data to be statistically significant.

Keeping in mind the importance of selecting SAM projects run by large companies or 

organizations with substantial influence in their respective fields, the first step in actually 

selecting the case studies was to identify candidates that would be willing to grant access to 

highly sensitive proprietary data essential to a thorough analysis. This process generated a list of 

fifty-five projects (included as Appendix D), which had to be reduced to twenty to meet the Risk 

Reduction Report on the SAM budget. Once these organizations had been contacted by the Risk 

Reduction Report on the SAM’s team of logistics experts and had agreed to participate in the 

studies, team members met with representatives of each potential case study group to fill out the 

Selection Worksheet, a detailed questionnaire designed to help determine if a case study was 

really a SAM project. (See Appendix E.) The data from the Selection Worksheets, several 

months of working with each potential case study organization (see the Data Collection 

Worksheet in Appendix F), and several rounds of team meetings reduced the number of SAM 

Project Market Case Studies that fit the study criteria to eleven.15

Each SAM Project Market case study has the same format: the project name, a list of the project 

participants, a description of the data source company or organization, a description of the 

project environment, a description of the project, an outline of the present or executed logistics 

plan, an outline of a proposed BC-17X logistics plan, a description of the next best alternative 

logistics plan, a data analysis chart, a brief conclusion, and a letter of agreement from the data 

source company or organization.16

 15 A similar process was used to select the six case studies that represent additional sources of revenue. 16 Some of the case studies do not include letters of agreement either because of the amount of time needed to clear 

such a document through the legal departments of the data source companies or organizations or because the case 

study analysis was conducted before it was decided to request letters of agreement.

These presentations, however, are just summaries of the 

complete case studies, which can be found in Appendix G and contain more detailed descriptions 

and calculations.

The BC-17X is uniquely able to serve the Short Austere 

Market (SAM) by transporting heavy and/or outsize 

equipment and material loads to austere project sites.
13

Disclaimer on Cover applies

The sample data analysis chart below defines each of the line items. It is important to note that 

all the analysis is from the perspective of the total project, not the individual project participants 

or data source companies. The distribution of the net benefit between the project participants 

and the BC-17X operator would be decided contractually on a per-project basis. 

Project Name Name of the project 

Project Description Description of the project 

Project Owner Company or consortium that owns the project

Project EPC Company Company doing the engineering, procurement, and 

construction work for the project

Project Logistics Company Company doing the project logistics

Project Cost Cost of project construction/Cost of project contract

Project Duration Length of project (first construction to completion and 

first production) 

Freight Description Description of freight

Flight Origin and Destination Origin and destination of BC-17X project flights 

Air Cargo Duration Amount of time over which the project requires air 

cargo shipments 

BC-17X Operational (Fly) Days Number of days the project requires BC-17X flights 

BC-17X Committed (Contracted) Days Number of days the BC-17X must be available for the 

project

BC-17X Schedule Distribution, frequency, and timing of BC-17X flights 

(including number of flights per day and number of 

flight days per week)

Average BH per RT Flight Average block hours per round trip flight 

Estimated BC-17X BH Number of block hours the project will require. 

Calculated by multiplying Average BH per RT Flight 

by Number of RT Flights per Day by BC-17X 

Operational (Fly) Days.

Possible Type of Contract Possible type of payment contract committing the BC17X to the project. For example, if the project uses 7 

or more block hours per day, a block hour payment 

contract will probably be used. If the project uses 

less than 7 block hours per day, a committed day 

payment contract will probably be used.

Total Cost of BC-17X to Project17 Cost to the project of the BC-17X. (This is also the 

BC-17X operator’s revenue from the project.) If the 

project uses 7 or more block hours per day, Total 

Cost is calculated by multiplying the Block Hour Cost 

of the BC-17X ($20,000) by Estimated BC-17X BH. If 

the project uses less than 7 block hours per day, 

Total Cost is calculated by multiplying the Daily Cost 

of the BC-17X ($137,000) by BC-17X Committed 

(Contracted) Days.18

 17 The cost calculations shown in the data analysis charts are for the case study estimates only and do not reflect the 

actual cost for future work (which will be bid per a client’s “Referral for Quote” (RFQ) / “Scope of Work” 

document).

18 Prices as of January 1, 2003.
14

Disclaimer on Cover applies

These prices were derived from the revenue needed 

to make the BC-17X operation commercially 

successful for the owner/operator (a 15% ROI) and 

are the minimum possible prices for the aircraft. 

Since the case studies reveal significant net benefits 

to utilizing the aircraft at these prices, the 

owner/operator would most likely be able to negotiate 

higher prices on a per-project basis. Moreover, as 

there is currently no equivalent competitive aircraft 

that can service these SAM projects, the aircraft 

operator/owner would be able to negotiate a price 

based on the savings to the customer, not the cost of 

the aircraft.

Cost of Airfield Upgrade Cost to the project of making the runway suitable for 

the BC-17X. Note that building a paved, 4000-ft 

runway that could support the BC-17X would cost 

approximately $2 M, not including cost of land 

acquisition, taxiways, the apron, etc. Simply 

improving an existing runway would be significantly 

less expensive. Also note that, in some cases, it may 

be possible to certify an unimproved runway for BC17X operations at a cost of approximately $1.5 M.19

Cost of Airfield Maintenance Cost to the project of maintaining a BC-17X-suitable 

runway. Note that unimproved runways will have 

higher maintenance costs than improved runways 

and that airfield maintenance will not always be the 

responsibility of the project.

Delta Cost of BC-17X to Project Cost of the BC-17X to the project adjusted for 

transportation savings created by the BC-17X (i.e., 

the amount of surface and ocean transportation 

eliminated by the BC-17X logistics plan). Delta Cost 

is calculated by adding Cost of Airfield Upgrade and 

Cost of Airfield Maintenance to Total Cost of BC-17X 

to Project and subtracting Transportation Cost 

Savings.20

Transportation Cost w/o BC-17X Project’s transportation cost with present logistics 

plan

Transportation Cost w/ BC-17X Project’s transportation cost with BC-17X logistics 

plan. Calculated by adding Delta Cost of BC-17X to 

Project to Transportation cost w/o BC-17X.

Cost Benefit Labor, materials, and other construction and 

operational savings from using the BC-17X logistics 

plan, including the operational savings from the early 

completion of the project (excludes transportation 

savings, which are accounted for in the Delta Cost 

calculation)

Months-to-Completion Savings How much faster, in months, the project is completed 

using the BC-17X logistics plan instead of the 

present/executed logistics plan

Capital Interest Benefit/

Return on Capital Invested Benefit

If the project is funded primarily externally, the Capital 

Interest Benefit is the amount of interest payments 

eliminated by the project’s early completion. If the 

project is funded primarily internally, the Return on 

Capital Invested Benefit is the amount of interest 

benefit earned by freeing up the money invested in 

the project faster. Although the definitions are 

different depending on the primary funding source, 

the calculations are the same because of the 

assumption that the rate at which the company 

borrows money is the same as its internal rate of 

return. 

 19 Although these unimproved fields are likely to be located outside the US, it is assumed that an FAA 

“certification” (as outlined in AC 25-7A) would be necessary for the BC-17X operator to maintain its FAA ticket. 20 In most of the case studies, the Increase in Transportation Cost from the BC-17X is the same as the Total Cost of 

the BC-17X to Project. This is because most of the BC-17X logistics plans still require surface transport—just less 

of it. Compared to the cost of the BC-17X, the decrease in surface transportation is minimal and thus excluded. In 

other case studies, the BC-17X replaces almost all of the present logistics, and the Increase in Transportation Cost 

from the BC-17X is less than the Total Cost of the BC-17X to Project. 
15

Disclaimer on Cover applies

For each case study, the estimated interest rate is 

based on the projected LIBOR rate (3%), adjusted 

100 to 200 basis points depending on the apparent 

risk of the project, and the benefit is calculated by 

multiplying the estimated interest rate by Project Cost, 

dividing by 12, and multiplying by Months-toCompletion Savings.

Accelerated Product Benefit The revenue from the accelerated product adjusted 

for the direct operating cost of production. For 

example, if an oil pipeline is completed one month 

faster, the accelerated product benefit is the revenue 

from one extra month’s worth of oil flowing through 

the pipeline. All oil project accelerated product 

benefit calculations, except when noted, use an oil 

price of $25 per barrel. When there is a cost 

associated with creating the accelerated product 

benefit (5% for oil projects, 80% for power projects, 

and 50% for gold projects), the number has been 

reduced by the appropriate percentage to account for 

this cost.

The logic behind this benefit is based on the fact that 

energy and mining companies operate as if there is 

an infinite supply of their products (or at least enough 

to last until their own company shuts down). 

Continuing with the oil example, a barrel of oil not 

pumped today is lost forever because, although the 

particular field being pumped will eventually be 

exhausted anyway, if the oil company finishes 

pumping the field one day early, they can begin 

pumping the next field one day early, and so on for all 

time (or until the company shuts down). At infinity (or 

the shut-down date), there is always an extra day of 

oil revenue, and that is the accelerated product 

benefit. While it is debatable whether or not these 

products are, essentially, in infinite supply, the critical 

fact is that energy and mining companies operate 

(and calculate financial information) as if they are, 

making accelerated product revenue a significant 

benefit of the BC-17X. 

Project Construction Cost—w/o BC-17X Project construction cost with present logistics plan 

(includes materials, labor, and transportation)

Project Construction Cost—with BC-17X Project construction cost with BC-17X logistics plan. 

Construction Cost with BC-17X is calculated by 

adding Delta Cost of BC-17X to Project to Project 

Construction Cost w/o BC-17X and subtracting Cost 

Benefit and Capital Interest Benefit/Return on Capital 

Investment Benefit.

BC-17X Revenue per Operating Day Amount that the BC-17X earns per operating day. 

Revenue per Operating Day is calculated by dividing 

Total Cost of BC-17X to Project by BC-17X 

Operational (Fly) Days.

BC-17X Revenue per Committed Day Amount that the BC-17X earns per committed day. 

Revenue per Committed Day calculated by dividing 

Total Cost of BC-17X to Project by BC-17X 

Committed (Contracted) Days.

Net Benefit The net benefit of the BC-17X to the project, 

calculated by adding Cost Benefit and Capital Interest 

Benefit/Return on Capital Invested to Accelerated 

Product Benefit and subtracting Delta Cost of BC-17X 

to Project.
16

Disclaimer on Cover applies

3.2.2 SAM Project Market Background

Before analyzing the BC-17X’s potential in the SAM Project Market, it is important to 

understand what the SAM Project Market is and how the various companies involved in a large 

construction project interact. 

Simply, the Project Market is the market for large, international construction and development 

projects, including (but not limited to) energy, infrastructure, and mining projects, and the SAM 

Project Market is the market for transporting heavy and/or outsize equipment and material loads 

to short, austere airfields for the Project Market.

More specifically, most of the large projects relating to this study fall into four basic categories 

and a number of subcategories:

1. Energy projects 

a. Pipelines 

b. Oil and gas exploration and development

c. Refineries and liquid natural gas production facilities

2. Infrastructure projects

a. Power generation 

b. Transportation (roads and railroads)

c. Airports, seaports, and waterways

d. Water supply and sanitation

3. Mining projects

4. Other large construction projects

a. Factories

b. Petrochemical products plants

c. General construction (war damage and natural disaster recovery)

These categories of projects have large SAM components because, over the years, many of the 

easy-to-get-to locations for these types of projects have been exploited, and much of the 

construction opportunities that remain are in areas well inland from large seaports where the 

transportation infrastructure is usually primitive or nonexistent. In most instances, overland 

transportation is via narrow roads, which are often nothing more than packed dirt kept passable 

by periodic grading. Furthermore, even if there is an airfield near a large project location, it is 

likely to be a short, austere airfield that can only be serviced in an outsize capacity by the BC17X. (See the definition of short, austere airfield in Section 2.1.) 

Project logistics costs can range from six to eight percent of the equipment costs or two to five 

percent of the total project cost. The transportation cost increases appreciably as the jobsite 

moves farther from convenient water transportation, and it is not uncommon for the logistics 

budget to be as high as twenty percent of the total project cost if the jobsite is several hundred

miles from the nearest ocean port.21

 21 These estimates are from Bill Murphy, former Director of Global Logistics for Halliburton (one of the top ten 

large-project management companies).
17

Disclaimer on Cover applies

For any given large construction project, there are multiple levels of management. The highest is 

the project owner, the company, organization, or government that will own and operate the 

completed project. ExxonMobil, for example, is often a project owner in oilfield development 

projects and thus owns the rights to the oil the field produces. The project owner’s most pressing 

concerns are how quickly and at what cost the product can be brought to market and the cost of 

the capital needed to finance the project. In most large projects, the owner does not actually 

construct the entire project itself, but rather outsources all or some of the engineering, 

procurement, and construction, or EPC, to an EPC company. The most important single factor to 

an EPC company, such as ABB Lummus, is finishing the EPC work in the amount of time 

specified in its contract. Finally, to allow the EPC work to be completed on a continuous 

schedule, the EPC company often contracts the responsibility for getting the needed materials to 

the jobsite to a logistics provider or freight forwarder, such as SDV. The logistics provider is 

primarily concerned with on-time deliveries within the budget allocation (allowing an adequate 

return). 

Developing a bid for the logistics portion of an EPC contract involves an average of eight steps, 

depending on the complexity of the logistics work:22

1) Receive and review the bid request, known as the “referral for quote,” or RFQ, and select 

a project manager to oversee the bidding process.

2) Develop a preliminary equipment and materials list. 

3) Put together a preliminary logistics plan that includes information on equipment size, 

sourcing locations, and project location.

4) Send the preliminary logistics plan to a few logistics providers for a budget estimate and 

rough plan of how the equipment can be moved from the manufacturing location to the 

jobsite.

5) Make an internal cost estimate based on experience.

6) Collect the budget estimates from the logistics providers.

7) Average the budget estimates and compare them to the internal cost estimate to develop a 

bid. 

8) Combine the logistics bid with the other bids requested by the RFP and submit a formal 

bid to the client. A very rough rule of thumb for pricing a typical process facility is 12 to 

14 percent for home-office costs (engineering work, management, etc.), 55 to 65 percent 

for procurement and logistics, and 21 to 33 percent for construction.

Once an EPC company has successfully bid on a contract for a major project, the project 

manager becomes responsible for the profit and loss of the project and for completing the EPC 

work according to the terms of the contract. As the business end of an EPC project, project 

management deals with all aspects of the EPC work. For example, a project manager on a 

typical major project needs to address project organization and management personnel, business 

processes (acquisition of work, performance monitoring, etc.), legal issues, procurement issues 

and bid solicitation, supplier quality management and bid solicitation (with logistics providers 

and other suppliers), project scheduling, resource and financial estimating, project controls, and 

environmental issues.23

 22 See Appendix H for more information. 23 Appendix I contains more detailed information on project management practices.

 
18

Disclaimer on Cover applies

An EPC process owner goes through twelve basic steps in soliciting bids for freight services 

from qualified logistics providers:24

1) Determine the amount of required logistics freight services.

2) Collect data on trade lanes and the volume of freight to be moved.

3) Develop an RFQ on the scope of work to be accomplished and determine if the work 

should be a subcontract or a straight purchase contract for transportation.

4) Develop a scoring matrix to rank the bids. 

5) Send out the RFQ to potential bidders.

6) Gather the sealed bids and distribute them to the appropriate internal review teams.

7) Use the scoring matrix to rank the bids.

8) Hold conferences with the highest-ranked bidders.

9) Complete the final scoring of the bids.

10) Notify the winning bidder.

11) Develop service agreements.

12) Monitor performance and cost parameters.

 24 See Appendix J for a more detailed description.
19

Disclaimer on Cover applies

3.2.3 SAM Project Market Case Studies

3.2.3.1 Sakhalin I Onshore Processing Facilities, Offshore and Onshore Pipelines, 

and Well Development Project

Sakhalin Island, Russia 

Project Owner: ExxonMobil, SODECO, ONGC Videsh, SMNG, Roseneft-Astra

EPC Company: ABB Lummus Global, Inc.25

ABB Lummus Global was formed in 1995 by the merger of ABB Lummus 

Crest and ABB Global Engineering. It is a unit of the Swiss giant ABB Ltd, a 

company that employs approximately 146,000 people. Focusing on the oil 

and gas, petroleum refining, and petrochemical process industries, ABB 

Lummus Global provides engineering, procurement, and construction services (EPC) in over 

seventy countries.

Environment

Logistics Company: Panalpina

Data Source Company

Sakhalin Island is located off the eastern 

coast of Russia and is surrounded by the Sea 

of Okhotsk and the Sea of Japan. The island 

measures 650 miles long by 100 miles at its 

widest point, and it is characterized by harsh 

terrain (two-thirds of the island is 

mountains), natural disasters (landslides, 

blizzards, and earthquakes), and extreme 

weather conditions. Although the southern 

third of the island is open to the sea yearround, the rest of the island is only 

accessible by sea two to five months per 

year due to ice and ice flows.

In the mid-1920s, the Russians discovered 

oil in the northern part of the island near 

Okha, but the severe environment prevented 

any substantive development. It was only 

after the breakup of the USSR that the new 

government invited foreign entities with the 

technology necessary to service the 

complicated site to help develop the island’s 

vast offshore reserves of oil and natural gas. 

 25 Since the time this case study was conducted, ABB has experienced financial difficulties. While ABB will still 

complete the project engineering, Fluor will take over the project construction.

Sakhalin Island is located off the eastern coast of Russia and is 

surrounded by the Sea of Okhotsk and the Sea of Japan.
20

Disclaimer on Cover applies

Today, a plethora of multinational oil companies are working in partnership with the Russian 

government to capitalize on the island’s resources.

In addition to its oil and natural gas reserves, the island is also home to extensive fishing and 

spawning grounds, lush forests, and rich mineral deposits, making the region very 

environmentally sensitive. 

Project

Sakhalin Island has been divided into at least seven development reserves:

Sakhalin I – ExxonMobil, SODECO, ONGC Videsh, SMNG, Rosneft-Astra

 ($12 billion development contract)

Sakhalin II – Royal Dutch Shell, Mitsui, Mitsubishi

 ($11 billion development contract)

Sakhalin III – ExxonMobil, Chevron Texaco, Rosneft, SMNG

 ($531 million exploration contract)

Sakhalin IV – BP, Rosneft, Rosneft-SMNG

Sakhalin V – BP, Rosneft, Rosneft-SMNG

Sakhalin VI – Alfa Group

Sakhalin VII – Not defined

At this time, the Russian government has sanctioned the 

first two projects, and both operating companies 

(ExxonMobil and Royal Dutch Shell, respectively) have 

signed production-sharing agreements. Stakeholders in the 

other seven projects are currently exploring how much oil 

and gas is in each of their reserves.

The energy companies involved in the projects, such as 

ExxonMobil and Royal Dutch Shell, are expected to spend 

in excess of $23 billion over the next twenty years to 

develop the oil and gas reserves in Sakhalin I and II alone. Moreover, as new projects begin in 

the region, they will create a sustainable business environment that will, to some degree, lessen 

the risk of working on Sakhalin. According to Dinty Millar, the onsite Vice-President of 

Sakhalin Development at BP, “If more projects come on the line, the opportunities for business 

on the island will go from excellent to staggering.”26

This case study focuses on the Sakhalin I development project, valued at approximately $12 

billion and situated on the eastern coast of the island just northeast of Nogliki. The project’s 

reserves in the Odoptu, Chayvo, and Arkutum-Dagi fields, adjacent to the barrier reef, are 

estimated at 2.3 billion barrels of oil and seventeen trillion cubic feet of natural gas. At a 

Moscow summit meeting between President Putin and President Bush in May 2002, President 

Putin “praised the proposed $12 billion Sakhalin I project as a model of economic 

cooperation.”27

 26 Quoted in “Interview with Marianne Drain,” Business Information Service for Newly Independent States, May 

2002. Ms. Drain is the BISNIS Trade Specialist for Sakhalin Island. 27 “Oil Producers Flock to Island in Russia with Fragile Ecology,” The Wall Street Journal, 4 September 2002.

 

Two Shell oil drilling platforms off the coast of 

Sakhalin Island.
21

Disclaimer on Cover applies

Sakhalin I is expected to be developed in two phases. The first and biggest phase will consist of 

three barrier island rigs for directional drilling, offshore to onshore pipelines from the fields to 

the onshore processing facilities (OPF), and an oil pipeline from the OPF to the Russian 

mainland. The through-put of the pipeline is estimated to be 200,000 barrels per day. The 

second phase of the project will be a sub-sea gas pipeline running from the OPF to Japan’s 

northern island of Hokkaido. Since Japan does not have a defined internal pipeline distribution 

system, the alternate plan is to build a liquefied natural gas (LNG) plant on Sakhalin and move 

the LNG by tanker to a gasification plant on the southern Japanese islands that connects with the 

current pipeline distribution system.

ABB Lummus was awarded the engineering, procurement, and construction (EPC) contract from 

the Sakhalin I operating group for the Chayvo OPF, the Chayvo wellsite, the Odoptu OPF, and 

the offshore pipeline and two Odoptu wellsites that will connect the OPFs to the wellsite 

manifolds. ABB was also awarded the logistics contract for the drilling operation and was 

bidding on the 28-inch pipeline that will connect the OPF to the refinery and oil loading terminal 

on the Russian mainland. The total value of these contracts was estimated at $3.5 billion.

Infrastructure

The transportation system infrastructure on the island dates back to the end of World War II and 

consists of a series of rail barges from the mainland and a railroad that runs to the northern part 

of the island. The rail system is made up of three different gauges of track, and cargo must be on 

and offloaded at each gauge change. There are some paved roads in and around the island’s 

cities, but they are poorly maintained. Away from the cities the roadbeds turn into gravel, and in 

the wintertime they become ice highways. There is an air system, but it is made up of small 

aircraft used mainly for passenger movement. The international airport at Yuzhno is weight 

restricted to exclude wide-body aircraft, and the other, more austere airports at Okha and Nogliki 

are supposed to be upgraded with hard surfaces and navigational aids (but not expanded) over 

the next few years. The runway at Nogliki, for example, will not exceed 6000 feet.

Present Logistics Plan

The present logistics plan for the OPF 

freight is to move as much material as 

possible to the jobsite during the 

summer months (typically May through 

September) via ocean-going barges and 

beach landings. However, all beach 

landings are currently under review 

because of their detrimental 

environmental impact. The material that 

cannot make this four-month window of 

opportunity and cannot be held for the 

next spring thaw will be shipped to the 

southern ports of Korsakov or Kholmsk. 

From there, the material will be moved 

by rail to Nogliki and then by truck to the jobsite. 

Rail ferry at Kholmsk, Sakhalin Island.
22

Disclaimer on Cover applies

The cross-country 28-inch pipe for the project will be provided free issue28

 28 Free issue means owner-provided; in other words, not bought by the contractor.

to the winning 

contractor at the Russian east coast material yards of Vostochny and Vanino. The pipe to run 

west from the OPFs through the mountains will be shipped via rail ferry and ocean-going barges 

to the ports of Kholmsk and Korsakov before moving by rail to the northern laydown (storage) 

yards near Nogliki. The pipe to run from the western slope of the mountains to the Tatar Straight 

and down the east coast of the mainland to the refinery will move first via ocean barge to the 

west coast of the island and then via truck to the jobsite.

In addition, it is estimated that the oilfield service company contracted to support the drilling 

program will need to move approximately 1,000 forty-foot containers of material to the jobsite. 

These materials are presently scheduled to be brought into Sakhalin through the ports of 

Kholmsk and Korsakov and moved by rail and truck to the jobsite.

The rail barge, railroad, and trucking systems on Sakhalin will be overburdened by the extra 

traffic from the project in addition to the normal freight and passenger movements. 

Furthermore, the environment in which the train and trucks operate is not conducive to 

continuous scheduled service because of frequent natural disasters and the easily missed, short 

time frame for the barge landings. The corporations involved in the Sakhalin I project, however, 

have assumed one hundred percent performance of the transportation infrastructure in estimating 

the project costs and timing.

BC-17X Logistics Plan

In an effort to meet and possibly beat the intended schedule, the Sakhalin I project logistics could 

preplan the use of the BC-17X. This would allow the maximum amount of equipment and 

materials to be moved to the northern jobsite as quickly as possible without any seasonal 

restrictions due to ice. The capabilities of the aircraft would enable it to transport large loads up 

to 170,000 lbs while still maintaining its ability to take off and land at Nogliki, a very austere 

airstrip. No other aircraft capable of serving the Nogliki airstrip can carry anywhere near this 

weight.

The BC-17X could also fly freight directly to the northern airport of Nogliki from marshalling 

yards on the Russian mainland, Korea, or Japan, thus bypassing the queue for the rail barge, the 

ocean-going barges, the port congestion at Kholmsk and Korsakov, and the rail and trucking 

system and minimizing the environmental impact of the project.

Next Best Alternative

The next best alternative is to go forward with the current logistics plans. Critical smaller items 

could be moved by air on L-100s or AN-12s (the L-100’s Russian counterpart), but since these 

aircraft have extremely limited capacity compared to the BC-17X the time savings are not 

significant. The AN-124 could provide greater lift capacity than the BC-17X, but it could not 

operate on the jobsite without hefty investments in airport infrastructure.
23

Disclaimer on Cover applies

Analysis

Project Name Sakhalin I Development Project

Project Description Sakhalin Island onshore processing facilities, offshore 

and onshore pipelines, and well development

Project Owner ExxonMobil, SODECO, ONGC Videsh, SMNG, 

Roseneft-Astra

Project EPC Company ABB Lummus Global29

Project Logistics Company Panalpina

Project Cost $3.5 B for OPF and pipelines

Project Duration 5 years

Freight Description Pressure vessels, columns, package units, pipe 

spools and line pipe, structural steel, drilling 

materials, construction equipment, etc.

Flight Origin and Destination Vladivostock, Russia to Nogliki, SI 50%

Seoul, Korea to Nogliki, SI 10%

Pusan, Korea to Nogliki, SI 10%

Sapporo, Japan to Nogliki, SI 10%

Hakodata, Japan to Nogliki, SI 10%

Yuzhno, Sakhalinsk to Nogkili, SI 10%

Note: % of total flights

Air Cargo Duration 3 years

BC-17X Operational (Fly) Days 429 days

BC-17X Committed (Contracted) Days 500 days

BC-17X Schedule 143 days during each winter season (October through 

April) for 3 years; approximately 2 RT flights per day, 

6 days per week

Average BH per RT Flight 4.4 BH including flight, loading and unloading time

Estimated BC-17X BH 3775 BH

Possible Type of Contract Long-term hourly contract that includes fixed costs 

and margin 

Total Cost of BC-17X to Project 3775 BH at $20,000 = $75.5 M 

Cost of Airfield Upgrade $2 M (Nogliki)

Cost of Airfield Maintenance $600,000 (Nogliki)

Delta Cost of BC-17X to Project $75.5 M cost of BC-17X

 2.0 cost of runway upgrade

 .6 cost of maintenance

(40.0) less transportation savings

Delta cost to the project = $38.1 M

Transportation Cost w/o BC-17X $150 M

Transportation Cost w/ BC-17X $188.1 M

Cost Benefit $15 M per month for 3 months = $45 M

Months-to-Completion Savings 3 months

Capital Interest Benefit/

Return on Capital Invested Benefit

$35 M @ 4%

Accelerated Product Benefit 200,000 BBL/day for 90 days @ $25 per BBL = $450 

M less 5% per BBL extraction cost ($22.5 M) = 

$427.5 M

Project Construction Cost—w/o BC-17X $3.5 B

Project Construction Cost—with BC-17X $3,500.0 M project cost

 38.1 delta cost

 (45.0) less cost benefit

 (35.0) less capital interest benefit

Project cost with BC-17X = $3.4681 B

BC-17X Revenue per Operating Day $161,000

BC-17X Revenue per Committed Day $151,000

Net Benefit $427.5 M accelerated product benefit

 45.0 cost benefit

 35.0 capital interest benefit

 (38.1) less delta cost of BC-17X

Net benefit to the project = $469.4 M

 29 Since this case study was done, ABB has experienced financial difficulties. While ABB will still complete the 

project engineering, Fluor will take over the project construction.
24

Disclaimer on Cover applies

Conclusion

Including the BC-17X in the logistics chain would increase the project’s costs by approximately 

$38.1 million. However, the $45 million cost benefit, $35 million capital interest benefit, and 

$427.5 million accelerated product benefit result in a net benefit to the project of about $469.4 

million.

Letter of Agreement
25

Disclaimer on Cover applies

3.2.3.2 Sakhalin II Phase 2 Pipeline Project

Sakhalin Island, Russia 

Project Owner: SEIC (Sakhalin Energy Investment Company: Royal Dutch Shell, Mitsui Co., 

Mitsubishi Corp.)

EPC Company: Fluor, Inc. – this EPC project had not yet been awarded at the time of this case 

study

Logistics Company: Not yet assigned – still in the bid stage

Data Source Company

Fluor, Inc. of Sugar Land, Texas is a subsidiary of The Fluor 

Corporation of California, one of the world’s largest publicly owned 

engineering, procurement, construction, and maintenance 

companies. In addition to providing construction management services to many different 

industrial sectors worldwide, Fluor’s projects include designing and building manufacturing 

facilities, refineries, power plants, pharmaceutical facilities, and telecommunications and 

transportation infrastructure. Employing a workforce of over 50,000, The Fluor Corporation 

maintains offices in 25 countries across six continents, posted sales of $10.1 billion in 2001, and 

is consistently ranked as one of the top three international contractors by Engineering News 

Record Magazine. 

Project

The environment, infrastructure, and overall project 

layout are the same as for the Sakhalin I project.

The Sakhalin II development project, thought to 

contain one billion barrels of recoverable oil and 

more than four trillion cubic feet of natural gas, is 

valued at approximately $11 billion and has been 

broken down into four phases. In Phase 1, completed 

in 1999, the first of three offshore platforms was 

installed. The platform, Molikpaq in the PitunAstokhskoye field, presently operates six months per 

year and produces 75,000 barrels of oil a day when 

not threatened by ice. The oil is then pumped 

through a sub-sea pipeline, stored in a stationary 

tanker, and transferred to an ocean-going tanker every 

six days for delivery to refineries in the Pacific Rim. 

Phase 2 consists of the engineering, procurement, and 

construction (EPC) of a dual (oil and gas) pipeline 

system, and Phase 3 is the EPC of the liquefied 

natural gas (LNG) plant and oil export terminal. The 

fourth and final phase will be the installation of the 

two remaining platforms.

Fluor and two other companies are in the process of 

The Sakhalin II Phase 2 project is a 500-mile dual 

pipeline system consisting of a 20-inch, 100,000 barrel 

per day oil pipeline and a 48-inch gas pipeline.
26

Disclaimer on Cover applies

presenting bids to the operating group for the EPC of the Sakhalin II Phase 2 project, a 20-inch, 

100,000 barrel per day oil pipeline and a 48-inch gas pipeline. Spanning 500 miles, the dual 

pipeline will follow the railroad right-of-way from the OPF near Nogliki to Prigorodnoye on the 

southern coast. This part of the contract is valued at around $2 billion. The value of the logistics 

work of moving the pipe from its free issue locations, Vostochny and Vanino, to the right-of-way 

is estimated at $135 million. The contract winner, expected to be chosen in the second to third 

quarter of 2003, will be the overall project manager and will be responsible for the EPC of the 

pipeline system. Construction is slated to begin in the second quarter of 2004.

Present Logistics Plan

Transportation of the pipe from Vostochny to the primary receiving ports of Kholmsk and 

Korsakov will be principally by barge. The free issue pipe from Vanino will be loaded on rail 

cars and moved via rail ferry to Kholmsk, where the rail cars will be queued for the next 

available train to the current jobsite. The loose pipe from the barges will be transferred to a 

laydown yard if empty rail cars are not available. 

A total of 19,360 rail cars at full capacity, or 484 trains at forty rail cars per train, will be 

required to transport the pipe. While there are ten engines in total on the island, less than half of 

them will be available to move the pipe. (The rest will be needed for standard freight and 

passenger traffic.) 

Beach landings are also being considered at the northern terminus of the pipeline, but, as in the 

case of the Sakhalin I project, this raises serious environmental concerns. 

BC-17X Logistics Plan

If preplanned in the logistics chain, the BC-17X 

could be used to move the northern area pipe 

directly from the free issue sites to Nogliki, 

meaning that the pipeline could be built from both 

ends simultaneously. The aircraft could also be 

used to bring in construction equipment, housing, 

and consumables to reduce the pressure on the 

already overburdened transportation infrastructure 

and minimize the environmental impact of the 

project. Additional materials and equipment 

could be flown into Nogliki from Japan and South 

Korea, bypassing the current ocean, trucking, and 

rail logistics system.

The rugged coastline and lack of beach creates significant 

logistical obstacles for the Sakhalin Island pipeline projects.
27

Disclaimer on Cover applies

Next Best Alternative

Since no other aircraft has both the capacity and austere capabilities of the BC-17X, the next best 

alternative would be the present logistics plan. In some cases, lighter equipment could be moved 

to the northern airports on L-100s or AN-12s, but heavier materials, such as the sixty-ton 

pipeline valves, would have to travel by barge or heavy-haul truck, depending on the 

environmental conditions. As a result, this logistics plan would generate almost no time savings. 

Once again, the AN-124 could carry approximately the same amount of cargo as the BC-17X, 

but would require substantial investments in airport infrastructure. 

Analysis

Fluor performed a discrete-event simulation transporting just the twenty-inch pipe on the BC17X to determine how removing this pipe from the standard logistics chain would free up rail 

cars to move other material. The result of the simulation was that 38 trains with forty cars per 

train, or 1520 cars,30

 30 The cars are limited to 22 tons each because of the condition of the track.

were eliminated. Considering that the average round trip for each train to 

the northern terminus takes ten days, the twenty-inch pipe would arrive at the jobsite 380 days in 

advance, and the rest of the pipe, moving on a less crowded rail system, would arrive two months 

earlier. Furthermore, in this logistics plan there is enough free space on the aircraft to transport 

several of the sixty-ton valves alongside the pipe each day, whereas trucking the valves could 

take a week or more per unit.
28

Disclaimer on Cover applies

The following analysis simulated transporting construction equipment and other materials in 

addition to the twenty-inch pipe.

Project Name Sakhalin II Phase 2 Pipeline Project

Project Description 500-mile dual oil & gas pipeline running from the 

northern drill sites to the southern coast

Project Owner SEIC – Sakhalin Energy Investment Company (Royal 

Dutch Shell, Mitsui, Mitsubishi Corp.)

Project EPC Company Bid by Fluor, Inc. – This EPC contract had not yet 

been awarded at the time of this case study

Project Logistics Company Not yet assigned – still in the bid stage

Project Cost Estimated to be between $1.5 B and $2.2 B – for the 

purpose of this study an average of $1.85 B has been 

used

Project Duration 3 years

Freight Description Pipe, pipeline valves, pig launchers and receivers, 

structural steel, instrumentation, construction 

equipment, etc.

Flight Origin and Destination Vladivostok, Russia to Nogliki, SI 70%

Pusan, Korea to Nogliki, SI 5%

Sapporo, Japan to Nogliki, SI 5%

Hakodata, Japan to Nogliki, SI 5%

Yuzhno, Sakhalinsk to Nogliki, SI 10%

Seoul, Korea to Nogliki, SI 5%

Note: % of total flights

Air Cargo Duration 2 years

BC-17X Operational (Fly) Days 308 days

BC-17X Committed (Contracted) Days 360 days

BC-17X Schedule Continuous throughout the winter months – 7 months 

(October through April) during the first year and 5 

months (October through February) during the 

second year – approximately 2 RTs per day, 6 days 

per week

Average BH per RT Flight 3.94 BH

Estimated BC-17X BH 2427 BH not including loading and unloading

Possible Type of Contract Long-term daily contract that includes fixed costs, 

margin, and an hourly rate for each block hour in 

excess of a specified number

Total Cost of BC-17X to Project 360 days at $137,000 = $49.3 M

Cost of Airfield Upgrade $2 M (Nogliki)

Cost of Airfield Maintenance $600,000 (Nogliki)

Delta Cost of BC-17X to Project $49.3 M cost of BC-17X

 2.0 cost of runway upgrade

 .6 cost of maintenance

 (30.0) less ground transportation

Delta cost to the project = $21.9 M

Transportation Cost w/o BC-17X $131 M

Transportation Cost w/ BC-17X $152.9 M

Cost Benefit $15 M per month for 3 months = $45 M

Months-to-Completion Savings 3 months

Capital Interest Benefit/

Return on Capital Invested Benefit

$18.5 M @ 4%

Accelerated Product Benefit 100,000 BBL/day for 90 days @ $25 per BBL = $225 

M less 5% per BBL extraction cost ($11.2 M) = 

$213.8 M

Project Construction Cost—w/o BC-17X $1.85 B

Project Construction Cost—with BC-17X $1,850.0 M project cost

 21.9 delta cost

 (45.0) less cost benefit

 (18.5) less capital interest benefit

Project cost with BC-17X = $1.8084 B

BC-17X Revenue per Operating Day $160,000

BC-17X Revenue per Committed Day $137,000

Net Benefit $213.8 M accelerated product benefit

 45.0 cost benefit

 18.5 capital interest benefit

 (21.9) less delta cost of BC-17X

Net benefit to the project = $255.4 M
29

Disclaimer on Cover applies

Conclusion 

Including cost, capital interest, and incremental revenue benefits, the BC-17X would provide 

$277.3 million in total benefits to the project. Taking into account the additional $21.9 million 

in transportation costs for the aircraft, using the BC-17X would result in a $255.4 million net 

benefit to the project. 

Letter of Agreement

Note that this letter of agreement applies not only to Sakhalin II, but to Villano and In Salah as 

well.
30

Disclaimer on Cover applies

3.2.3.3 Wabu Gold Project

Papua, Indonesia 

Project Owner: Freeport McMoRan Copper and Gold

EPC Company: Freeport McMoRan Copper and Gold

Logistics Company: Freeport McMoRan Copper and Gold

Data Source Company

Freeport McMoRan Copper and Gold is the one of the 

world’s largest producers of copper and gold. Their 

principal operating subsidiary, PT Freeport Indonesia, 

explores, develops, mines, and mills copper, gold, and 

silver ore throughout the province of Papua, Indonesia. With a workforce of over 8,000 

employees, Freeport posted sales of $1.75 billion in 2001.

Environment

Freeport’s Indonesian mining projects are located in the western half of the island of New 

Guinea in the province of Papua, an area first explored for mineral deposits in early 1966. The 

Erstberg underground copper mining site, completed in 1973, was the first mine built in the 

region. In 1988, the Grasberg copper and gold deposit was discovered in a 13,000- foot 

mountain at Tembegapura, 68 miles north of the port of Amamapari. Since that time, this 

deposit has been developed into an open pit mine (at a 9,000-foot elevation) and pipeline system 

that produces 3.4 million ounces of gold and 1.7 billion pounds of copper annually. 

The Wabu gold deposit, valued at about $3.5 billion was discovered 30 miles down the 

mountain from the Grasberg mine. 
31

Disclaimer on Cover applies

Project

Another major deposit, estimated to contain in 

excess of eight million ounces of gold valued 

at $3.5 billion, has been discovered on the 

Wabu ridge thirty miles down the mountain 

from the current Grasberg mine. In order to 

develop the new, 6,500-foot-elevation mine, 

Freeport will have to overcome a multitude of 

complex logistics problems, including access 

from the Grasberg site to the Wabu site, 

power generation, camp requirements, water 

requirements and sources, sanitary disposal, 

product and supply shipment, air support 

requirements, environmental concerns, and 

material warehousing. The cost of getting the 

mine up and running is estimated at $190 

million.

Furthermore, the Wabu mine will use an 

entirely different mined-ore processing 

procedure than the Grasberg mine. At 

Grasberg the ore is ground, milled into a 

concentrate, and shipped to a refinery for 

smelting, while at Wabu the gold will be 

leached from the ore at the mine using sodium 

cyanide and shipped as pure gold ingots. This 

leaching process will require recurring loads 

of both cyanide and blasting material to be 

transported from the seaport to the mine site 

throughout the estimated ten-year life of the 

mine. 

Infrastructure

Presently, there are no roads to the Wabu site, and the dirt road that runs from the seaport to the 

Grasberg mine weaves back and forth as it climbs a 13,000-foot elevation to minimize the grade 

of ascent. A new road to Wabu would have to be routed over the mountain and then descend 

down to 6,500 feet.

About four miles from the Wabu site at Bilogai (at an elevation of 7,000 feet), there is a 1,935-

by-79-foot unpaved runway, but it would have to be improved to handle either an L-100 or a BC17X. The airport at Timika, while already capable of serving the BC-17X, is about twenty-five 

miles inland from the seaport. Some consideration is being given to determining if an airstrip 

could be built closer to the seaport, eliminating the double handling and trucking to and from 

Timika.

This road goes from Freeport’s mill complex to the Grasberg 

mine. The trail begins at an elevation of 7,000 feet and ends at an 

elevation of 12,500 feet. 
32

Disclaimer on Cover applies

Present Logistics Plan

Freeport’s current plan is to construct a $25 million, 

fifty-mile-long unpaved road over the extremely 

mountainous terrain from Grasberg to Wabu. Upon 

completion of the road in approximately two years, 

Freeport will use it to truck the materials necessary to 

begin building the mine and related facilities. 

Assuming no delays, the mine and the related facilities 

could be built in 1.5 years, bringing the total 

construction time to a minimum of about three-and-ahalf years (43 months). Once the mine is up and 

running, it will be about six more months before the 

first gold ingots are ready to ship. 

BC-17X Logistics Plan

Independent Mining Consultants, the consulting firm Freeport contracted to oversee the logistics 

at Wabu, suggested using the BC-17X (from Timika to Bilogai) to build the road from both ends 

and support the initial construction phases of the plant and facilities. The remainder of the 

equipment and materials could be transported by road once it was completed. Although the 

airstrip at Bilogai would have to be improved for this supply chain (a task that would require 51 

sky-crane trips and six BC-17X flights), the airfield upgrade could be completed in three months 

and the BC-17X could land on the airstrip after only one month. Building the road from both 

ends would take only thirteen months, and, while the plant and facility construction and 

preproduction stripping would still take 19 months, it could begin during the second month, 

reducing the total construction time to 21 months. Under this logistics plan, Freeport would be 

ready to ship the first gold a full 22 months ahead of schedule. In addition, the permanent paved, 

lighted, and enlarged airfield at Bilogai would be available for future use. 

Next Best Alternative

The next best alternative to the BC-17X logistics plan would be to revert to the current plan of 

building the road from one end and trucking the construction materials up the mountain. 

However, John Marek, the President of Independent Mining Consultants, has indicated that 

without the BC-17X it will be extremely difficult to construct the mine.

Freeport McMoRan Copper and Gold has a port site 

and power plant in West Papau, New Guinea. 
33

Disclaimer on Cover applies

Analysis

Project Name Wabu Gold Mine

Project Description Open new gold mine in Indonesia

Project Owner Freeport McMoRan Copper & Gold

Project EPC Company Freeport McMoRan Copper & Gold

Project Logistics Company Freeport McMoRan Copper & Gold

Project Cost $190 M

Project Duration 3.5 years

Freight Description Construction equipment and materials

Flight Origin and Destination Timika to Bilogai mine site

Air Cargo Duration 2.5 months 

BC-17X Operational (Fly) Days 72 days

BC-17X Committed (Contracted) Days 72 days

BC-17X Schedule 3 RTs per day, 7 days per week, for 207 R/T flights 

(includes one 12.7 BH ferry)

Average BH per RT Flight 1.36 BH 

Estimated BC-17X BH 292 BH

Possible Type of Contract Long-term daily contract that includes fixed costs, margin, 

and an hourly rate for each block hour in excess of a 

specified number

Total Cost of BC-17X to Project 72 days at $137,000 = $9.9 M

Cost of Airfield Upgrade $2.8 M (including $0.8 M for helicopter)

Cost of Airfield Maintenance None

Delta Cost of BC-17X to Project $9.9 M cost of BC-17X

 2.8 cost of runway upgrade

Delta cost to the project = $12.7 M

Transportation Cost w/o BC-17X $28 M (including $25 M to build the road)

Transportation Cost w/ BC-17X $40.7 M

Cost Benefit None

Months-to-Completion Savings 22 months 

Capital Interest Benefit/

Return on Capital Invested Benefit

$17.5 M @ 5%

Accelerated Product Benefit $547.0 less a 25 % mining cost ($136.8 M) = $410.2 M 

Project Construction Cost—w/o BC-17X $190 M

Project Construction Cost—with BC-17X $190.0 M project cost

 12.7 delta cost

 (17.5) less capital interest benefit

Project cost with BC-17X = $185.2 M

BC-17X Revenue per Operating Day $137,000

BC-17X Revenue per Committed Day $137,000

Net Benefit $410.2 M accelerated product benefit

 17.5 capital interest benefit

 (12.7) less delta cost of BC-17X

Net benefit to the project = $415.0 M

A critical factor to consider in gold-mine development is the effect of the gold price cycle. 

Historically, the market price of gold fluctuates cyclically—for example, the price might be 

depressed in year zero, slowly rise to a peak in year two, and gradually return to its initial 

depressed level by year four, when the cycle would start again. Thus if mine development 

begins when the price of gold is depressed, by the time the mine is completed (three to four years 

later), the cycle will have peaked and the price may be dropping again. Reducing the time it 

takes to build the mine would have allowed the producer to sell the gold at a higher cost. If the 

opposite occurs and the original mine construction plan hits the price cycle at its peak, the 

producer would be no worse off had it completed the mine sooner because it could have held the 

gold until the price increased. This means that any major compression in the elapsed time to first 

gold will maximize Freeport’s opportunity to take advantage of gold price increases and 

minimize the startup risk of the project. 
34

Disclaimer on Cover applies

To calculate the accelerated product benefit given the gold price cycle, a simulation was run 

assuming that the project had been started in 1999 and that using the BC-17X reduced the total 

project construction time by 22 months. (Using this historical time frame allowed the simulation 

to use actual, historical prices instead of forecast prices.) The simulation showed that using the 

BC-17X would have generated $547 million in accelerated product revenue ($410.2 million after 

adjusting for the cost of mining the gold). In addition, the BC-17X logistics plan would have 

allowed Freeport to take advantage of an upswing in the gold price cycle instead of finishing 

near the peak and having to sell all the gold on a downswing.

Conclusions

The BC-17X logistics plan would generate approximately $410.2 million in cost-adjusted 

incremental revenue. Factoring in the cost of the BC-17X committed days and airfield upgrade 

(about $12.7 million) and the capital interest benefit ($17.5 million), the net value to Freeport of 

inserting the BC-17X into its proposed supply chain is $415.0 million. Dick Warden, an expert 

on the gold industry who has visited Freeport’s Indonesian mining operations, has reviewed and 

approved the analysis and conclusions of this case study.
35

Disclaimer on Cover applies

Letter of Agreement
36

Disclaimer on Cover applies

3.2.3.4 Kashagan Oil and Gas Field Project

Kazakhstan, CIS

Project Owner: Kashagan Consortium (BG 16.7 % owner, 6 other owners)

EPC Company: AgipKCO Division of ENI Italy

Logistics Company: AgipKCO, operator to determine carriers

Data Source Company

The BG Group PLC, or British Gas, explores, extracts, and distributes natural gas 

to existing and developing markets worldwide. Its four main business segments 

are Exploration and Production (oil and gas), Liquefied Natural Gas (distribution, 

shipping, and selling), Transmission and Distribution (oil and gas pipeline and 

distribution networks), and Power Generation (commercialization). With over 20,000 employees 

around the globe, BG posted 2002 sales of $4.34 billion.

Environment

The Kashagan oil and gas field lies in the shallow waters of the northeastern Caspian Sea, 47 

miles south of the port of Atyrau and 186 miles overland from the eastern terminus of the VolgaDon Canal at Astrakhan, Ukraine. Only about ten feet deep, this portion of the Caspian Sea is 

also the breeding area of the Caspian sturgeon, the largest producer of caviar roe. Additionally, 

the crude here is very high in noxious gases, making it particularly challenging to protect the 

sturgeon in particular and the environment in general during extraction. 

In June 2001, the first five exploration wells in the Kashagan field resulted in one of the largest 

oil and gas finds on record, estimated at seven to thirteen billion barrels of oil. Further 

exploration has produced a new find in the neighboring Kalamkas field, which should assure 

many more years of drilling operations in the area. 

Winters are harsh in this region of Kazakhstan, and, while Aktau is an ice-free port, all the 

waters to its north are frozen over six months of the year, including the port of Atyrau.

Project

The North Caspian Sea Production-Sharing Agreement (involving BG, ENI, ExxonMobil, Inpex, 

Phillips, Shell, and Total Fina Elf) established a consortium that holds the rights to 5,600 square 

km of the Kazakh sector of the Caspian Sea, including the new Kashagan discovery. The 

development of the Kashagan field is expected to cost $9.35 billion and entail mostly offshore 

drilling, with drill rigs beginning about 46 miles offshore (although the processing and gas 

treatment facilities will be inland at Eskene West). AgipKCO, a subsidiary of ENI of Italy, will 

operate the project. The Kazakh government would like the field to begin producing oil by 2005 

and to be producing up to one million barrels per day by 2015. 
37

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 The Caspian Sea area (left) has very harsh winters and Kazakhstan (right) is a relatively undeveloped country 

with few roads or rail lines. The meager infrastructure that does is exist is rapidly deteriorating. 

Infrastructure

This entire country of Kazakhstan is basically undeveloped, with few roads, rail lines, or airports. 

The infrastructure that does exist is often old and in disrepair.

The primary seaports around the Caspian are Atyrau, Aktau, Bautino in Kazakhstan, Astrakhan 

in Russia, and Baku in Azerbaijan. Of these, only Aktau and Baku are open in the winter.

The Russian rail system services the port of Atyrau, and a 22-mile, single-track rail spur with a 

parallel dirt road has been constructed from Atyrau to the Kashagan field. Three factors, 

however, limit the effectiveness of rail service. First, it takes up to two months to get approval 

from the Russian government to transport heavyweight shipments and to traverse the system’s 

bridges and tunnels. Second, coal trains have top priority on the tracks, and all other trains must 

move aside to let them pass. Third, the rail gauge changes several times, meaning freight has to 

be loaded and unloaded onto several different railcars to complete its journey. 

Providing an alternative to surface travel between the Black Sea and the Caspian Sea, the 63-

mile Volga-Don Canal connects the Black Sea port of Rostov, near the mouth of the Don River, 

to the port of Astrakhan, where the Volga River meets the Caspian Sea. Like the rest of the 

northern Caspian waters, the Volga-Don Canal is frozen over from November to April each year. 

Only shallow-draft vessels (weighing about 5,000 tons) can be used in the canal, and the amount 

of freight that can be carried is limited by the width and weight limitations of the vessels. 

The airfield at Atyrau, located 47 miles from the Kashagan field at the northern end of the 

Caspian Sea, has a 7,700 ft by 148 ft asphalt runway with an Instrument Landing System (ILS). 

BG is currently conducting a study to determine if this airfield could be made into an 

international hub for the development project. There is another small airport (with an 8,700-ft by 

147-ft runway and no ILS) at the Caspian port of Aktau, and a study is presently underway 

regarding improvements there. Both these airstrips can already accommodate the BC-17X and, 

using a portable microwave ILS system, could support its operation in most of the area’s severe 

winter weather conditions. 
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Present Logistics Plan

AgipKCO estimates that over eight billion pounds 

of material and equipment will need to be 

transported over the next five years for the Phase I 

Experimental Program, divided up as follows: 

748 million pounds to the drilling field, 594 

million pounds to Eskene West, 1,210 million 

pounds to pipeline storage areas, and 5,500 

million pounds to field construction sites. 

Most freight will move via sea over one of two 

possible routes, both of which require a great 

number of transfers from one mode of transport to 

another. First, the major materials and equipment from Europe and the United Kingdom must 

traverse seven seas to the port of Novorissisysk on the Black Sea. From there, the freight will be 

offloaded onto trucks, driven to the Caspian ports of Baku or Komsomolskaya, and transferred to 

barges for the voyage across the Caspian to Atyrau. Finally, the materials will move by truck or 

rail to the Kashagan field. From Marseille or Genoa, this supply chain covers 3,480 miles in 34 

days; from the United Kingdom or Antwerp, it covers 4,971 miles in 38 days.

The second possible sea route is through the Volga-Don Canal. Upon arriving in the Black Sea 

port of Rostov, freight on this route will travel through the canal to Astrakhan and across the 

Caspian to Atyrau. In total, this logistics path covers 3,449 miles in thirty days from Marseille or 

Genoa and 4,937 miles in 33 days from the United Kingdom or Antwerp. Using the Volga-Don 

Canal instead of ground transport reduces the transit time by four days and eliminates one 

offload transfer.

The remaining materials will travel from Europe to Atyrau via the Trans-Siberian railroad, a trip 

that takes between thirty and forty days.

Winter icing of the northern Caspian Sea and Volga-Don Canal primary supply chains will force 

the project to alternate supply routes every six months. Furthermore, to support year-round 

construction and drilling operations in Kashagan, the project will have to build an offshore 

winter base for stockpiling materials and equipment during the non-winter months.

BC-17X Logistics Plan

While the total tonnage to be shipped is too large to replace the sea and ground supply chains 

with air cargo, supplementing the surface transport with continual BC-17X flights would 

minimize the effect of many logistical impediments, such as winter freezing, and positively 

contribute to maintaining a smooth, uninterrupted construction schedule. 

More specifically, the BC-17X utilization would be divided into three phases: startup, ongoing 

supply, and “last six months.” Additionally, the case study analysis assumed that the BC-17X 

would only assist in the transportation of materials to the drilling field (via Aktau airfield) and 

Eskene West (via Atyrau airfield) and that eighty percent of the total weight to be moved over 

In the winter months, the waters of the north Caspian Sea 

(including the seaports) are frozen over. This drilling rig is 

completely isolated by ice. 
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the next five years would be transported in the first three years.31

 31 The case study analysis only deals with the first three years of project shipments, but the BC-17X would continue 

to run project flights after the first three years.

 For the startup phase, the BC17X would run two months of daily flights to transport select equipment and materials needed to 

set up the personnel camp and begin the first phases of construction. This part of the logistics 

plan would save 1.2 months on the current construction schedule. For the ongoing supply phase 

of the project, the BC-17X would schedule weekly flights for strategic materials that were 

delayed beyond their planned shipping date and essential to maintain a seamless construction 

schedule, saving approximately 2.3 months. During the last six months of the project, as the 

contracted completion date neared, the BC-17X would run two flights per week to assist with the 

final push to finish the last elements of the project construction, saving about 0.6 months. The 

total time savings under the BC-17X logistics plan would be approximately 4.1 months.

Next Best Alternative 

Atyrau, the airport nearest the new project site, cannot support the AN-124. Moreover, 

upgrading the airfield to support the AN-124 would take a significant amount of time and cost as 

much or more than using the BC-17X to support the project. Combined with restrictions that 

prevent IL-76s from taking off in European Union countries, this presents a clear opportunity for 

the BC-17X. Without this aircraft, the next best alternative is the current mix of sea and ground 

transportation routes. 
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Analysis

Project Name Kashagan, Kazakhstan Oil/Gas Field

Project Description Phase 1 development of offshore oil/gas field in 

Caspian Sea

Project Owner Kashagan Consortium (BG 16.7% owner, 6 other 

owners involved)

Project EPC Company AgipKCO Division of ENI Italy

Project Logistics Company AgipKCO, operator to determine carriers

Project Cost $9.35 B

Project Duration 5 years

Freight Description Construction and drilling equipment

Flight Origin and Destination United Kingdom and Europe to Atyrau and Aktau 

airfields 

Air Cargo Duration 2.6 years, spread over 31 months 

BC-17X Operational (Fly) Days 194 days 

BC-17X Committed (Contracted) Days 194 days 

BC-17X Schedule 1 RT flight per day, 5 days per week for 57 days = 41 

trips; 1 RT flight per week for 24 months = 101 trips; 

and 2 RT flights per week for the last 6 months = 52 

trips

Average BH per RT Flight 9.0 BH 

Estimated BC-17X BH 1746 BH (194 RT flights)

Possible Type of Contract Long-term hourly contract that includes fixed costs 

and margin

Total Cost of BC-17X to Project 1746 BH’s at $20,000 = $34.9 M

Cost of Airfield Upgrade None

Cost of Airfield Maintenance None

Delta Cost of BC-17X to Project $34.9 M 

Transportation Cost w/o BC-17X $748.0 M

Transportation Cost w/ BC-17X $782.9 M 

Cost Benefit $12.6 M 

Months-to-Completion Savings 4.1 months or 126 days

Capital Interest Benefit/

Return on Capital Invested Benefit

$159.7 M @ 5% 

Accelerated Product Benefit 200,000 BBL/day for 126 days @ $25 per BBL = 

$630.0 M less a 5% extraction cost per BBL ($31.5 

M) = $598.5 M

Project Construction Cost—w/o BC-17X $9.35 B 

Project Construction Cost—with BC-17X $9,350.0 M project cost

 34.9 delta cost

 (12.6) less cost benefit

 (159.7) less return on capital 

 invested benefit

Project cost with BC-17X = $9.2126 B 

BC-17X Revenue per Operating Day $180,000 

BC-17X Revenue per Committed Day $180,000 

Net Benefit $598.5 M accelerated product benefit

 12.6 cost benefit

 159.7 capital interest benefit

 (34.9) delta cost of BC-17X

Net benefit to the project = $735.9 M 

Conclusion

Inserting the BC-17X into the Kashagan supply chain would increase transportation costs by 

$34.9 million. However, the aircraft’s total net benefit to the project, including cost, capital 

interest, and accelerated product benefits, would be approximately $735.9 million.
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Letter of Agreement
42

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3.2.3.5 Qalhat, Oman Liquefied Natural Gas Refinery 

Qalhat, Oman

Project Owner: Oman LNG L.L.C. (Government of Oman)

EPC Company: Foster Wheeler, UK subsidiary

Logistics Company: Transglobal

Data Source Company

Foster Wheeler Corporation, headquartered in 

Clinton, N.J., is a major construction and 

engineering company with specific expertise in 

the construction of liquefied natural gas refining plants. It also provides services and products to 

the petroleum, petrochemical, pharmaceutical, chemical processing, and power-generation 

industries. It has ongoing and future projects in Saudi Arabia, Abu Dhabi, Oman, Poland, the 

Czech Republic, Singapore, Europe, the United Kingdom, Finland, Italy, Turkey, and the United 

States. In addition to its commercial operations, Foster Wheeler also does work for the US 

Navy, Air Force, and Department of Defense. Foster Wheeler has offices in more than thirty 

countries and earned over $3.5 billion in revenue in 2002.

Environment

In 1989, vast amounts of natural gas were 

discovered in Central Oman at Barik, Saih Nihatda, 

and Saih Rawl. To date, the reserves have been 

proven to contain 18.6 trillion cubic feet of nonassociated gas, and they are expected to contain an 

additional 7.3 trillion cubic feet.

Qalhat, Oman is situated in the region known 

Sharqiya, south of the eastern Hajar Mountains. 

Characterized by a subtropical climate, it is twenty 

miles west of the small port of Sur, and 210 miles 

southeast of Muscat, the capital city. There is a 

small natural harbor at Qalhat that is sheltered from 

tropical storms and strong ocean currents. The deep 

waters close to the shore permit short jetties to be 

constructed without disturbing the fragile marine 

environment.

Project

In June 1997 construction began on a $2.2 billion liquefied natural gas refinery and supporting 

infrastructure in Qalhat, Oman. Completed in June 2000, the government-owned project 

included the refinery, pumping stations, pipelines, a desalination plant, roads, and a new onsite 

seaport to pump the product onto ocean tankers. Prior to this project, Bechtel Corporation had 

already constructed 400 km of upstream pipeline from the central gas fields at Saih Nihayda to 

Qalhat. An upstream power plant was built as well. 

Night at the Qalhat, Oman LNG project site. 
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The Qalhat LNG was the largest single construction project ever undertaken in Oman. In total, 

the project took forty million man-hours to complete, and there were 6,400 workers onsite during 

the peak of construction. Foster Wheeler finished the project two months ahead of schedule, but 

only because their bid included the estimated logistics time plus a generous buffer to allow for 

delays in construction, supplier ship dates, export procedures, ocean voyages, customs clearance, 

and inland transport via barge and truck. It was important to include a large buffer in the project 

planning because the penalty for not meeting the contracted completion date was $1 million a 

day.

Infrastructure

The northern coast of Oman has many seaports, including the large port of Al Qaboos near 

Muscat and the much smaller port of Sur near the project site. Air infrastructure is similarly 

distributed, with a major international airport in Muscat and a small airport with a 2,454-ft 

runway in Sur. Extending the runway to 4,700 feet to accommodate the BC-17X would have 

cost approximately $235,000. While there was no rail system available to the project, the road 

system had been recently paved.

Executed Logistics Plan

Throughout the construction project, 385,837,000 

pounds of freight were transported to the project site at 

a total cost of $24 million (one percent of the total 

project cost). Less than one percent of the total freight 

(1,477,000 pounds) moved via air; the remainder 

moved via ocean. Air transportation, however, did 

account for 26 percent of the 1,725 individual 

consignment shipments. It is also interesting to note 

that non-charter air freight was originally budgeted at 

$100,000 but ended up costing more than nine times 

that amount, an indication that the project experienced 

numerous critical shipping delays. 

Although some of the ocean freight originated in the 

United States, Japan, Korea, and Argentina, most of the 

shipments (83 percent) originated in continental Europe 

and the United Kingdom. All of the ocean freight 

arrived at the seaport of Al Qaboos near Muscat. The air cargo was flown from suppliers in 

continental Europe, the United Kingdom, and the United States to the international airport in 

Muscat, with the exception of two loads that were flown into Dubai. While 91 percent of the 

total cargo volume moved inland via truck, the larger shipments (nine percent of the total 

volume, 32 percent of the total weight) moved down the coast by barge to a specially created 

jetty near the project site.

The sea shipments took between twenty and 68 days to arrive at Muscat from continental Europe 

and the United Kingdom and cleared customs at Muscat in approximately two to three days (22 

to 71 days total). The air shipments took only one to two days to arrive in Muscat but an average 

Oman is located on the southeast corner of the 

Arabian Peninsula. Oman is a traditional Islamic 

country. 
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of six days to clear customs (six to nine days total).32

Since, realistically, some shipments would have been too 

large or too heavy for the BC-17X, and since flying just a 

portion of the equipment and materials to the jobsite 

would have been enough to maintain an uninterrupted 

construction schedule, there would have been no need to 

use air for all shipments. Moving just five percent of the 

320,496,000 pounds of BC-17X-eligible ocean cargo 

(and all the prior air shipments) by scheduling one BC17X flight every seven days for the first 25 months of 

construction would have created a stockpile of equipment 

and materials more than large enough to ensure an 

uninterrupted construction schedule despite delays in the 

ocean supply chain.

 Inland transportation to the jobsite took an 

additional five days for each mode of transportation. As is expected on a project with so many 

different suppliers, the actual shipping times varied greatly from the suppliers’ original quotes. 

For example, there were approximately 55 shipments that did not leave the export port until at 

least two months after the order date.

BC-17X Logistics Plan

33

 32 One reason for the difference in customs clearance time was that the air shipments contained complex electronic 

goods, whereas the sea shipments contained more common goods, such as bulk pipe and cable. 33 Slightly more frequent flights may have been necessary during the initial build-up phase of the project.

 Further analysis of Foster 

Wheeler’s situation might have revealed that an even 

lesser amount of air cargo could have provided the same 

desired results.

If a BC-17X had been positioned at a strategic location north of London (for example, at 

Standsted), at Ostend, or at Luxembourg, it would have been able to transport most shipments 

one to three days after the suppliers’ shipping dates. With weekly scheduled flights, the 

shipments would have been at the jobsite one to seven days after arriving at the origin airport. 

While it probably would have been possible to have a customs agent onsite or to arrange preclearance for most of the goods, the plane could have made an intermediate stop for customs 

clearance (without the goods having to be offloaded).

By eliminating long waiting times at the embarkation port and at sea, unloading time at Muscat, 

and inland transportation legs to the jobsite, the BC-17X would have reduced the cost of crating 

and packaging, the risk of theft and damage, and the overall project duration. 

Next Best Alternative

While the AN-124 can and did fly a limited number of flights from Europe to Muscat, customs 

clearance at Muscat took an average of six days, and inland transportation to the jobsite (a 210-

mile trip over unimproved road) took an additional five days on average. Since a weekly BC17X flight could have landed directly at the jobsite, and since onsite customs clearance could 

have taken place the day each flight landed, each BC-17X shipment would have arrived almost 

two weeks earlier than it would have on an AN-124/surface supply chain, and the project 

duration would have been significantly shorter. 

A graphic illustration of the LNG plant in Qalhat. 
45

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Analysis

Project Name Liquid Natural Gas Processing Plant

Project Description Liquid natural gas processing plant and supporting 

infrastructure (including pipelines, a desalination 

plant, roads, and a new onsite seaport) 

Project Owner Oman LNG L.L.C. (Government of Oman)

Project EPC Company Foster Wheeler’s UK subsidiary 

Project Logistics Company Transglobal

Project Cost $2.2 B

Project Duration 3 years 

Freight Description Construction material and equipment

Flight Origin and Destination Europe and the UK (used Luxembourg as centralized 

origin) to Sur, Oman

Air Cargo Duration 25 months

BC-17X Operational (Fly) Days 106 days

BC-17X Committed (Contracted) Days 106 days

BC-17X Schedule Approximately 1 RT flight every 7 days for 25 months

Average BH per RT Flight 14.4 BH

Estimated BC-17X BH 1526.4 BH

Possible Type of Contract Long-term hourly contract that includes fixed costs 

and margin

Total Cost of BC-17X to Project 1526.4 BH at $20,000 = $30.5 M

Cost of Airfield Upgrade $250,000

Cost of Airfield Maintenance None

Delta Cost of BC-17X to Project $30.5 M cost of BC-17X

 0.25 cost of runway upgrade

 (2.6) less transportation savings

Delta cost to the project = $28.2 M

Transportation Cost w/o BC-17X $24.0 M

Transportation Cost w/ BC-17X $52.2 M

Cost Benefit $200,000 per day for 61 days = $12.2 M

Months-to-Completion Savings 2 months (61 days)

Capital Interest Benefit/

Return on Capital Invested Benefit

$14.7 M @ 4%

Accelerated Product Benefit 13,700 metric tons of LNG per day for 61 days @ 

$93.38 per metric tons = $78.0 M less 5% extraction 

cost ($3.9 M) = $74.1 M 

Project Construction Cost—w/o BC-17X $2.2 B

Project Construction Cost—with BC-17X $2,200.0 M project cost

 28.2 delta cost

 (12.2) less cost benefit

 (14.7) less capital interest benefit

Project cost with BC-17X = $2.2013 B

BC-17X Revenue per Operating Day $288,000 

BC-17X Revenue per Committed Day $288,000

Net Benefit $74.1 M accelerated product benefit

 12.2 cost benefit

 14.7 capital interest benefit 

(28.2) less delta cost of BC-17X

Net benefit to the project = $72.8 M
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If the BC-17X had been based in the United Kingdom or continental Europe (where there was 

known eligible air cargo), it would have been available to compete for additional utilization as 

well as solicit backhaul traffic at any point along the return flight. Since the basic direct costs 

would have been covered by the recurring trips to Oman, yield management could have allowed 

the aircraft to be offered at a reduced cost. These reduced costs could have contributed to the 

value of the project either directly or by increasing the utilization of the BC-17X and thus 

generating additional accelerated product benefits.

Conclusion

Although the BC-17X would have increased the project’s transportation costs by $28.2 million, 

reducing the project duration by two months would have created $12.2 million in operational 

savings and $14.7 in capital interest savings and generated a cost-adjusted accelerated product 

benefit of $74.1 million. This translates into a total net benefit to the project of $72.8 million.
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3.2.3.6 Villano Pipeline and Central Processing Facility Project

Puyo, Ecuador

Project Owner: ARCO (now BP) and AGIP Petroleum Ltd.

EPC Company: Joint venture between The Fluor Corporation and Williams Brothers

Logistics Company: Panalpina

Data Source Company

Fluor, Inc.34

Environment

Oil was originally discovered in the Villano region 

near Puyo, Ecuador in 1950, but exploration was 

deemed too costly at the time. In 1989, a new 

seismic program reaffirmed the existence of oil 

deposits in Villano and led to renewed interest in 

developing the deposit. The ARCO exploration 

group, now a division of BP AMOCO, investigated 

the site and uncovered a major petroleum reserve 

estimated at 2.3 billion barrels. As a result, in July 

of 1998 the Atlantic Richfield Company of the 

United States and AGIP Petroleum, Ltd. of Ecuador 

signed a joint service contract with the Ecuadorian 

government for the exploration and development of 

Block 10 of the Villano petroleum reserve.

One of the most important considerations in 

developing the Villano reserve was, and still is, its 

extremely sensitive environment in the Amazon 

rainforest. Located 23 miles east of an escarpment, 

a natural barrier to vehicle access, the Villano wellsite is in a primary rainforest that is home to 

1,070 of the world’s plant and animal species. In addition, the project site was found to contain 

many ancient artifacts that required delicate handling to preserve. 

Project

The Villano project, valued at $350 million and completed by Fluor in 1999, consists of a sixwell drill site connected to a Central Processing Facility (CPF) by a 23-mile, 12-inch mixed-flow 

line.35

 34 See Case Study #2 35 A mixed flow line carries both water and oil.

 At the CPF, the oil is separated from the water, the water is reinjected into the ground, 

and the oil is pumped through a 39-mile, 20-inch pipeline to Baeza where it intersects with the 

The Villano pipeline project is located in the northern 

third of Ecuador in the environmentally sensitive Amazon 

rainforest.
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Trans-Ecuadorian Pipeline–the Sestina del Oleodueto Trans-Ecuadorian, or SOTE. The throughput of the pipeline is 40,000 barrels per day, but a study is currently being conducted to 

determine the feasibility of expanding it to 100,000 barrels per day without a major 

environmental impact on the area. 

Infrastructure

In the past, no matter how careful a developer 

has been to minimize the environmental 

impact of construction, creating road access 

into the rainforest to service the construction 

has made it easier to enter the interior of the 

rainforest and has led to logging and other 

forms of environmental destruction. 

Furthermore, frequent ground transportation 

of large, heavy construction materials 

interferes with local wildlife and the 

indigenous population’s ability to go about its 

normal routine. With these considerations in 

mind, the Ecuadorian government decided 

that the Villano reserve had to be developed 

without constructing roads through the 

rainforest.

There are three major airports in Ecuador, located in Guayaquil, Esmeraldas, and Quito. Two 

smaller airports near the CPF and Villano drilling site at Tena (a 3,937-ft by 50-ft runway) and 

Puyo (a 5,007-ft by 81-ft runway) lack some of the features of the major airports, but with some 

minor improvements they would be more than adequate to handle the BC-17X. 

Executed Logistics Plan

The Villano project turned out to be one of the most difficult logistics projects ever undertaken in 

Ecuador. The logistics strategy was based on a combination of one hundred percent ocean 

shipments to two Ecuadorian seaports, Esmeraldas and Guayaquil, and emergency air cargo 

flights into Quito International Airport. All the equipment and supplies were then trucked over 

Andes Mountain passes (at 6,000- to 7,000-foot elevations) on one of two routes—the southern 

route through Banas to Puyo or the northern route through Quito, Baeza, and Tena to the CPF. 

Both routes are single-lane gravel roads with many sharp turns, narrow tunnels, dangerous 

bridges, and frequent landslides. With no major obstacles, each one-way truckload over the 200 

miles between the coast and the CPF takes six to seven days. In total, 1,810 truckloads of project 

material traversed more than 713,000 miles on the primitive road system. 

By the time the project was finished, Fluor had spent more than $5 million over two years to 

upgrade the transportation infrastructure east of the Andes. This included building six new 

bridges and 19 new miles of gravel roads as well as renovating approximately 124 miles of 

existing roads. 

Once the material and equipment reached the CPF site, it was transported via helicopter to 

various locations along the construction route. Helicopters moved over 100 million pounds of 

The through-put of the pipeline is 40,000 barrels a day, but a study 

is currently being conducted to determine the feasibility of 

significant expansion.
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49

drilling and construction equipment during the construction of the CPF and more than 175 

million pounds of material, supplies, and equipment throughout the 27 months of pipeline 

construction. Upon completion of the water-injection wells, the rig was dismantled and flown on 

240 Chinook flights (carrying 22,000 pounds each) to be reassembled at the drilling site.

BC-17X Logistics Plan

The arduous trucking routes of the original logistics plan limited Fluor’s ability to move 

equipment on an expedited schedule, delaying the startup of the project. Replacing the trucks 

with the BC-17X would have streamlined the supply chain, enabled equipment and materials to 

be flown in as needed, and eliminated many constructions delays. 

A huge electrical truck (above) encounters a problem on a single-lane 

gravel road to the main Villano Central Processing Facility (CPF). 

The primitive single-lane gravel roads to the project site have narrow 

tunnels, dangerous bridges, and frequent landslides. With no major 

obstacles, it takes six to seven days for a one-way truck load to 

traverse the 200 miles between the coast and the CPF.

A review of the types of equipment and construction supplies moved to the project site revealed 

that all the materials could fit into a BC-17X, often with much less disassembly than was 

required to transport them by truck. Had it been preplanned into the logistics strategy, the BC17X could have entirely replaced the executed logistics plan, with the exception of the helicopter 

program. More specifically, Fluor could have scheduled the arrival of ocean shipments to 

connect to a regular BC-17X flight schedule between the seaport airports at Esmereldas and 

Guayaquil and the austere jobsite airport at Puyo. For air shipments arriving at Quito 

International Airport, the BC-17X could have made an intermediate stop from either seaport in 

transit to the project area; however, given the difficulty of getting in and out of Quito, this leg 

could have been eliminated. In addition, the BC-17X, alone or in conjunction with other aircraft 

(such as the 747F or AN-124), could have been used to fly late or emergency shipments from the 

United States and Europe directly to the project site.

Next Best Alternative

Since no other aircraft could both handle the heavy outsize construction and drilling equipment 

and land at the austere jobsite airports, the next best alternative to the BC-17X logistics plan 

would have been truck routes through the mountains.
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Analysis 

Project Name Villano Pipeline and Central Processing Facility

Project Description Development of a drill site, a central processing facility, 

and interconnecting pipelines between the facilities and 

main pipeline and the Trans-Ecuadorian pipeline

Project Owner ARCO (now BP) and AGIP Petroleum Ltd.

Project EPC Company Joint venture between The Fluor Corporation and 

Williams Brothers. Joint venture office located in Quito, 

Ecuador

Project Logistics Company Panalpina

Project Cost $350 M36

Project Duration 27 months

Freight Description Drilling equipment, pressure vessels, pumps, 

instrumentation, cable, all sorts of process equipment, 

etc.

Flight Origin and Destination Guayaquil and Esmeraldas to Puyo

Air Cargo Duration 9 months

BC-17X Operational (Fly) Days 5 days (22.5 BH) per week for 36 weeks = 180 days 

(5 days per week is a customer constraint due to 

weather conditions, labor, etc. and not an operational 

requirement)

BC-17X Committed (Contracted) Days 252 days

BC-17X Schedule 3 RTs per day, 5 days per week, alternating between 

the port cities

Average BH per RT Flight 1.5 BH’s

Estimated BC-17X BH 810 BH’s 

Possible Type of Contract Long-term daily contract that includes fixed costs, 

margin, and an hourly rate for each block hour in excess 

of a specified number

Total Cost of BC-17X to Project 252 days at $137,000 = $34.5 M

Cost of Airfield Upgrade $1.5 M – estimate only for Puyo

Cost of Airfield Maintenance $500,000 during life of project – estimate only for Puyo

Delta Cost of BC-17X to Project $34.5 M cost of BC-17X

 1.5 cost of runway upgrade

 .5 cost of maintenance

 (5.0) less trucking savings

 (5.0) less road construction savings

Delta cost to the project = $26.5 M

Transportation Cost w/o BC-17X $28 M

Transportation Cost w/ BC-17X $54.5 M

Cost Benefit $3 M per month for 3 months = $9 M

Months-to-Completion Savings 3 months

Capital Interest Benefit/

Return on Capital Invested Benefit

$3.5 M @ 4%

Accelerated Product Benefit 40,000 BBL/day for 90 days @ $25 per BBL = $90 M 

less 5% per BBL extraction cost (4.5 M) = $85.5 M

Project Construction Cost—w/o BC-17X $350 million

Project Construction Cost—with BC-17X $350.0 M project cost

 26.5 delta cost 

 (9.0) less cost benefit

 (3.5) less capital interest benefit

Project cost with BC-17X = $364.0 M

BC-17X Revenue per Operating Day $192,000 

BC-17X Revenue per Committed Day $137,000 

Net Benefit $85.5 M accelerated product benefit

 9.0 cost benefit

 3.5 capital interest benefit

 (26.5) less delta cost of BC-17X

Net benefit to the project = $71.5 M

 36 All calculations are in 1998 dollars.
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Conclusion

The $12.5 million in cost and capital interest benefits associated with the BC-17X logistics plan 

combined with the $85.5 million accelerated product benefit, or $55.3 million in total benefits, 

would have been more than enough to cover the $26.5 million cost of inserting the BC-17X into 

the logistics supply chain. In total, the BC-17X would have generated a $71.5 million net benefit 

to the project. 

Letter of Agreement

See the Fluor, Inc. letter of agreement at the end of the Sakhalin I case study.
52

Disclaimer on Cover applies

3.2.3.7 Tan Jung Jati B Power Plant Project

North Central Java

Jepara, Indonesia

Project Owner: Confidential owner

EPC Company: Black & Veatch (subcontractor to Babcock & Wilcox, the total project EPC 

company)

Logistics Company: Confidential US company

Data Source Company

Founded in 1915, Black & Veatch Corporation is a leader in global 

engineering, construction, and consulting, specializing in 

infrastructure development in the fields of energy, water, and 

information. With over 9,000 employees in 90 offices worldwide, 

Black & Veatch provides its clients with conceptual and 

preliminary engineering services, engineering design, procurement, construction, financial 

management, asset management, information technology, environmental, security design and 

consulting, and management-consulting services. This employee-owned company posted sales of 

$2.224 billion in 2001 and was ranked 78th on the 2002 Forbes list of the largest private 

companies in the United States.

Environment

The Republic of Indonesia constitutes most of the 

Malay Archipelago. The fourth-largest country in 

the world, Indonesia’s estimated population is 

over 232 million. The estimated population of 

Java is over 114 million, and it is growing at 1.6 

percent per year. In 2001, 41 percent of the 

population lived in urban areas, compared with 

less than 22 percent in 1980, and the capital city 

of Jakarta now has a population exceeding ten 

million. The cause of this rapid urban growth is 

the nation’s new and expanding industrial base, 

which is also driving the need for infrastructuredevelopment projects such as power plants and 

water and sanitation facilities.

Any development project in Indonesia must be sensitive to its rich and complex environment. 

Within its extremely varied topography (ranging from mangrove swamps to rainforests, jungles, 

dense forests, and mountain ranges), are significant deposits of natural resources, including oil, 

gas, coal, copper, nickel, bauxite, silver, gold, rubies, and diamonds. The islands are also home 

to over 40,000 species of flowering plants and many species of animal life, some of which are 

bordering on extinction. 

The Tan Jung Jati B Power Plant project site is located 

twenty miles northwest Jepara (upper left on map) on the 

rugged coast of the Java Sea.
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Project

The Tan Jung Jati B Power Plant (TJB) project consists of two 600 MW coal-fired power plants 

being built on a single site twenty miles northwest of Jepara on the coast of the Java Sea. The 

value of the completed project is around $925 million, and the annual operating revenue at 80 

percent capacity is estimated to be between $285 

million and $300 million. The plants will be 

fueled by coal, the largest single operating cost.

A victim of the deteriorating Asian economy 

coupled with the nation’s political unrest, the TJB 

project was suspended in May of 1998. At the 

time it was suspended, approximately 35 percent 

of the construction material and equipment had 

been shipped, and an estimated five percent of the 

construction had been completed. Now that the 

political situation has somewhat stabilized, a new 

owner is pursuing government approval and 

commercial and private financing to complete the 

project. Shipping and construction are expected to resume during the second quarter of 2003. 

The shipping phase of the project should commence in the third quarter of 2003, and the entire 

project should be completed by the fourth quarter of 2004.

The prime contractor on the project is Babcock & Wilcox. Black & Veatch, a subcontractor to 

Babcock & Wilcox, is responsible for the plant layout and design, the procurement of the coalhandling and fly-ash systems, and the timely delivery of its procured items to the jobsite. For 

this work, Black & Veatch has a $350-million fixed-price contract with no incentives or penalty 

clauses. This case study focuses exclusively on Black & Veatch’s portion of the project work.

Infrastructure

There are both federal and local roads on the island; most are two-lane roads with fair 

maintenance. The federal roads provide free passage, but the local roads are generally toll roads 

that provide income to the local villages and cities that build and maintain them. Local roads are 

often unpaved and difficult to use during periods of heavy rain. 

Carved out of a jungle on the seacoast, the TJB jobsite is very much an austere area. The coastal 

location is necessary because coal, the plants’ fuel, must be delivered by barge and ocean vessel. 

The closest regularly served seaports and airports are Semarang and Surabaya, 55 and 180 miles 

from the jobsite respectively. There is an additional airport at Surakarta (Solo), approximately 

eighty miles from the jobsite. All these airports are capable of handling a BC-17X. The Hang 

Nadim International Airport, capable of serving all wide-body aircraft, is over 700 miles from 

the jobsite on Batam Island. 

The Black & Veatch beginning construction site at the Tan 

Jung Jati B Power Plant.
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Disclaimer on Cover applies

Present Logistics Plan

The present logistics plan is to containerize all the remaining freight, with the exception of the 

oversize pieces such as breakbulk structural steel, and use one hundred percent ocean transport 

from Italy, Taiwan, and the United States to the seaports at Semarang and Surabaya. The total 

weight to be shipped is estimated at 28,000 tons, or 56 million pounds. 

Freight from Italy will be moved to the jobsite using a part-charter self-sustaining vessel; 

because of draft considerations, the ship will be anchored about three miles offshore. The freight 

will then be transferred to seagoing barges for delivery to the jobsite using the slip constructed 

for the coal barges. The pipe and pipespools from Taiwan will be loaded on an oceangoing 

barge that can be taken directly to the jobsite slip for offloading. 

BC-17X Logistics Plan

Black & Veatch has suggested an alternative logistics plan using the 

BC-17X that involves establishing a commercial warehouse and 

laydown yard on Batam Island, the prime location for EPC 

contractors and oilfield service companies to distribute materials and 

equipment throughout Southeast Asia. Batam is a central location 

for importing goods and is accessible by ship year-round. 

All ocean freight, other than ocean part charter, would be shipped to 

Batam, where it would clear customs and be catalogued and 

warehoused. The jobsite construction personnel would maintain a 

direct computer link to the warehouse to monitor what supplies were 

on hand and to generate a list of materials needed at any given time. 

The warehouse staff would then pull the requested materials and 

dispatch them on a regularly scheduled BC-17X flight to one of the 

jobsite airports. It is estimated that over ten million pounds of 

freight would go through the Batam warehouse.

This logistics plan would eliminate the need to for a large jobsite construction warehouse and 

laydown yard, reducing the amount of jungle clearing and easing the environmental impact on 

the area. It would also make the materials and supplies much more secure, since the probability 

of losses due to theft of both containerized and loose freight between the ports and the jobsite is 

high.

Black & Veatch is looking for alternative ways to supply and maintain a strict construction 

schedule for this critical infrastructure project. Marshalling supplies and equipment in a 

protected environment and moving them as needed would allow the company to meet an 

expedited construction schedule.

Next Best Alternative

Considering the increased security and reduced jobsite construction costs, the next best 

alternative would be to go forward with the Batam Island facilities and use either an L-100 or an 

oceangoing barge to carry the weekly load. However, an L-100 would have to make many more 

Java’s dense jungle makes moving 

construction materials to the 

power plant site extremely 

difficult.
55

Disclaimer on Cover applies

trips than a BC-17X to transport the same capacity, and an oceangoing barge would be too slow 

to maintain the weekly shipping schedule.
56

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Analysis

Project Name Tan Jung B Power Plant Project

Project Description Two 600 MW coal-fired power plants. For this case 

study, only Black & Veatch’s engineering, procurement, 

and delivery work on the project is analyzed. 

Project Owner Confidential 

Project EPC Company Black & Veatch (subcontractor to Babcock & Wilcox, the 

total project EPC company) 

Project Logistics Company Confidential US company

Project Cost $350 M (Babcock & Wilcox’s total project contract is 

valued at $925 M)

Project Duration 2.5 years – project was shut down after 1 year with 1.5 

years left to go

Freight Description Crushers, conveyors, boilers, loaders, belt feeders, 

valves, structural steel, etc.

Flight Origin and Destination Batam Island to Semarang, limited trips from Surabaya

Air Cargo Duration 1 year

BC-17X Operational (Fly) Days 62 days

BC-17X Committed (Contracted) Days 62 days 

BC-17X Schedule 1 RT from Batam Island every 6 days

Average BH per RT Flight 3.3 BH

Estimated BC-17X BH 205 BH – includes loading and unloading

Possible Type of Contract Long-term daily contract that includes fixed costs, 

margin, and an hourly rate for each block hour in excess 

of a specified number

Total Cost of BC-17X to Project 62 days at $137,000 = $8.5 M

Cost of Airfield Upgrade None – international airports

Cost of Airfield Maintenance None – international airports

Delta Cost of BC-17X to Project Delta cost to the project = $8.5 M (Note: The cost of 

ocean freight to Batam Island is about the same as the 

cost to Semarang, so there are no transportation 

savings and the delta cost is the same as the total cost) 

Transportation Cost w/o BC-17X $2 M

Transportation Cost w/ BC-17X $10.5 M

Cost Benefit $5 M

Months-to-Completion Savings 1 month

Capital Interest Benefit/

Return on Capital Invested Benefit

$1.2 M @ 4%

Accelerated Product Benefit Operating revenue at 80% of capacity for 1 month = 

$24.4 M less 80% cost ($19.5 M) = $4.9 M

Project Construction Cost—w/o BC-17X $350 M – value of B&V contract

Project Construction Cost—with BC-17X $350.0 M project cost

 8.5 delta cost

 (5.0) less cost benefit

 (1.2) less capital interest benefit

Project cost with BC-17X = $352.3 M

BC-17X Revenue per Operating Day $137,000

BC-17X Revenue per Committed Day $137,000

Net Benefit $4.9 M accelerated product benefit

1.2 capital interest benefit

less cost benefit

(8.5) less delta cost of BC-17X

Net benefit to the project = $2.6 M
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Conclusion

The $4.9 million in incremental revenue benefits, combined with $5 million in jobsite cost 

benefits and $1.2 million in capital interest benefits, or $11.1 million in total benefits, would 

more than offset the additional $8.5 million in transportation costs and result in a total net benefit 

to the project of $2.6 million. 

This study has shown that there is a small reward for inserting the BC-17X into the TJB project, 

but everything would need to work as planned to achieve it. It is also important to note that the 

prime contractor’s portion of the work (Babcock and Wilcox’s contract) was not a part of this 

study and that a study of the entire project could result in a larger net benefit. Moreover, the BC17X logistics plans provides a much higher degree of security in transporting equipment and 

supplies to the jobsite. Regardless of the net benefit, Black & Veatch felt that it was important to 

be able to present the client with the option of a logistics plan that would provide a very high 

degree of security and the ability to expedite the construction process.
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Disclaimer on Cover applies

Letter of Agreement
59

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3.2.3.8 In Salah Gas Field Development

In Salah, Algeria

Project Owner: Sonatrach (Algerian government) and BP Amoco

EPC Company: Halliburton Company (Kellogg Brown & Root)

Logistics Company: Transglobal

Data Source Company

Halliburton, founded in 1919, is the world’s largest provider of 

products and services to the petroleum and energy industries. It is a 

world leader in integrated energy services, energy equipment, 

engineering, and construction and maintenance. Its various business units and subsidiaries make 

hundreds of products and have approximately 88,000 employees. It customers include ninety 

percent of the major oil and gas companies, and it had more than $12 billion in sales in 2002. Its 

Kellogg Brown & Root unit is the world’s largest engineering, procurement, construction, and 

maintenance (EPC/M) contractor.

Environment

Algeria, the second-largest country in Africa, began commercial production of natural gas in 

1961. With 160 trillion cubic feet of proven natural gas reserves, Algeria is one of the top ten 

gas producers in the world and accounts for one-quarter of European Union gas imports. 

The In Salah region of Algeria, located 750 miles south of Algiers on the southern edge of the 

arid Tademait Plateau, is rich in natural gas. Its existing gas fields are known to contain five 

trillion cubic feet of dry gas reserves and have the potential to contain twice that amount. 

The largest city in Algeria, the port city of Algiers has 2.9 million inhabitants.
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Disclaimer on Cover applies

Project

In December 1995, Sonatrach (the Algerian government’s state-owned oil and gas company) 

formed a joint venture with BP Amoco to develop seven of the twelve existing gas fields in the 

In Salah region, including the Garat al-Bafinat, Teguentour, Krechta, Reg, In Salah, Hassi 

Moumeme, and Gour Mahmoud fields, at a cost of $3.5 billion. The joint venture will also 

explore for new gas reserves in the region. When the existing fields reopen in mid-2003, they are 

expected to deliver nine to eleven billion cubic meters of gas to southern Europe.37

The airport at In Salah has a 7,874-ft by 90-ft 

runway with Jet-A availability and can easily 

accommodate the BC-17X. There is a major 

port in Algiers, but the overland transit routes to 

the jobsite, while adequate, are very dangerous 

because of Algeria’s guerilla civil war. The 

desert jobsites in the south Sahara are relatively 

secure. 

 

This case study focuses on the $2.4-billion sub-project to drill up to two hundred production 

wells, construct compressor stations, and build a $700-million, 340-mile, 48-inch pipeline 

linking the In Salah fields to the processing plant at Hassi R’Mel. In late 2001, Kellogg Brown 

& Root was awarded the contract to provide pre-sanction engineering services to the project and 

had bid on the contract to construct the wellhead drilling equipment, gas pipelines, and 

compressor stations. The expected completion date of mid-2003 includes not only the 

engineering and construction time, but also the follow-up and testing after construction is 

completed.

Infrastructure

Present Logistics Plan

Accumulating the necessary startup equipment 

and supplies was to take between two and four 

months prior to the start of construction. The 

equipment and construction materials (coming 

mainly from Korea and the United Kingdom) 

were forwarded via ocean freight to Europe and 

via surface transportation to Marseille, France, a 

trip that could take anywhere from eight to 45 

days, depending on the point of origin. From 

Marseille, the shipments were moved by tug and barge across the Mediterranean to the port of 

Algiers, cleared through customs, loaded onto trucks, and forwarded to the In Salah construction 

sites. The movement from Marseille to In Salah (1,220 miles) was expected to take 

approximately sixteen days. However, since equipment and materials generally arrive randomly 

from suppliers via ocean freight, the Mediterranean crossing would probably not have run on a 

predetermined, consistent schedule, resulting in longer transit times for many shipments. 

 37 The analysis for this case study was last revised in January 2002.

The In Salah gas fields are 750 miles south of the port of 

Algiers.
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Disclaimer on Cover applies

BC-17X Logistics Plan

The BC-17X could have been used to fly equipment and materials from Marseille directly to the 

jobsite at In Salah, and arrangements could have been made with the government of Algeria to 

have an onsite customs inspector. By preplanning the arrival of selected strategic supplies 

needed to begin construction, Halliburton could have started the project a minimum of thirteen 

days earlier than scheduled. Throughout the project, Halliburton could have selectively airlifted 

certain items that were holding up construction. The insertion of the BC-17X at these critical 

times would have provided a steady stream of materials without gaps or delays in the 

construction flow, effectively reducing the project construction time by as many as thirty to sixty 

days (depending on the duration and timing of the delays and their effect on the construction 

schedule).

For example, at a schedule of one flight every 2.5 days, it would have taken 45 days for the BC17X to move the 2,832,000 pounds of air-eligible material (about 13.6 percent of the total cargo 

weight).38

 38 It is possible that some of the pieces too large for the BC-17X could have been broken down to fit on the plane, 

but it was not feasible to research this at the time of the study. A brief review of the cargo has revealed that another 

21 percent, or about 34.6 percent of the total weight to be shipped, might have been eligible to move via BC-17X.

Since this same weight would have taken 96 days to arrive at the jobsite via barge, the 

BC-17X would have reduced the project duration by 51 days. The remaining shipments would 

have to have been forwarded via barge and truck.

Next Best Alternative

Since the AN-124 cannot land at the In Salah airfield, the next best alternative would have been 

to use the AN-124 to fly the equipment and materials from Marseille to Algiers. By eliminating 

the barge movement to Algiers, this logistics plan could have reduced the sixteen-day transit 

time between Marseille and In Salah to eleven days. The BC-17X logistics plan, however, 

would have had a far greater impact on the project duration because it would have allowed 

Halliburton to bypass the dangerous overland transit route to from Algiers to the jobsite and 

reduced the Marseille-Algiers’ transit time to 2.5 days. 
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Analysis

Project Name In Salah Gas Field Development Project

Project Description 340-mile, 48-inch gas pipeline, compressor stations, and 

production wells

Project Owner Sonatrach (Algerian government) & BP Amoco

Project EPC Company Halliburton Company (Kellogg Brown & Root)

Project Logistics Company Transglobal

Project Cost $2.4 B

Project Duration 2 years

Freight Description Oversize prefabricated materials and equipment

Flight Origin and Destination Marseille, France to In Salah, Algeria (plus ferry flights 

from Luxembourg to Marseille)

Air Cargo Duration 1.5 months

BC-17X Operational (Fly) Days 18 days

BC-17X Committed (Contracted) Days 18 days

BC-17X Schedule One RT per day every 2.5 days

Average BH per RT Flight 5.48 BH

Estimated BC-17X BH 146.7 BH including 48.06 BH of ferry flights

Possible Type of Contract For project flights: long-term daily contract that includes 

fixed costs, margin, and an hourly rate for each block 

hour in excess of a specified number

For ferry flights: long-term hourly contract that includes 

fixed costs and margin

Total Cost of BC-17X to Project 18 days at $137,000 

48.06 BH at $20,000 

Total Cost = $3.4 M

Cost of Airfield Upgrade None

Cost of Airfield Maintenance None

Delta Cost of BC-17X to Project $3.4 M

Transportation Cost w/o BC-17X $7.5 M

Transportation Cost w/ BC-17X $10.9 M

Cost Benefit $50,000 per day for 51 days = $2.6 M 

Months-to-Completion Savings 1.7 months

Capital Interest Benefit/

Return on Capital Invested Benefit

$13.6 M @ 4%

Accelerated Product Benefit 871.2 million cubic ft/day for 51 days @ $4.10 per 1,000 

cubic ft = $266.6 M less 5% extraction cost ($13.3 M) = 

$253.3 M 

Project Construction Cost—w/o BC-17X $2.4 B

Project Construction Cost—with BC-17X $2,400.0 M project cost

 3.4 delta cost

 (2.6) less cost benefit

 (13.6) less capital interest benefit

Project cost with BC-17X = $2.3872 B

BC-17X Revenue per Operating Day $189,000

BC-17X Revenue per Committed Day $189,000

Net Benefit $253.3 M accelerated product benefit

 2.6 cost benefit

 13.6 capital interest benefit

 (3.4) less delta cost of BC-17X

Net benefit to the project = $266.1 M
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Conclusion

Using the BC-17X to prevent gaps in the construction schedule and reduce the overall project 

duration would have cost the project an additional $3.4 million in transportation costs. However, 

after accounting for the cost and capital interest benefits of early completion, the aircraft would 

have saved the project $12.8 million without including any accelerated product benefit. With the 

accelerated product benefit, the BC-17X would have generated a net benefit to the project of 

$266.1 million.

Letter of Agreement

See the Fluor, Inc. letter of agreement at the end of the Sakhalin I case study. The author of the 

letter was Halliburton’s Vice President of Procurement when this case study was being 

conducted.
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3.2.3.9 Mackenzie Delta Gas Pipeline Project

Northwest Territories, Canada

Project Owner: Mackenzie Delta Gas Pipeline Producers Group (Imperial Oil Resources, 

Conoco, Shell, and ExxonMobil)

EPC Company: ColtKBR (Joint Venture between Colt Engineering Company and Kellogg 

Brown & Root)

Logistics Company: Not yet assigned

Data Source Company

Headquartered in Calgary, ColtKBR is a long-term joint venture 

between Colt Engineering Company and Kellogg Brown & Root. 

Colt is a major Canadian engineering, procurement, and 

construction company that specializes in designing hydrocarbon 

processing facilities in North America and around the world. Additionally, Colt has particular 

expertise working in both desert and Arctic climates. Each year, the total cost of the projects 

Colt executes is approximately $2 billion. The company has more than 2,200 employees. For 

information about Kellogg Brown & Root, a division of Halliburton, see the In Salah Gas Field 

Development case study.

The 800-mile Mackenzie Delta gas pipeline will begin at a gathering point near the city of Inuvik on the shore of 

the Beaufort Sea and run southeast along the Mackenzie river to Fort Simpson and into Alberta.

Environment

The Mackenzie Delta is located in the upper Northwest Territories, where the Mackenzie River 

meets the Beaufort Sea. Ecologically and biologically diverse, it is the largest river delta in 

Canada. Its interconnected lakes and rivers are home to many species of fish and waterfowl, and 

herds of caribou inhabit the fragile tundra.
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The climate in the region is quite severe. The coastal waters of the Beaufort Sea are frozen all 

but three months of the year (September through May), and the lakes and rivers flood in the 

spring. The soft tundra, however, is only frozen solid from January through March. 

A gas pipeline to extract the natural resources of the Mackenzie Delta was first envisioned in the 

mid-1970’s, but in order to settle land claims with the northern aboriginal groups, the Canadian 

government instituted a moratorium on land-rights issuance to oil and gas companies in the 

Northwest Territories. The 1977 Berger Commission report entitled Northern Frontier, 

Northern Homeland supported this moratorium, stating that “[if] the native people are to achieve 

their goals, no pipeline can be built now.” Subsequent to the report’s issuance, hydrocarbon 

exploration and development in the area slowed considerably, despite the high potential for 

resource development.

Typical welding huts along a pipeline construction right-of-way in Alaska.

Project

In 1988, renewed interest in a pipeline led Canada’s National Energy Board to hold hearings on 

the Mackenzie Delta Gas Export Project with several major petrochemical companies. 

Connecting the Mackenzie Delta reserves to the North American transmission grid was of 

interest to the Canadian government because it would commercialize royalty interest, expand the 

natural resources tax base, and provide economic opportunities for the northern communities and 

their citizens. 

Following a January 2000 meeting of aboriginal leaders, the Mackenzie Valley Aboriginal 

Pipeline Group (MVAPG) was created and given a mandate to “build a business partnership to 

maximize ownership and benefits of a Mackenzie Valley pipeline.”39

The thirty-inch, 800-mile pipeline will begin at a gathering point near the city of Inuvik on the 

shore of the Beaufort Sea and run southeast along the Mackenzie River to Fort Simpson and into 

Alberta. There will be four compressor stations along the pipeline; at the largest facility (located 

 On the commercial front 

the Mackenzie Delta Producers Group was formed by Imperial Oil Resources (which has a 50-

percent interest), Conoco (which has a 25-percent interest), Shell (which has a 17-percent 

interest), and ExxonMobil (which has an 8-percent interest). On October 15, 2001, MVAPG 

signed an agreement with the Mackenzie Delta Producers Group whereby MVAPG would own 

one-third of a pipeline transporting natural gas from the Delta and the Valley to the Alberta 

pipeline grid. 

 39 Northern Gas Pipelines: Mackenzie Valley Pipeline Project, 

http://www.arcticgaspipeline.com/Delta%20Route.htm, 2002.
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at Norman Wells), the gas liquids will be extracted and directed to the existing Trans-Canada 

Pipeline system. The reserves are estimated to contain ten trillion cubic feet of gas, and the 

pipeline is expected to transport between 1.2 and 1.9 billion cubic feet of gas per day (BCFD). 

The estimated cost of the pipeline is between $2 and $2.64 billion.

In mid-2002, the Mackenzie Delta Producers Group and MVAPG awarded the contract for the 

first phase of the project (the Project Definition Phase, including conceptual and preliminary 

engineering and permit development and submittal) to Colt KBR. The first phase is expected to 

run into 2004 and be immediately followed by the detailed engineering and procurement phase. 

The pipe is expected to be delivered in the summer of 2005, with construction beginning in 

January 2006 and running through March 2008.

Infrastructure

The ports on the Beaufort Sea are only open three months 

of the year (June through August) because of ice, limiting 

the possible number of barge shipments. Exacerbating the 

problem are the limited number of berths and amount of 

unloading equipment available. 

There are a plethora of austere airfields along the project 

construction route that are capable of servicing a BC-17X. In the Northwest Territories, there 

are runways at Inuvik (6,000 ft by 150 ft), Norman Wells (6,000 ft by 150 ft), Fort Simpson 

(6,000 ft by 150 ft), Boundary Bay (3,755 ft by 100 ft), Fort St. John (6,700 ft by 200 ft), and 

Yellowknife (7,500 ft by 150 ft). Additionally, there are two large international airports in 

Alberta—Calgary International and Edmonton International.

Present Logistics Plan

Logistics planning is currently underway to determine the most cost-effective and efficient way 

to get the construction equipment, project materials, and process equipment in place for 

construction to begin in January 2006. Environmental concern about the fragility of the tundra 

restricts construction activity on the pipeline to three months of the year (January through 

March), although construction on the compressor stations can go on year-round, provided all of 

the necessary materials are present.

The procurement of materials and equipment is scheduled to start in 2004, and about 78,000 tons 

of equipment and materials (not including line pipe or diesel fuel) will need to be transported to 

the construction route. Each year, the materials and equipment needed for the next year’s 

construction will most likely be marshaled on the west coast of Canada, loaded onto barges 

during the second quarter, and sent north to arrive during the three months that the Beaufort Sea 

is open for deliveries (June through August). The line pipe will probably be scheduled so that it 

can be barged directly to the dock and offloaded to a laydown yard. Additional materials will be 

trucked up the pipeline route from Alberta during the winter months (January through March), 

but the amount of materials that can be transported overland is limited because of weight 

restrictions designed to protect the soft tundra. Since the pipeline construction is not continuous, 

there should be enough time to plan the deliveries; but this may not be true with regard to the 

compressor station, which will need to be worked on continuously until complete. 

Essential pipeline construction equipment 

includes pipe bending machine, with side boom.
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While workable, this logistics plan leaves the project vulnerable to schedule disruptions (such as 

delivery delays and equipment problems requiring replacement units) without a way to bring in 

heavy and oversize loads the other six months of the year. In addition, once the northern area 

starts to develop because of the new pipeline, an unloading queue may form at the Beaufort Sea 

terminals (similar to the one at Prudhoe Bay), making it impossible to receive all the materials 

for one or more of the construction seasons. Moreover, an unseasonably cold summer or mild 

winter could shorten the six-month logistics window.

BC-17X Logistics Plan

While it would probably not replace the entire surface supply chain, the BC-17X could be used 

to move freight directly to the any of the austere airfields along the project construction route. 

For example, equipment and materials could be flown directly to the construction spreads along 

the pipeline route, and, in case of equipment failure, replacement equipment could be delivered 

overnight. 

The case study analysis considers a scenario in which the BC-17X transports only about 25 

percent of the total freight (18,000 tons). Such a logistics plan would allow the project to be 

completed one year ahead of schedule.40

 40 ColtKBR will not spend the resources to evaluate a full BC-17X logistics plan until the plane is actually available 

to the commercial market.

Inserting the BC-17X into the logistics supply chain 

could contribute even more to the project schedule if any of the schedule vulnerabilities 

described above created problems in the supply chain.

Next Best Alternative

The next best alternative is to use the present logistics plan. It would not be possible to use the 

AN-124 on this project since there is no airport along the project route with a runway long 

enough to accommodate it.
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Analysis

Project Name Mackenzie Delta Gas Pipeline Project

Project Description 30-inch, 800-mile gas pipeline running south through the Mackenzie Delta 

(from Inuvik to Alberta) and connecting with the Trans-Canada Pipeline 

system

Project Owner Mackenzie Delta Gas Pipeline Producers Group (Imperial Oil Resources, 

Conoco, Shell, ExxonMobil) and the Mackenzie Valley Aborigine Pipeline 

Group

Project EPC Company ColtKBR (Joint Venture between Colt Engineering Corporation in Calgary 

and Kellogg Brown & Root in Houston)

Project Logistics Company Not yet assigned

Project Cost Estimated to be between $2 B and S2.64 B. An average of $2.32 B has 

been used for the purpose of this study. 

Project Duration 7 years (early engineering, planning and permiting from 2002 through 

2003; detailed engineering and procurement from 2004 through 2005; 

construction from 2006 through 2008; construction limited to January 

through March for environmental reasons)

Freight Description Pipeline material such as line pipe, valves, compressors, pressure 

vessels, pumps, structural steel, construction equipment, etc. The 

analysis assumes that only 25% of the total tonnage, or 18,000 tons, is 

moved by the BC-17X. The total tonnage calculated in the case study 

does not include line pipe or diesel fuel, but the 18,000 tons could include 

some line pipe.

Flight Origin and Destination Inuvik to Normal Wells Inuvik to Fort St. John

Inuvik to Fort Simpson Inuvik to Yellowknife

Inuvik to Boundary Bay Calgary to Normal Wells

Air Cargo Duration 1 year (fall 2005 to fall 2006)

BC-17X Operational (Fly) Days 132 days

BC-17X Committed (Contracted) Days 140 days 

BC-17X Schedule 92 nearly continuous days in the summer months (June through August) 

and 40 days scattered over the other 9 months. See Estimated BC-17X 

BH for more detail.

Average BH per RT Flight 3.29 BH

Estimated BC-17X BH 1.5 BH – 3 R/T day – 28 days = 126

3.0 BH – 2 R/T day – 64 days = 384

8.0 BH – 1 R/T day – 40 days = 320

Total estimated BH = 830

Possible Type of Contract For the summer months, a long-term daily contract that includes fixed 

costs, margin, and an hourly rate for each block hour in excess of a 

specified number. The balance of the year will be covered by an hourly 

contract that includes fixed costs and margin.

Total Cost of BC-17X to Project $20.1 M 

(100 days at $137,000 = $13.7 M plus

320 BH at $20,000 = $6.4 M)

Cost of Airfield Upgrade None

Cost of Airfield Maintenance None

Delta Cost of BC-17X to Project $20.1 M cost of BC-17X

 (1.0) less transportation savings

Delta cost to project = $19.1 M

Transportation Cost w/o BC-17X $46.4 M (20% of project cost)

Transportation Cost w/ BC-17X $65.5 M 

Cost Benefit $25 M per month for 3 months = $75 M

Months-to-Completion Savings 12 months (3 months of construction time savings. Since construction is 

limited to three months per year, this means the project is completed 12 

months ahead of schedule.)

Capital Interest Benefit/

Return on Capital Invested Benefit

$92.8 M @ 4% 

Accelerated Product Benefit 1.55 BCFD (billion cubic feet/day) @ $6 per 1,000 CF = $9.3 M per day = 

less 5% extraction cost ($465,000) = $8.8 M per day

Assuming gas-flow at 80% for the first 6 months and at 100% for the next 

6 months, the total accelerated product benefit = $2.8987 B

Project Construction Cost—w/o BC-17X $2.32 B

Project Construction Cost—with BC-17X $2,320.0 M project cost

 20.1 delta cost 

 (75.0) less cost benefit

 (92.8) less capital interest

Project cost with BC-17X = $2.1723 B

BC-17X Revenue per Operating Day $152,000
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BC-17X Revenue per Committed Day $144,000

Net Benefit $2,898.7 M accelerated product benefit

 75.0 cost benefit

 92.8 capital interest benefit

 (20.1) less delta cost of BC-17X

Net benefit to the project = $3.0464 B

Conclusion

After accounting for the operational cost and capital interest benefits of early completion and the 

cost of the airplane, moving 25 percent of the total tonnage via the BC-17X would save the 

project $147.7 million. Including the accelerated product benefit of early gas revenue, the BC17X’s total net benefit to the project is more than $3 billion. 
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3.2.3.10 Chad-Cameroon Petroleum Development and Pipeline Project

Chad/Cameroon

Project Owner: Consortium (ExxonMobil, Petronas, and Chevron)

EPC Company: ExxonMobil and numerous subcontractors

Logistics Company: SDV Inc.

Data Source Companies 

The ExxonMobil Corporation is engaged in exploration for and 

the production of crude oil and gas, the manufacturing of 

petroleum products, and the transportation and sale of crude oil, 

natural gas, and petroleum products. With over 97,000 

employees, ExxonMobil operates in over 200 countries and from September 2001 to September 

2002 earned revenues of $196.5 billion.

A member of the Bolloré Group, SDV Inc. is an international freight forwarding, transportation, 

and logistics provider. SDV prides itself on its close relationships with the major international 

transportation operators and employs more than 7,000 people in 85 countries. In 2001, its 

turnover was approximately $1.8 billion.

Environment

Chad and Cameroon are extremely poor countries with few natural resources. With a GNP of 

$160 per capita, Chad, a landlocked nation, is the fifth-poorest country in the world. Cameroon, 

with access to the Atlantic Ocean and a GNP of $640 per capita, is the 47th poorest country.

The environment in Chad and 

Cameroon is quite varied and 

includes mountains, rivers, 

rainforests, open country, and 

heavy jungle inhabited by 

indigenous Pygmy cultures. From 

April to July, the rainy season 

causes the rivers to swell and the 

plains to flood. 

Oil was discovered in 

southwestern Chad in 1969, and 

after test drilling produced positive 

results the government decided to 

develop the oilfield. The importance of this project to Chad and Cameroon cannot be overstated. 

It will provide money for national education, electricity, water, and sanitation projects and a 

variety of local projects to improve individual villages. Moreover, the jobs and infrastructure 

created by the project will greatly improve the quality of life for many of the nations’ citizens. 

The pipeline and oilfields associated with the Chad-Cameroon Project are 

depicted on the map.
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Project

The project consists of a new 300-well drilling field in southern Chad, a processing plant in 

Kome, Chad, a 715-mile pipeline from Kome to the ocean port of Kribi, Cameroon, four 

pumping stations, a nine-mile underwater pipeline connecting Kribi to an offshore storage 

tanker, and two waste-management facilities. Additionally, fiber-optic cable is being laid in the 

pipeline trench to provide modern communications capabilities to the interiors of both countries. 

The total cost of the project is estimated to be $3.7 billion. 

Planning and financing for the project began in 1995, and the first construction started in 

November 2001. Two organizations were formed to oversee the project—TOTCO (Tchad Oil 

Transport Company) representing Chad’s interests and COTCO (Cameroon Oil Transport 

Company) representing Cameroon’s interests. The commercial consortium responsible for 

building and managing the production and distributing the revenue includes three firms: 

ExxonMobil (which has a 40-percent interest), Petronas (which has a 35-percent interest), and 

Chevron (which has a 25-percent interest).

Infrastructure

When the project began, there were no improved roads 

along the 700-mile surface-transport route from the 

Cameroon port of Douala to Kome (approximately the 

distance from Washington, D.C., to Chicago), just a 420-

mile rail line from Douala to N’Gaoundere and 280 miles 

of dirt roads created by grading and removing the top layer 

of soil. The four rivers that have to be crossed had 

primitive bridges unable to support the weight of the 

equipment and machinery. Although some roads and 

temporary bridges have been constructed, conditions are 

still relatively primitive. At the time data for the study was 

collected, no fuel was available along the route, and there 

was nowhere to service or repair vehicles. It was not 

feasible for trucks to travel the route at night, since there 

were no lights or signs and there was no way to locate the 

numerous holes and bumps in the path. During the rainy 

season, from April to July, the roads flood, and decreased 

visibility makes them even more impassable. Moreover, 

since the road segments become natural water courses when it rains, the truck convoys have to 

stop until the water recedes and equipment must be brought in to repair the roads. While some 

of the roads and temporary bridges created for the project will be useful to Chad and Cameroon 

in the future, most will be deconstructed so as to not open the areas to further development. 

The nearest large airfield (with a 9,200-ft runway) is at the capital city of N’djamena, 280 miles 

northwest of Kome, and has been used for AN-124 charter aircraft. The road between 

N’djamena and Kome was originally just dirt, but it was improved and maintained for the project 

at a cost of $200 million. There is another large airfield at the Cameroon port of Douala. In 

Monaudua, about 75 miles from Kome, there is a small, 5,000-foot runway, and there are 

numerous small airfields near the pipeline path. The consortium built an additional 5,904-foot 

laterite airstrip at the project site in Kome that it has used to transport fly-in labor on L-100s and 

The citizens of Chad and Cameroon could 

benefit tremendously from the oil pipeline 

project, which will provide jobs and money for 

education.
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Dash-8s. The jobsite airfield at Kome is already capable of handling a BC-17X, and the small 

airfields along the pipeline path could be sufficiently improved to do so as well. 

Present Logistics Plan

At the beginning of the supply chain, materials and equipment are sent by ocean freight from 

Europe, the United States, and Asia to the port of Douala. The ocean transit, including staging 

for loading at the embarkation ports, takes at least 22 to 28 days. Since Douala is not a highly 

used port, customs, unloading, staging onto truck convoys, and the 705-mile surface trip take 

another ten to sixteen days or more. In Exxon’s initial logistics planning the company estimated 

a minimum of three months’ transit time to the project site.

Crews travel by L-100s or Dash-8s into the project site’s airfield, but heavier air cargo must go 

on chartered AN-124s to N’djamena. Including one to three days of flight time, two to three 

days for customs, and three to five days for road transit, air cargo takes between six and ten days 

to travel from Houston to Kome. 

Starting in December 2000, it took three months for the living modules to arrive, and many were 

damaged and unusable. Without generators, subsistence supplies, or prefabricated housing 

modules, the project was forced to use “fly-in” camps. One Dash-8 aircraft was used daily for 

the first two months to rotate the personnel between Douala and Kome. The excess cost of this 

“fly-in” operation totaled $750,000 per month, including the cost of the aircraft and hotel and 

food expenses in Douala for more than 200 people. It took two more months for the first 

vehicles to arrive; construction materials arrived much later and had to be deposited in storage 

areas along the pipeline right-of-way. 

Clearing and construction for the project began in September 2001, eight months behind 

schedule. During the surveying of the pipeline route and marshaling of the necessary supplies, 

the pipeline had to be rerouted many times. Since the original pipeline route was too close to 

some native and animal habitats, the project had to use new, infrequently traveled sections of 

road, resulting in further logistics problems and delays. Even without including the actual pipe, 

the project is expected to require 8,250 surface movements totaling 330,000,000 pounds. 

Transporting the pipe will require an additional 11,935 surface movements totaling 477,400,000 

pounds. 

Inevitable delays in the production and shipping of critical materials forced Exxon to use 

unplanned air charters from Houston and from continental European and UK suppliers. In 

addition, a number of large, heavy, and sensitive devices were damaged in transit (from being 

jostled or falling off of trucks) and had to be sent for recalibration via chartered AN-124s. 

Unforeseen labor and customs-clearance problems at the port of Douala also prevented a smooth 

flow of materials from being available when they were needed to meet the construction schedule. 

While the original plan estimated that the project would require transporting about 10,100,000 

pounds of material to N’djamena via air, by the end of February 2003 some 22,000,000 pounds 

of airfreight had been shipped on chartered AN-124s and IL-76s, and there was an estimated 

11,000,000 pounds (through September 2003) still to come.
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The target date for oil to begin flowing down the completed pipeline was July 2003, but Exxon 

speculated that a full flow of processed crude would not be possible for an additional three to 

five months. 
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BC-17X Logistics Plan

The BC-17X could have been inserted into the logistics plan at two separate points. First, the 

aircraft could have flown the 30,690,000 pounds of initial startup materials from the port of 

Douala to Kome, saving seventeen to 26 days of transit time per ocean shipment. This would 

have allowed the camp modules, construction equipment, consumable supplies, fuel, water, and 

strategic materials necessary to begin construction to have been in place two months earlier than 

they actually were and eliminated the excess costs caused by the delay.

During the second, ongoing phase of the project, the BC-17X could have reduced the amount of 

weight that had to be moved on overseas charter flights by seventy percent by providing a 

continuous shuttle service between Douala and Kome. The remaining thirty percent of the 

overseas flights could have been split between the BC-17X and AN-124 charters (since a few 

pieces of equipment would still have been too heavy to transport via the BC-17X). Additionally, 

the BC-17X shuttle could have moved eighty percent of the surface weight (excluding pipe) 

directly to Kome. In total, the BC-17X could have shortened the ongoing phase of the project by 

approximately five months. Moreover, substantially reducing the planned truck traffic would 

have eliminated the need to improve the road between Douala to Kome

Next Best Alternative

The next best alternative is the current system of ocean and surface freight. However, as the first 

few years of construction have shown, this logistics chain is unreliable and requires costly 

supplementary AN-124 charters. 

Although the AN-124 could also have been preplanned into the logistics chain in several ways, 

this logistics strategy would not have been superior to the BC-17X logistics plan. For example, 

the AN-124 could have flown into N’djamena on a regular basis, but that would not have 

eliminated the need for extensive surface transport to Kome and along the pipeline. And while 

the Kome airfield could have been upgraded to accommodate regular AN-124 flights, it would 

have been extremely difficult to expand the local airfields along the pipeline sufficiently, and 

substantial surface transport would still have been necessary. With such large surface transport 

components, neither of these approaches would have generated the same time and cost savings as 

the BC-17X.
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Analysis

Project Name Chad-Cameroon Petroleum Development and 

Pipeline Project

Project Description Oil pipeline, pump stations, processing plant, and 

oilfield equipment 

Project Owner Commercial consortium (ExxonMobil, Petronas, and 

Chevron). TOTCO and COTCO also have interests in 

the project.

Project EPC Company ExxonMobil (and numerous subcontractors)

Project Logistics Company SDV Inc. 

Project Cost $3.7 B

Project Duration 3.5 years 

Freight Description Pipeline, processing-plant material, and construction 

equipment

Flight Origin and Destination Houston to Kome, Chad, 

Luxembourg to Kome, Chad

Douala, Cameroon to Kome, Chad 

Air Cargo Duration 21 months 

BC-17X Operational (Fly) Days 651 days 

BC-17X Committed (Contracted) Days 651 days

BC-17X Schedule Startup—3 Douala/Kome round trips per day for 62 

consecutive days; one Houston/Kome round trip, 60 

days in between legs

Ongoing—31 day cycles for the next 589 days—1 leg 

Houston/Kome, 14 days (42 round trips) 

Kome/Douala, 1 round trip Kome/Luxembourg, 14 

days (42 round trips) Kome/Douala, and 1 leg 

Kome/Houston

Average BH per RT Flight Douala/Kome = 2.98 BH

Kome/Houston = 30.74 BH 

Kome/Luxembourg = 12.3 BH

Estimated BC-17X BH 6114 BH

Possible Type of Contract Long-term hourly contract that includes fixed costs 

and margin

Total Cost of BC-17X to Project 6114 BH at $20,000 = $122.9 M 

Cost of Airfield Upgrade None

Cost of Airfield Maintenance None: laterite strip maintained by Exxon

Delta Cost of BC-17X to Project $122.9 M cost of BC-17X

(111.6) less transportation savings

Delta cost to the project = $11.3 M

Transportation Cost w/o BC-17X $131.1 M

Transportation Cost w/ BC-17X $142.4 M

Cost Benefit $171.5 M

Months-to-Completion Savings 7 months

Capital Interest Benefit/

Return on Capital Invested Benefit

$107.9 M @ 5%

Accelerated Product Benefit 200,000 BBL/day for 214 days @ $25 per BBL = 

$1.0700 B less a 5% extraction cost per BBL 

($0.0535 B) = $1.0165 B

Project Construction Cost—w/o BC-17X $3.7 B

Project Construction Cost—with BC-17X $3,700.0 M project cost

 11.3 delta cost

 (171.5) less cost benefit

 (107.9) less capital interest benefit

Project cost with BC-17X = $3.4319 B

BC-17X Revenue per Operating Day $189,000

BC-17X Revenue per Committed Day $189,000

Net Benefit $1,016.5 M accelerated product benefit

 173.0 cost benefit

 107.9 capital interest benefit

 (11.3) less delta cost of BC-17X

Net benefit to the project = $1.2846 B
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Conclusion

While the BC-17X would raise the cost of transportation by about $11.3 million, the reduced 

project duration and resulting operational cost and capital interest benefits would decrease the 

total project cost by $279.4 million. With the accelerated product benefit included as well, the 

BC-17X would generate a net project benefit of approximately $1.2846 billion.
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Letter of Agreement
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3.2.3.11 National Petroleum Reserve Alaska Project

NPRA, Alaska

Project Owner: Phillips Alaska, Inc.

EPC Company: Phillips Alaska, Inc.

Logistics Company: None

Data Source Company

Phillips Alaska is a division of ConocoPhillips, the third largest 

integrated energy company in the United States and the sixth 

largest publicly owned energy company in the world. 

Operating in 49 countries with a workforce of 56,000, ConocoPhillips has some $75 billion in 

assets and recorded $48 billion in 2001 sales.

Environment

The National Petroleum Reserve Alaska (NPRA) is bordered by the Beaufort Sea to the north 

and the Brooks Mountain Range to the south. It begins approximately 70 miles west of Prudhoe 

Bay and extends further west for 300 miles. Point Barrow is located on the seacoast midway 

through the reserve, and the center of the reserve is about 250 miles north of the Arctic Circle.

Environmental conditions in the reserve are both sensitive and harsh. The soft tundra and 

thousands of small lakes scattered throughout the reserve would be so negatively impacted by the 

movement of heavy equipment that the US government restricts travel and drilling in the reserve 

to the time when the ground is frozen solid, usually early December through mid-April. For 

planning purposes, Phillips assumes a 126-day test-drilling window, from December 15 through 

April 15. During this period, the only “daylight” is a few hours of twilight each afternoon; fog, 

high winds, and snow further limit visibility. Temperatures average -10oF, and they can drop as 

low as -50oF.

Project

The US government has granted Phillips Alaska an eight-year oil exploration lease in the NPRA. 

To determine the value of the lease, Phillips must drill several test wells in strategic locations to 

gauge the potential size of the oil reserves on their portion of land. Generally, on a lease of this 

size, Phillips will drill a minimum of two test wells (at a cost of about $25 million each) at each 

strategic location to confirm the presence of oil or gas. It would then drill as many additional test 

wells as necessary (about five to eight miles apart) to fully evaluate the overall potential of the 

lease before deciding whether to develop the field and build a pipeline to extract the oil or return 

the lease to the government. For the purposes of this case study, we assume that it will take ten 

test wells to fully assess the lease. 

Infrastructure

The main airfield for the lease area transport is Deadhorse, near the ocean port in Prudhoe Bay, a 

full-service airport featuring a 6,500 foot runway and precision navigational aids. Since all 
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major equipment movements must take place during the frozen season, the remainder of the 

transportation infrastructure consists of seasonally constructed ice highways and ice runways.

Present Logistics Plan

During the port at Prudhoe Bay’s operational months, usually July and August, the heavy 

equipment and supplies for the test wells are barged in. The rest of the year, the materials are 

trucked up the haul road from Fairbanks. Once the winter window begins and the ground has 

frozen deeply enough to minimize the environmental damage, Phillips must move quickly to 

transport the drilling rigs and equipment from Prudhoe Bay to the drilling site and back before 

the end of the season. 

Since most test wells are now more than 50 miles from 

Prudhoe Bay and thus require some airlift, the logistics chain 

for a typical exploration well would begin with low-groundpressure Rolligon trucks moving construction equipment for an 

ice airfield to the drilling site. This process, combined with the 

construction of the ice airfield, usually takes about four weeks, 

since the ice can only be poured at a rate of one mile a day. 

Once the airstrip is in and lit, L-100 loads start to fly in the rig 

camp, crews, and other construction equipment needed to set 

up the test well. By the time Phillips is ready to drill (four to six weeks later), it is usually early 

February, and from then to mid-April, the operation is supported by smaller aircraft, although L100s are still used to transport fuel. When work at the test site is finished (usually in early 

April), the entire operation is deconstructed and returned to Deadhorse in reverse order, a process

that takes two to three weeks. A typical exploratory well requires 300 inbound L-100 loads and 

180 outbound L-100 loads, and to date Phillips has only been able to drill one test well per 

frozen season using an L-100-based supply chain. 

BC-17X Logistics Plan

Since the BC-17X can land on the same ice airstrip as the L-100, it could directly replace the L100 in the typical logistics plan described above. However, since the BC-17X can carry 3.5 

times more weight and 6.25 times more volume than the L-100, it would need to make only 70 

The center of the National Petroleum Reserve Alaska (NPRA) is about 250 miles north of the Arctic Circle.

The wheeled rig base is uniquely designed 

to operate in the harsh winter conditions of 

northern Alaska, where temperatures can 

drop as low as -50°.
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inbound flights and 58 outbound flights, or 128 total flights instead of 480 using the L-100. In 

addition, the BC-17X could carry larger pieces of equipment, reducing the time spent breaking 

down and rebuilding deconstructed equipment, and fly in more severe weather conditions than 

the L-100. 

Whereas it takes the full 126 days each season to construct a 

single test well with the L-100 supply chain, the BC-17X 

supply chain could complete the test well in only 73 days, or 

53 days faster. This accelerated schedule would enable 

Phillips to drill a second test well each season (since the 

equipment would already be in place, the second test well 

could be constructed in only 28 days). Furthermore, even after 

completing two test wells with the BC-17X supply chain, 25 

days would remain in the drilling season. With some further fine tuning, it might be possible to 

drill three wells per season. If, as we have assumed, it will take ten wells to fully assess the field, 

the BC-17X supply chain could shorten the exploratory process by at least five years. 

Next Best Alternative

Phillips’s next best alternative is to use the L-100 supply chain from Deadhorse to the test wells. 

This alternative allows for drilling only one test well a year within the environmentally 

established drilling window of mid-December to mid-April, as opposed to drilling two or more 

test wells a year with the BC-17X in the supply chain.

Analysis

Since the wells in this case study are test well and not producing wells, we have not attempted to 

place any value on accelerated oil production. However, since it can take as many as ten years to 

move from the discovery of a field and the drilling of test wells to the production of oil, one can 

easily make the case that any reduction in the duration of test-well drilling provides an 

opportunity to bring the oil to market faster. If the test wells proved the field to be productive, 

the BC-17X logistics plan would enable Phillips to bring the oil to market many years earlier and 

thus generate significant accelerated oil revenues.

The present logistics cost for the 480 L-100 flights required to construct one test well is about $3 

million. (This included in the $25 million per-well cost.) For two test wells, the L-100 flights 

cost about $6 million. This means that the non-logistics cost of building two test wells is 

approximately $44 million. Since the BC-17X flights needed to construct two wells in one 

season cost about $5 million, the total cost of these two wells is $49 million, or $24.5 million per 

well. Thus, looking only at the aircraft price and not including any operational savings, the timesaving BC-17X logistics plan actually costs approximately $0.5 million less per well than the 

lengthier L-100 supply chain.

A Phillips Alaska drilling rig construction 

site in the National Petroleum Reserve.
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Project Name National Petroleum Reserve Alaska Test Drilling

Project Description Drill 10 test wells 

Project Owner Phillips Alaska

Project EPC Company Phillips Alaska

Project Logistics Company None

Project Cost $250 M

Project Duration 10 years w/o BC-17X 

5 years w/ BC-17X

Freight Description Drilling rig, equipment, and drilling materials.

Flight Origin and Destination Deadhorse to drilling site (plus ferry flights from Houston to 

Deadhorse)

Air Cargo Duration 5 years 

BC-17X Operational (Fly) Days 185 days

BC-17X Committed (Contracted) Days 185 days

BC-17X Schedule 20 days at the beginning and 17 days at the end of each drilling 

season (December 15 through April 15) for three years; 4 flights 

per day, 7 days per week

Average BH per RT Flight 1.6 BH 

Estimated BC-17X BH 1195.5 BH including 171.5 BH of ferry flights

Possible Type of Contract For project flights: long-term daily contract that includes fixed 

costs, margin, and an hourly rate for each block hour in excess of 

a specified number

For ferry flights: long-term hourly contract that includes fixed costs 

and margin

Total Cost of BC-17X to Project 165 days at $137,000 

171.5 BH at $20,000 

(fuel savings of $192,500)

Total Cost = $25.8 M

Cost of Airfield Upgrade Ice air strip included in Project Cost

Cost of Airfield Maintenance None

Delta Cost of BC-17X to Project $25.8 M cost of BC-17X

(31.2) less transportation savings

Delta cost to the project = -$5.4 M

Transportation Cost w/o BC-17X $31.2 M

Transportation Cost w/ BC-17X $25.8 M

Cost Benefit $70.3 M

Months-to-Completion Savings 60 months plus 25 days each drilling season 

Capital Interest Benefit/

Return on Capital Invested Benefit

$37.5 M @ 3%

Accelerated Product Benefit None. Savings are in costs and in completing an additional test 

well each drilling season

Project Construction Cost—w/o BC-17X $250 M

Project Construction Cost—with BC-17X $250.0 M project cost

 (5.4) negative delta cost

 (70.3) less cost benefit

 (37.5) less capital interest benefit

Project cost with BC-17X = $136.8 M

BC-17X Revenue per Operating Day $137,000 (Ferry charged at $20,000 per BH for 171.5 BH’s = 

$3,430,000; over 20 days, this is $172,000 per day; for the entire 

project is this is an average of $141,000 per day)

BC-17X Revenue per Committed Day $137,000 (Ferry charged at $20,000 per BH for 171.5 BH’s = 

$3,430,000; over 20 days, this is $172,000 per day; for the entire 

project is this is an average of $141,000 per day)

Net Benefit $70.3 M cost benefit

 37.5 capital interest benefit

 5.4 negative delta cost of BC-17X

Net benefit to the project = $113.2 M

Conclusion

On a per-well basis, the BC-17X supply chain is faster and less expensive than the L-100 supply 

chain. Assuming that it takes ten test wells to fully assess the field, using the BC-17X would 

enable Phillips to determine the potential value of the field five years faster for $113.2 million 

less than their present logistics plan.
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Letter of Agreement
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3.2.4 SAM Project Market Case Study Summary

While the BC-17X provides unique benefits in each case study, it is possible to make a few 

generalizations about the benefits of the BC-17X to the SAM Project Market. In all the case 

studies, the aircraft’s primary benefit to the project is speed. The BC-17X reduces project 

durations by replacing slower surface logistics systems, delivering equipment and materials 

closer to the project site, helping to maintain an uninterrupted construction schedule, and/or 

delivering more cargo per round-trip flight than the present air logistics system.

The speed that the BC-17X brings to each project creates value in four tiers. In the highest tier 

are projects such as NPRA in which the use of the BC-17X is economically justified by the 

transportation-cost savings alone. Since the BC-17X allows Phillips to drill more than one test 

well per drilling season, its per-well transportation costs are actually lower with the BC-17X than 

they are with the L-100. One of the eleven SAM Project Market Case Studies, about nine 

percent of the sample, is in this tier.

For the projects in the second tier, it is necessary to take into account the operational cost savings 

from the reduced project duration for the BC-17X logistics system to create value. For example, 

shortening a project’s duration decreases its labor and consumables costs. The Sakhalin I, 

Sakhalin II, Mackenzie Delta, and Chad-Cameroon case studies, 36 percent of all the SAM 

Project Market Case Studies, are in this tier, making it the largest tier of BC-17X project value.

For projects in the third tier, one has to include both operational cost savings and capital interest 

savings to justify the use of the BC-17X. In addition to generating operational cost savings, 

reducing the project duration reduces the cost of interest payments on the project financing 

because the original investment can be recouped more quickly. Three of the eleven SAM Project 

Market Case Studies (the Wabu Gold Mine, the Kashagan Oil and Gas Field, and the In Salah 

Gas Field), about 27 percent of the sample group, are in this tier.

Projects that require operational cost savings, capital interest savings, and accelerated product 

benefits for the BC-17X-logistics system to be economically rewarding make up the fourth and 

final tier. Three case studies, 27 percent of the sample, fall into the fourth tier—the Oman LNG 

Refinery, the Villano Pipeline, and the Tan Jung Power Plant.
84

Disclaimer on Cover applies

3.3 The BC-17X SAM Project Market Forecast

3.3.1 Forecast Methodology

The SAM Project Market Forecast is based on a data survey that relies on relationships between 

accumulated data from a global project market database and key characteristics identified by the 

case studies. For example, the case studies identify specific transportation tasks the BC-17X 

could accomplish, the types and quantity of equipment the BC-17X could air deliver, the types of 

austere environments that recommend the BC-17X, and the overall percentage of the total project 

cost that is represented by the cost of using the BC-17X.

The forecasting process is divided into three phases. The first phase of the forecast identifies the 

quantity and cost of large construction projects that could potentially profit from using the BC17X. Whereas the case studies describe individual BC-17X-eligible projects that typify the 

SAM, this data survey identifies all the BC-17X-eligible SAM projects in the selected project 

market database that are currently in operation or will be in operation during the next nine years. 

The number of these projects is determined by using the key characteristics of successful BC17X SAM projects established by the case studies to filter a database of global projects. 

The second phase of the forecasting process uses the data on BC-17X-eligible projects from the 

first phase to determine the current value of the BC-17X SAM Project Market. Again using the 

case study data as a starting point, the first market estimate describes the BC-17X SAM Project 

Market by calculating the percentage of the total cost of BC-17X-eligible SAM projects that 

could potentially be spent on the BC-17X, both overall and by project category. Additionally, to 

confirm the primary market estimate, a complementary ocean-borne cargo analysis uses a 

weight-based assessment similar to the original Boeing analysis of ocean-borne cargo. This 

updated ocean-borne cargo study, however, uses the case studies as the market motivation in 

selecting the appropriate percentage of all BC-17X-eligible cargo that has the potential to be 

moved by the aircraft.

Once the current BC-17X SAM Project Market was estimated, it was possible to forecast what 

that market might look like in the future. The third phase of the forecast uses the relationship 

between the world Gross Domestic Product (GDP) and the growth trend in worldwide large 

construction projects inferred from the survey of historical data to create a ten-year forecast of 

the BC-17X SAM Project Market. 

Before moving on to the market forecast results, it is important to make some five additional 

points. First, the forecast methodology assumes that, in the absence of historical market data for 

the SAM Project Market, it is reasonable to use a parametric analysis based on the key 

characteristics identified in the case studies. The justification for this assumption is that since the 

case study results validate the value of the BC-17X to the case study projects then similar 

projects exemplifying the key case study characteristics should produce similar results. Second, 

the forecast methodology also assumes that stakeholders in large construction projects typified 

by the SAM Project Market Case Studies will be motivated to pay a premium for the BC-17X 

because of the resulting financial benefits. This assumption is justified because traditional 

market forces apply to the SAM Project Market, and savings and accelerated product benefits are 

compelling market factors. Third, the forecast only describes the BC-17X SAM Project Market. 

The SAM Supply-Chain Market, SAM Special Mission Market, and HOM described later in this 
85

Disclaimer on Cover applies

report represent additional sources of BC-17X revenue that are not included in this analysis. 

Fourth, the forecast is intentionally conservative because the BC-17X case study prices are 

conservative estimates (see the explanation of the data analysis chart line item “Total Cost of 

BC-17X to Project” in Section 3.2.1: Case Study Methodology). Finally, the methodology of 

each phase of the forecast will be described in greater detail as the forecast progresses.

3.3.2 Forecast Results

3.3.2.1 Phase One: Identifying the Quantity and Cost of BC-17X-Eligible SAM 

Projects

The first step in identifying projects eligible for BC-17X operations was to develop a list of 

projects that met the criteria for BC-17X eligible SAM projects. A search was conducted of 

possible data sources, and the Worldwide Projects, Inc. (WWP) database was chosen because it 

was the most complete with regard to the quantity and characteristics of the projects described. 

While there are many sources of data on existing large construction projects, the WWP database 

is one of the few that is both comprehensive and provides historical and forward-looking data.41

 41 Worldwide Projects, Inc., Database, 

The Calendar Year 2002 WWP database identifies new projects for which contracts have been 

announced or for which the total project cost is known and a prime contractor has been named. 

WWP generally only accumulates data on large projects, a preponderance of which are 

categorized as pipeline, oil and gas development, infrastructure, or mining projects. The 

infrastructure projects in the CY2002 database include water and sanitation projects, ground 

transportation projects, power-generation projects, and waterways and airport construction 

projects. Other large construction projects, such as computer chip manufacturing plants, 

petroleum product plants, and large steel and other metal manufacturing plants, are identified as 

well. As can be seen in the original case study prospects list in Appendix D, the initial data 

collection included many of these kinds of projects. In addition, the WWP database is 

particularly suitable for the purposes of this analysis because it only includes projects with a 

construction period of one year or longer and a total cost of at least $20 million. The vast 

majority of the projects in the CY2002 database have a total cost that exceeds $50 million. 

Forecast Figure 1 describes the process used to develop a database of BC-17X-eligible projects. 

The WWP database service lists the latest announced projects each month, although the amount 

of information available on each project varies. For the purposes of the forecast, data was 

collected on all the projects announced in CY2002. Projects that were identified as feasibility 

studies conducted by the US Trade and Development Agency were excluded, since they did not 

meet the criterion of being in a late stage of planning or under contract. While all the projects for 

which data was collected were announced in CY2002, their start dates, completion dates, and 

projected durations vary. They all, however, will be in some stage of operation in the nine-year 

period from 2003 to 2011. 

http://www.worldwide-projects.com, 1997-2002. Historical data from 1997 

through 2000 was obtained in bulk; data for 2002 was provided by a monthly subscription to the database.
86

Disclaimer on Cover applies

Though many projects had the potential to be good candidates for BC-17X utilization, a set of 

criteria had to be established to identify projects that had specific, defensible reasons to benefit 

from the BC-17X. As previously noted, this was accomplished by looking at key characteristics 

of the SAM Project Market case study projects—specific attributes that were common to all the 

case study projects that enabled them to potentially profit from inserting the BC-17X into their 

logistics chains. The projects identified by the CY2002 WWP database were screened twice. 

The screening criteria in each round were as follows:

Screening Criteria (1st Filter): The following criteria were derived from the case studies and 

used to identify projects in the CY2002 database that could be considered suitable for the BC17X:

1. The total cost of the project is equal to or greater than $100 million. Since the cost of the 

BC-17X is relatively substantial (compared to traditional surface logistics), a project with 

a total cost of less than $100 million probably could not economically justify BC-17X 

utilization.

2. The project has a short austere runway environment component. (See the definition of a 

short austere airfield in Section 2.1.) This could mean either that there is a short austere 

runway very close to the project site or that it would be economically reasonable to 

prepare a short runway and onload/offload area at the project site. (See the Wabu Gold 

Mine case study in Section 3.2.3.3.)

3. The project is in a late stage of planning or under contract. 

4. A contractor or overall project manager has been identified. In large construction 

projects, work often begins once a prime contractor has been identified, even if a contract 

has yet to be signed.

5. The project requires the transportation of heavy and/or outsize equipment or cargo loads.

6. The duration of the project is one year or more.

1st

Filter

= $100M, Austere Air Field

Environment, Duration> 1

Year, Some Outsize Cargo

45%

2003 - 2011 World Wide

Projects Data Energy,

Infrastructure, Mining

Infrastructure: Power

Plants Only, Refined

Selection Process,

Eliminated Duplication

Percentage

Of Original

Projects Used

Final Percentage

Of Original

Projects Used

2d

Filter

27%

BC-17X

Eligible

491 Projects

Projects

289

Projects

$702B $390B

BC-17X Eligible Project Identification 

Forecast Figure 1
87

Disclaimer on Cover applies

7. The project must be in operation during the nine-year period from 2003 to 2011, since it 

is expected that a BC-17X operation would not begin until 2008.

8. The project has to be in one of the following project categories:

a. Energy projects

i. Pipelines

ii. Oil and gas development

iii. Refineries and liquid natural gas production facilities

b. Infrastructure projects

i. Power generation

ii. Transportation (roads and railroads)

iii. Airports, seaports, and waterways

iv. Water supply and sanitation

c. Mining projects

d. Other construction projects

i. Factories

ii. Petrochemical products plants 

iii. General construction (war damage and natural disaster recovery)

Of the approximately 1,080 projects in the CY2002 database, the first screening identified 471 

potential BC-17X-eligible projects. These projects have a total project cost of over $700 billion 

and represent 45 percent of the total number of projects in the CY2002 database. Though it was 

clear that all the projects selected by the first filter could probably use the BC-17X for some of 

their transportation needs, it was also implicit in the case studies that the opportunity should exist 

to schedule or plan for BC-17X air cargo service during the course of the project. This aspect of 

the SAM Project Market Case Studies distinguishes them from one-off cargo delivery air cargo 

opportunities. It was clear, therefore, that being able to schedule or plan for BC-17X utilization 

should be an additional selection criterion. Furthermore, an examination of the historical WWP 

databases (1997-2001) revealed that there were a number of duplicate projects—projects that had 

been announced in previous years. To refine the survey data and take these factors into account, 

a second screening was conducted.

Screening Criteria (2nd Filter): To achieve a more representative database of BC-17X- eligible 

projects, the following, more restrictive criteria were used as a second filter:

1. The project has not been announced in a previous year (eliminating duplicate projects in 

the CY 2002 database).

2. The project planning process is mature enough to indicate that it will actually be 

executed, making it possible to schedule or plan to use BC-17X air cargo service.

3. The austere airfield environment component of the project is not uncertain.

While more restrictive project categories were not a criterion in the second screening, removing 

projects where the austere element was not as prominent or where the value of the austere 

element was more questionable (criterion 3) significantly reduced the infrastructure category and 

eliminated the “other construction” category. After the second filtering, the BC-17X-eligible 

projects were in the following categories:
88

Disclaimer on Cover applies

a. Energy projects

i. Pipelines

ii. Oil and gas development

iii. Refineries and liquid natural gas production facilities

b. Infrastructure projects

i. Power generation

c. Mining projects

(Note that all the SAM Project Market Case Studies fall into one of these categories—the SAM 

Supply-Chain Market and Special Mission Market Case Studies presented later in this report are 

not included in this forecast.)

The second screening reduced the number of BC-17X-eligible projects to 27 percent of the 

original 1,084 projects in the CY2002 database, or 289 projects with a total project cost of $390 

billion. Again, it is worth mentioning that these 289 projects are the subset of the original 1,084 

projects that is most similar to the set of projects analyzed in the case studies and are thus most 

likely to benefit from BC-17X utilization. The projects excluded by the filters, however, are by 

no means projects in which there would not be opportunities to use the BC-17X—they are just 

not included in the SAM Project Market Forecast. It is entirely possible that these projects 

would, for example, benefit from being able to use one-off BC-17X charters in the event of 

critical failures in their original logistics plans. 

Energy: Pipelines

Energy: Oil and Gas

Development

Energy: Refineries/LNG

Plants

Infrastructure: Power

Generation Construction

Mining

Totals

Africa 

Pacific Rim

Middle East

Europe and Central Asia

Latin American and

Caribbean

North America

Region Category Dollars in

Billions

Dollars in

Billions

Number of

Projects

Number of

Projects

Total Number and Cost of Projects Worldwide

$28.6 48

$148.2

$29.2

$126.9

$54.0

$2.6

102

50

88

$17.0

2 

$389.5 289

26

$102.5

$22.2

$186.0

$61.8

29

104

42

54

33

Forecast Figure 2

Energy: Pipelines

Energy: Oil and Gas

Development

Energy: Refineries/LNG

Plants

Infrastructure: Power

Generation Construction

Mining

Totals

Africa 

Pacific Rim

Middle East

Europe and Central Asia

Latin American and

Caribbean

North America

Region Category Dollars in

Billions

Dollars in

Billions

Number of

Projects

Number of

Projects

Total Number and Cost of Projects Worldwide

$28.6 48

$148.2

$29.2

$126.9

$54.0

$2.6

102

50

88

$17.0

2 

$389.5 289

26

$102.5

$22.2

$186.0

$61.8

29

104

42

54

33

Forecast Figure 2

Forecast Figure 2 divides the 289 BC-17X-eligible projects by region and category. The 

regional data is useful because it shows the worldwide project distribution and the total project 

cost in each region. The Pacific Rim region has by far the largest number of projects, but the 

Europe and Central Asia region is a close second in terms of project cost. Since this analysis 

uses total project cost to describe the BC-17X SAM market, the Europe and Central Asia region 

is nearly as rich as the Pacific Rim region in BC-17X SAM project opportunities. North 

America is represented by only two projects, the National Petroleum Reserve Alaska project and 

the Mackenzie Delta Gas Pipeline project (case studies discussed earlier in the report), because 

they were the only projects in the region in which an austere environment was a very significant 

factor. 

Forecast Figure 3A gives a different perspective on the filtered projects, showing how they are 

distributed among the five project categories (and subcategories). Forecast Figure 3B compares 

the percentage of the total cost of all the projects each category represents. As the two figures 
89

Disclaimer on Cover applies

illustrate, the project number percentage of each category is basically proportionate to its project 

cost percentage. The oil and gas development category varies the most between the two charts 

because its project costs are exceptionally large. 

Number of Projects as a Percentage of the Total (289) 

by Category

15%

36%

10%

30%

9%

Energy: Pipelines

Energy: Oil and Gas

Development

Energy: Refinery

Infrastructure: Power

Generation

Mining

Forecast Figure 3A

Percentage of Project Total Cost by Category 

16%

48%

6%

26%

4%

Energy: Pipelines

Energy: Oil and Gas

Development

Energy: Refinery

Infrastructure: Power

Generation

Mining

Forecast Figure 3B

Percentage of Project Total Cost by Category 

16%

48%

6%

26%

4%

Energy: Pipelines

Energy: Oil and Gas

Development

Energy: Refinery

Infrastructure: Power

Generation

Mining

Forecast Figure 3B

All the BC-17X-eligible projects in Forecast Figure 2 were announced in 2002, but their start 

dates, completion dates, and project durations vary. They are, however, in some stage of 

operation during the nine-year period 2003–2011. In order to isolate the costs incurred during 

2003, Forecast Figure 4 presents the data in an annualized form, evenly distributing the total cost 

of each of the filtered CY2002 projects over its years of operation and then totaling these costs 

across projects for every year between 2003 and 2011. Although the peak year in Forecast 

Figure 4, the year in which the costs of the filtered projects announced in CY2002 are the largest, 

is 2003, this does not mean that the 2003 will be the year between 2003 and 2011 with the 

costliest project work. Rather, it is the peak year of annualized operational costs for projects 

announced in CY2002. More projects that will occur during this same nine-year period will be 

announced in the future, and another year may end up having the highest total costs. In fact, the 

peak year, as well as the rest of the graph, can be expected to move to the right as time 

progresses (e.g., 2004 can be expected to be the peak year for projects announced in CY2004). 

Also, the sum of the yearly costs in Forecast Figure 4 is less than the sum of the project costs in 

Forecast Figure 2 because some of the projects are in some stage of operation during years 

outside the nine-year window as well.

Total Project Cost BC-17X SAM Annualized

0

10

20

30

40

50

60

70

80

90

100

Billions 93.4 82.3 55.9 33.7 25.5 15.4 14.3 13.0 7.5

2003 2004 2005 2006 2007 2008 2009 2010 2011

$s Billions

As the current year advances the

“ peak year” moves to the next year,

since the WWP data base provides

project data for the current year.

Peak Year BC-17X Market

Forecast Figure 4

Total Project Cost BC-17X SAM Annualized

0

10

20

30

40

50

60

70

80

90

100

Billions 93.4 82.3 55.9 33.7 25.5 15.4 14.3 13.0 7.5

2003 2004 2005 2006 2007 2008 2009 2010 2011

$s Billions

As the current year advances the

“ peak year” moves to the next year,

since the WWP data base provides

project data for the current year.

Peak Year BC-17X Market 17X Market

Forecast Figure 4
90

Disclaimer on Cover applies

The cost of BC-17X-eligible SAM projects in 2003 is $93.4 billion, and the annualized cost 

values remain high through 2005. More specifically, the annualized project costs do not drop 

below fifty percent of the peak-year value until 2006. It is important to stress yet again that this 

nine-year graph (Forecast Figure 4) is only of the costs of projects announced in CY2002. 

Forecast Figure 5 presents the same annualized cost data by project category. The project 

categories that extend over many years contain projects that are not planned to begin for several

years, projects that will begin shortly but have extremely long durations, or some combination of 

the two. For example, power-generation facilities tend to be planned years in advance and take 

an extended amount of time to construct, particularly in austere environments.

Forecast Figure 5: Annualized Cost Data by Project Category

2003 2004 2005 2006 2007 2008 2009 2010 2011

Energy

Pipelines $18.4B $16.9B $8.8B $3.8B $3.1B $1.3B $0.8B 0 0

Oil and Gas Development $37.4B $33.9B $25.3B $18.4B $13.7B $9.7B $9.6B $9.5B $5.9B

Refineries/LNG Production 

Facilities $7.5B $5.2B $3.0B $1.9B $1.8B 0 0 0 0

Infrastructure

Power Generation $24.0B $20.6B $16.8B $8.8B $6.2B $4.3B $3.9B $3.4B $1.6B

Mining $6.2B $5.7B $2.1B $0.8B $0.7B $0.1 $0.1 $0.1 $0.1

3.3.2.2 Phase Two: Assessing the Current Value of the BC-17X SAM Project 

Market

In a market environment where no other market participants exist and the market is defined so 

narrowly that only one product can satisfy it, any revenue that can be attributed to that product or 

service defines the value of the market. Since no form of air transportation other than the BC17X is currently capable of delivering heavy and/or outsize cargo loads to austere airfields, the 

BC-17X SAM Project Market can be defined by the percentage of the total cost of BC-17Xeligible SAM projects that could potentially be spent on the BC-17X.

BC-17X

Eligible

Projects

Total Costs

• Energy:

Pipelines

Oil and Gas Dev

Refineries

• Infrastructure:

Power Generation

• Mining

Project-Representative Case Studies

Determine Percentage of Project Cost

That Makes up BC-17X Project Market

Cost to Project

of BC-17X

Project

Total Cost

BC-17X

SAM as %

of Project

Total Cost

Data Derived From

Case Studies

Identifying the BC-17X SAM Market

Eligible Projects X 100

Described by

Projects Total

Costs and

Project Category

Forecast Figure 6

BC-17X

Eligible

Projects

Total Costs

• Energy:

Pipelines

Oil and Gas Dev

Refineries

• Infrastructure:

Power Generation

• Mining

Project-Representative Case Studies

Determine Percentage of Project Cost

That Makes up BC-17X Project Market

Cost to Project

of BC-17X

Project

Total Cost

BC-17X

SAM as %

of Project

Total Cost

Data Derived From

Case Studies

Identifying the BC-17X SAM Market

Eligible Projects X 100

Described by

Projects Total

Costs and

Project Category

Forecast Figure 6
91

Disclaimer on Cover applies

Forecast Figure 6 shows how the value of the BC-17X SAM Market was calculated. First, the 

BC-17X-eligible projects identified in Phase One of the forecasting process were grouped by 

project category and project cost. The BC-17X SAM Project Market Case Studies were 

categorized in the same way. Within each project category, the SAM Project Market case study 

data was used to derive the category-specific percentage of the case study project costs that could 

have been spent on the BC-17X. This percentage was calculated by dividing the line item “Total 

Cost of BC-17X to Project” in the data analysis chart, or the amount each case study might have 

spent on the BC-17X, by the line item “Project Cost” and multiplying by 100. Finally, all the 

category-specific percentages were averaged and the mean percentage was multiplied by the total 

2003 cost of BC-17X-eligible projects identified in Phase One. Since the mean percentage is the 

percentage of the total cost of BC-17X-eligible SAM projects that could potentially be spent on 

the BC-17X, the resulting dollar value represents the size of the BC-17X SAM Project Market 

for 2003. It is statistically sound to use a case-study-derived percentage to analyze the larger 

market because the eleven case studies are 3.8 percent of the 289 filtered projects, a statistically 

significant percentage. Forecast Figure 7 illustrates these calculations and concludes that the 

BC-17X SAM Project Market for 2003 has a value of at $2.36 billion.

Forecast Figure 7: BC-17X SAM Project Market Value

Case Studies By 

Category

Case 

Study 

Project 

Cost

Case Study 

Total Cost of 

BC-17X to 

Project

BC-17X 

Market as 

Means of 

(SUM A) / 

(SUM B)

BC-17X 

Market as a 

Mean of SUM 

of Column C

Total 

2003 

Project 

Cost 

BC-17X 

Market

Dollar 

Value

A B C D E F

Oil and Gas 

Development

Sakhalin I $3.500B $0.076B

NPRA $0.250B $0.026B

Kashagan $9.350B $0.035B

In Salah, Algeria $2.400B $0.003B 0.90%

Pipeline Projects

Mackenzie Delta $2.320B $0.020B

Villano Pipeline $0.350B $0.035B

Sakhalin II $1.850B $0.049B

Chad/Cameroon $3.700B $0.123B 2.79%

Refineries/LNG 

Plant Construction

Qalhat, Oman $2.200B $0.031B 1.41%

Infrastructure: 

Power Generation 

Construction

Tan Jung Jati B 

Power Plant $0.350B $0.009 2.43%

Mining

Wabu Gold Mine $0.190B $0.010B 5.11% 2.53% $93.41B $2.36B
92

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There are several benefits to estimating the BC-17X SAM Project Market in this way. First, 

using the ratio of BC-17X expenditure to project cost establishes a mathematical tool for 

describing the market that is implicitly based on dollar values. Since the peak year BC-17X 

SAM Project Market size and ten-year projection are also measured in dollars, the entire forecast 

development process uses the same units. Second, grouping projects by category is useful 

because projects in each category tend to move similar cargo, although some outsize cargo, such 

as large earth-moving machinery, is common to all three categories. Third, dividing the sum of 

Column A (Project Cost) by the sum of Column B (Total Cost of BC-17X to Project) within each 

category minimizes the impact of the extremes in the individual case study data while still 

recognizing the differences between project categories. For example, even though the 

percentages for the In Salah, NPRA, and Villano projects would be relatively extreme if 

calculated individually (0.12%, 10.40%, and 10.00%, respectively), their categories are 

represented by mean percentages similar to the other category percentages and well within the 

range discussed in Section 3.2.2: SAM Project Market Background. 

To determine the size of the commercial BC-17X fleet the $2.36 billion 2003 SAM Project 

Market would support, the market value is divided by the annual revenue per aircraft required to 

achieve profitability, as defined in the latest Boeing Business Case and Financial assessment.42

BC-17X Market as 

a Mean Percentage 

of BC-17X Market 

(Column D in 

Table 3)

 

Forecast Figure 8 concludes that, with an annual required revenue of $50 million per aircraft, a 

commercial fleet of 47 BC-17Xs could be supported by the 2003 BC-17X SAM Project Market.

Forecast Figure 8: Supportable 2003 Fleet Size 

Total Project Cost BC-17X Market

Revenue Required 

Per BC-17X 

Annually

Number of BC17Xs Supported

($2.36B/$0.050B)

2.53% $93.41B $2.36B $0.050B 47

Companion Ocean-Borne Cargo Analysis 

The vast majority, if not all, of the BC-17X-eligible SAM Project Market cargo is currently 

transported via ocean vessel at some point in its logistics chain. Therefore, to confirm the 

existence of the volume of cargo needed to support the 2003 BC-17X SAM Project Market size 

implied by the case study revenue, a companion ocean-borne cargo analysis similar to the 

original Boeing analysis was conducted. While the Boeing analysis relied solely on the Port 

Import/Export Reporting System (PIERS) database (which only provides US domestic port data) 

and the Department of Commerce worldwide PIERS multiplier to determine the amount of 

global ocean-borne cargo that could potentially be moved via the BC-17X, this updated analysis 

references the Census Bureau Worldwide Export Database as well. More importantly, this 

analysis also uses the case study data as the market motivation for selecting the appropriate 

percentage of all BC-17X-eligible cargo that have the potential to be moved by the aircraft. 

Additionally, the case study-based approach has the benefit of using actual case study data on 

round-trip air distances and flight times that was not available for the earlier assessment.

 42 The Boeing Company, BC-17X Business Case Financial Report, April 2003. The required revenue of $50 million 

per aircraft is based on the latest BC-17X business case analysis produced by The Boeing Company’s Airlift and 

Tanker Division of Integrated Defense Systems. However, the required revenue is tied to a fixed internal rate of 

return and would therefore fluctuate with a reduction in direct or indirect costs.
93

Disclaimer on Cover applies

For the purposes of this analysis, three case studies were selected as representative of the BC17X SAM Project Market: Sakhalin I (Oil and Gas Development), Sakhalin II (Pipelines), and 

Wabu Gold Mine (Mining). This was appropriate because case studies in the same project 

category tend to use the same kinds of equipment. Refineries and power-generation projects 

were not included because they use equipment that, for the most part, is also used by other 

categories of projects that fall outside the BC-17X SAM Project Market. The exclusion of 

refineries and power-generation projects does not mean that these project categories do not have 

BC-17X-eligible ocean-borne cargo; rather, it means that this particular study is very 

conservative. 

The analysis began by sorting the types of equipment the BC-17X could have transported in each 

of the representative case studies by harmonized commodity code. Since harmonized 

commodity codes do not discriminate among equipment that is categorized as break-bulk, rollon/roll-off, or containerized (ocean-borne shipping categories), this approach has the additional 

benefit, compared to the previous Boeing study, of not excluding containerized cargo that may 

be carrying BC-17X eligible cargo characterized in the case studies. The harmonized 

commodity codes were then cross-referenced against the PIERS and Census Bureau databases

for the last two quarters of 2001 and first two quarters of 2002 (one year total) to determine the 

total amount of annual ocean-borne cargo that could potentially be moved via the BC-17X. It 

should be noted, however, that some equipment is categorized by multiple harmonized 

commodity codes and could thus have been double-counted. The results of this analysis are 

illustrated in Forecast Figure 9. 

Annual Potential BC-17X Cargo (Currently Ocean Borne *) Available 

Based on Oil and Gas, Pipeline, and Mining Project Examples 

(Metric Tons)

455,000

681,000

369,000

0

100

200

300

400

500

600

700

800

Worldwide Oil & Gas

Development (Sakhalin I)

Worldwide Pipeline

Construction (Sakhalin II)

Worldwide Mining

Projects (Wabu Mine)

* Data derived from Port Import and Export Reports System (PIERS)

And the Department of Commerce, U.S. Census Data

Forecast Figure 9

Metric Tons of Equipment

Common to Oil and Gas 

Development, Pipeline 

Construction and Mining

(000s)

Annual Potential BC-17X Cargo (Currently Ocean Borne *) Available 

Based on Oil and Gas, Pipeline, and Mining Project Examples 

(Metric Tons)

455,000

681,000

369,000

0

100

200

300

400

500

600

700

800

Worldwide Oil & Gas

Development (Sakhalin I)

Worldwide Pipeline

Construction (Sakhalin II)

Worldwide Mining

Projects (Wabu Mine)

* Data derived from Port Import and Export Reports System (PIERS)

And the Department of Commerce, U.S. Census Data

Forecast Figure 9

Metric Tons of Equipment

Common to Oil and Gas 

Development, Pipeline 

Construction and Mining

(000s)

The total annual ocean-borne large construction equipment that could potentially be transported 

by BC-17X amounts to nearly six million metric tons. However, not all of that cargo would 
94

Disclaimer on Cover applies

actually be available to a BC-17X operator. In most of the case studies, for example, only a 

small percentage of the total BC-17X eligible cargo is moved by air. Moving all the eligible 

cargo would be prohibitively expensive, and the goal of maintaining a smooth, uninterrupted 

construction schedule can usually be accomplished with a much lesser amount of air cargo. 

Consequently, to establish a more reasonable market expectation, it was necessary to multiply 

the total amount of BC-17X-eligible ocean-borne equipment by a proxy for the actual market 

size, and, as in the primary market analysis, the selected proxy was the category-specific 

percentage of the SAM Project Market case study project costs that could have been spent on the 

BC-17X (0.09 percent for oil and gas development projects, 2.71 percent for pipeline project, 

and 5.1 percent for mining projects). The resulting market-derived estimate of the amount of 

ocean-borne SAM Project Market equipment that could be transported via BC-17X is slightly 

more than 1.5 million metric tons per year. (See Forecast Figure 9.)

This does not mean, necessarily, that the BC-17X would replace ocean shipment for this cargo, 

but that, once the cargo reached its destination, the BC-17X could be used to shuttle it to the 

austere project site. This assessment also does not suggest that, if available, the BC-17X would 

definitely transport all the existing BC-17X-eligible ocean-borne cargo—it only suggests that it 

could. Additionally, this number does not include similar cargo that moves only via surface 

transportation and never travels on an ocean vessel, nor does it include possible cargo from 

refineries and power-generation plants. 

Boeing’s original conclusion was that there are approximately 240 thousand metric tons of 

annual BC-17X-eligible cargo, which would support around 3,800 one-way BC-17X missions. 

The larger number in this assessment is the result of including cargo specifically associated with 

the SAM Project Market and not limiting the eligible cargo to just HOM equipment. While the 

SAM Project Market does have an outsized component, this approach does not exclude items 

such as transmission and drilling pipe which, individually, are not outsize. 

Using logic similar to that of the original Boeing analysis but incorporating SAM Project Market 

case-study derived flight distances and times, the updated conclusion (that there are 1.5 million 

metric tons of annual BC-17X-eligible cargo) would provide business for a commercial fleet of 

about 48 BC-17Xs.43

3.3.2.3 Phase Three: Calculating a Ten-year BC-17X SAM Project Market Forecast

 This fleet estimate is not in addition to the revenue-based estimate—it is a 

rough, complementary weight-based estimate used to check the conclusions of the primary 

revenue-based estimate by using a different methodology and comparing the results. 

Having calculated the 2003 BC-17X SAM Project Market, the next step was to forecast the 

future of this market. The methodology for this phase of the forecast, illustrated in Forecast 

Figure 10, consists of two separate approaches, both based on the idea that the BC-17X SAM 

Project Market will follow the same trends as the Project Market in general. The first approach 

is an analysis of the historical data in the WWP database that establishes a historical growth rate 

for the Project Market and assumes that the BC-17X SAM Project Market growth rate will 

follow the same trends. The second approach, which is somewhat more conservative and 

refined, forecasts the BC-17X SAM Project Market along with world GDP. 

 43 This calculation is based on the case study-derived assumption that each round-trip BC-17X flight takes an 

average of six block hours.
95

Disclaimer on Cover applies

Historical Data Survey

One way to predict the future performance of a market is to look at its past performance. Since 

the BC-17X SAM Project Market does not yet exist, this can only be done by looking at the past 

performance of a similar market, and it is reasonable to assume that the trends in the BC-17X 

SAM Project Market will be similar to the trends in the more general Project Market. 

The past performance of the Project Market was 

measured by surveying historical data from the 

WWP database. The years 1997 to 2002 were 

selected as the period of analysis because those 

were the years with the most complete available 

data. 44 Data prior to 1997 was not available. The 

project data was grouped by month; each data 

point in Forecast Figure 11 represents the total 

cost of all the projects announced in a single 

month. For example, the total cost of all the 

projects reported for the month of May 1998 was

slightly over $30 billion.

Forecast Figure 11 also shows the result of a 

simple linear regression—indicating that the 

Project Market growth rate over the six-year 

period 1997–2002 was approximately six percent. 

Many factors have contributed to this growth rate, 

including the opening of the Confederation of Independent States (CIS) and the Russian 

Federation (the former Soviet Union) to global commerce and the developing world’s increasing 

need to build its infrastructure and access its natural resources. The 2003 issue of Global 

 44 Although the 1997–2001 WWP dataset was very comprehensive, some data points were missing and a 

mathematical regression was preformed to approximate them. 

BC-17X

SAM

Market

BC-17X SAM

Market-Based

Forecast Analysis

1997-2001 Worldwide

Projects Historical

Trend Analysis

1997-2001 Historical

Project Trend Data

Comparison with

World GDP Forecast

Worldwide Cargo

Forecast Data Analysis

From Boeing Forecast

Boeing World Wide

Cargo Forecast

Comparison with

World GDP

BC-17X 10 Year

Forecast as a

Function of World

GDP 10 Year Trend

BC-17X SAM 10 Year Forecast

Forecast Figure 10

Trend Analysis of Total

Project Costs by Month

(Year 2002 Dollars) 

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

1997 1998 1999 2000 2001

$ Billions

2002

Previous Years Worldwide Projects, Inc. Data

Approximately 6% Annual Increase

Trend Analysis of Total

Project Costs by Month

(Year 2002 Dollars) 

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

1997 1998 1999 2000 2001

$ Billions

2002

Previous Years Worldwide Projects, Inc. Data

Approximately 6% Annual Increase

Forecast Figure 11
96

Disclaimer on Cover applies

Economic Prospects and the Developing Countries, a publication by The International Bank for 

Reconstruction and Development of the World Bank, indicates that cross-border trade and direct 

foreign investment in developing countries have greatly expanded over the past three decades.45

 45 The World Bank, Global Economic Prospects and the Developing Countries, 2003, p. xiv.

 

Since a significant number of large construction projects are in developing regions of the world, 

this has created, and will continue to create, many new opportunities for growth in the Project 

Market.

Gross Domestic Product-Based Forecast

In addition to providing insight into the Project Market’s past growth, the historical data survey 

also provided a way to compare the Project Market’s year-to-year performance with variations in 

global GDP and thus determine whether GDP has been a reliable indicator of the market’s past 

performance. 

Prior to analyzing the data, it is important to understand why fluctuations in the Project Market, 

and thus in the BC-17X SAM Project Market, might follow global GDP. Worldwide GDP is a 

measure of the total output of goods and services produced by labor and capital in the global 

economy, large construction projects included. Since the aggregate Project Market represents 

only one segment of the goods and services used to calculate global GDP, the two might not 

move together exactly, but it is reasonable to assume that they will move together generally. 

This argument is especially robust because of the extremely large scale and cost of project work. 

GDP is also considered to be a measure of the general health of the economy, and if the economy 

is doing well generally, it is logical that the Project Market will also be doing well (and vice 

versa). This is particularly true for the SAM Project Market because the more challenging, more 

austere projects are more likely to be undertaken when the economy is generally healthy. 

Tying global GDP to the air cargo business (the approach Boeing used in its World Air Cargo 

Forecast 2002-2003) is a generally accepted methodology for predicting growth in air cargo 

markets. Though Boeing’s forecast has decades of data collection and market experience behind 

it and the BC-17X SAM Project Market is just beginning to be defined, there are enough 

similarities between the air cargo service the BC-17X could provide and the air cargo market in 

general to justify a similar forecasting methodology. Consequently, if world GDP is a 

reasonably good predictor of the future health of the general air cargo market (as Boeing’s 

forecast concludes), and if trends in the Project Market have historically followed trends in 

global GDP (as the analysis below will reveal), it follows that the future of the BC-17X SAM 

Project Market can be linked with world GDP as well.
97

Disclaimer on Cover applies

Annual Variation in Total Project Costs

Compared to World GDP

( Project Costs in Year 2002 Dollars) 

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

1997 1998 1999 2000 2001

$ Billions

2002

Previous Years Worldwide Projects, Inc. Data

-1

-2

-3

0

4

% Annual

Real GDP

Change*

3

2

1

Annual Total Project Costs

Forecast Figure 12

GDP Data from Boeing World Air Cargo Forecast 2002 / 2003 and The World Bank

As expected, when the Project Market’s historical variations over the period 1997-2001 were 

compared with the fluctuations in GDP during the same period, it was found that the highs and 

lows generally corresponded. (See Forecast Figure 12.) The declines in 1998 and 1999 reflect a 

downturn in the Asian economy. Since a large amount of project business is in the Pacific Rim 

region, the project market is sensitive to its economic health. The reduced world GDP in 2001 

can be in part attributed to the terrorist attacks of that year because the increased sense of risk 

and lack of consumer confidence that had begun to be felt before the attacks were exacerbated by 

the events of September 11.46

With the general relationship between world GDP and the BC-17X SAM Project Market 

identified, the final step in the forecast was to research the appropriate growth rate. Boeing’s 

World Air Cargo Forecast 2002-2003 is projected through 2021 and forecasts that global GDP 

will increase at a rate of 2.9 percent annually.

 Although, clearly, there is no precise correlation between the 

highs and lows of the Project Market and the world GDP, using GDP, combined with predictions 

of modest growth in the world economy, to give a sense of direction for the BC-17X SAM 

Project Market is not unreasonable. 

47 During that same period, Boeing anticipates that 

Asia will be the fastest-growing region with an annual regional GDP growth rate of 3.2 percent. 

The World Bank GDP forecast is similar, projecting global GDP to increase by 2.5 percent in 

2003 and 3.1 percent in 2004.48 For developing nations (excluding China and India), the World 

Bank forecasts GDP growth of 4.0 percent in 2003 and 4.9 percent in 2004.49

 46 The World Bank, The Global Economic Prospects, 2003, p.16.

 As a reasonable 

compromise, our forecast used Boeing’s estimate of 2.9 percent annual GDP growth to predict 

the long-term growth of the BC-17X SAM Project Market. 

47 The Boeing Company, World Air Cargo Forecast 2002-2003, 

http://www.boeing.com/commercial/cargo/flash.html, 2002, p.12. 48 The World Bank, The Global Economic Prospects, 2003, p.3.

49 Ibid.
98

Disclaimer on Cover applies

Forecast Figure 13 illustrates what an annual BC-17X SAM Project Market growth rate of 2.9 

percent means in terms of the size of this market over the next ten years. Phase Two of the 

forecast established that the 2003 BC-17X SAM Project Market has a value of approximately 

$2.36 billion and would support a fleet of 47 aircraft. (See Forecast Figures 7 and 8.) If the BC17X SAM Project Market grows at 2.9 percent annually, by 2012 it will have a value of $3.05 

billion and will support a fleet of about 61 BC-17Xs.

 

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

$ Billions 2.36 2.43 2.50 2.57 2.65 2.72 2.80 2.88 2.97 3.05

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$s Billions

2.9% Increase in GDP

30% BC-17X in BC-17X Market Growth

BC-17X SAM Project Market Ten-Year Forecast Trend

Supports 47 BC-17Xs*

Supports

Fleet Size of

61 BC-17Xs* 

* Required annual revenue of $0.050B

BC-17X Market Entry with 10 Aircraft Phased

In From 2008 to 2011

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

$ Billions 2.36 2.43 2.50 2.57 2.65 2.72 2.80 2.88 2.97 3.05

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$s Billions

2.9% Increase in GDP

30% BC-17X in BC-17X Market Growth

BC-17X SAM Project Market Ten-Year Forecast Trend

Supports 47 BC-17Xs*

Supports

Fleet Size of

61 BC-17Xs* 

* Required annual revenue of $0.050B

BC-17X Market Entry with 10 Aircraft Phased

In From 2008 to 2011

Forecast Figure 13

The market for the BC-17X described here will not, of course, be immediately serviceable by a 

potential BC-17X operator because Boeing, due to various timing issues related to the CAMAA 

initiative, will not be able to deliver the first BC-17X until 2008 and the tenth aircraft will not be 

complete until the end of 2011.50

 50 The Boeing Company, Airlift and Tanker Division, Business Development, Fleet Plan, “Financing Assumptions,” 

4 April 2003, p. 9.

 By that time, the market can be expected to be large enough to 

support more than seventy aircraft. With too few aircraft to meet the demands of the large 

potential market, the initial BC-17X operator will have the option of expanding its fleet or 

leaving an opening for competing BC-17X operator.
Risk Reduction Report on 

the Short Austere Market

Section 4:

Additional Sources of Revenue
100

Disclaimer on Cover applies

4. Additional Sources of Revenue

Though the BC-17X SAM Project Market Forecast is the most important piece of the BC-17X 

market analysis, it is not the only piece. As indicated in Chart 3.1-4 (which was previously 

presented in Section 3.1: Overall Methodology), the total BC-17X market also includes the SAM 

Supply-Chain Market, the Special Mission Market, and the HOM. In this study, the SAM 

Supply-Chain Projects and Special Missions are described by additional case studies and 

represent additional sources of revenue for the BC-17X, but, due to the differing nature of their 

value calculations and the fact that they are not as exclusive to the BC-17X as the SAM Project 

Market, they have not yet assigned a specific numeric value in the overall market analysis. Since 

the HOM business was previously analyzed in the November 2000 CAMAA Report, the results 

are presented but described only briefly. 

Chart 3.1-4

4.1 SAM Supply-Chain Market

As noted in the initial definitions, the SAM Supply-Chain Market is the market for transporting 

heavy and/or outsize equipment and material loads to austere airfields as part of an ongoing 

logistics supply chain. 

The following two examples of potential BC-17X Supply-Chain projects were selected in the 

same way as the SAM Project Market Case Studies. (See Section 3.2.1: Case Study 

Methodology.) They were, however, analyzed differently due to the differing nature of their 

value calculations. Each SAM Supply-Chain case study contains a description of the data source 

company, a description of the mission, an outline of the present logistics, an outline of a 

proposed BC-17X logistics strategy, a conclusion, and a letter of agreement from the data source 

company.51

 51 Some of the case studies do not include letters of agreement either because of the amount of time needed to clear 

such a document through the legal departments of the data source companies or organizations or because the case 

study analysis was conducted before it was decided to request letters of agreement.

 No attempt has been made in this section to quantify the SAM Supply-Chain Market 

BC-17X Extended Market

Short Austere Market Heavy Outsize Market

Project Market Supply Chain Special Mission One-Off Charter

Oil and Gas

Pipelines

Refineries

Power Plants

Mining

Raytheon Polar

Services

Sodium Cyanide

Distribution

Aerial Firefighting

Spent Nuclear

SAM Market

Forecast

Based On

Project Market

Sudanese Aid

Fuel

Kabul Embassy
101

Disclaimer on Cover applies

in the same way as the SAM Project Market. The goal is simply to describe the market by 

showing how the BC-17X could be used in specific supply-chain projects. As with the SAM 

Project Market Case Studies, these case studies are just summaries of the complete analyses, 

which can be found in Appendix K.

4.1.1 Raytheon Polar Services’ Transport Service to Antarctica

Data Source Company

Raytheon Polar Services, headquartered in Denver, is a division of 

Raytheon Technical Services, which is itself a division of The 

Raytheon Company, a $20-billion organization with over 100,000 

employees. Specifically formed to address the logistics needs of the 

National Science Foundation’s Office of Polar Programs, Raytheon Polar Services is responsible 

for all passenger and cargo movements between the United States and Antarctica.

Mission

Raytheon Polar Services has a ten-year contract with the US government to provide all logistical 

support to Antarctica. They are also responsible for science, operations, and maintenance 

services at three Antarctic locations—McMurdo Station, Amundsen-Scott South Pole Station, 

and Palmer Station. 

The southbound Antarctic shipping season lasts roughly five months, beginning in the first half 

of October and ending in the first half of March. All southbound shipments are initially 

consolidated at Port Huemene, California. 

Present Logistics 

Raytheon Polar Service’s total transportation budget of approximately $15 million per year is 

divided between ocean and air movements. For ocean movements, they arrange one annual 

containership (500 TEU) voyage from 

Port Huemene to McMurdo Sound. The 

roundtrip voyage takes 73 days, and, 

because there is less than one month 

from the time the vessel arrives in 

McMurdo Sound to the close date for 

the shipping season, most of the cargo is 

orders for the following season. The 

ocean vessel transported 14.9 million 

pounds southbound during the 

2000/2001 shipping season and 11.7 

million pounds southbound during the 

2001/2002 shipping season.

Since there is currently no commercial 

air cargo service to Antarctica, air 

service from Christchurch, New Zealand to McMurdo Sound has been provided primarily by the 

USAF. (The cargo is consolidated at Port Huemene and moved to Christchurch either by regular 

A Raytheon study ship navigates through ice flows on the way from 

Christchurch, New Zealand to McMurdo Sound, Antarctica.
102

Disclaimer on Cover applies

commercial air service or commercial ocean service.) In general, Raytheon Polar Services 

requires about one hundred sorties per shipping season, approximately broken down as follows: 

thirty percent C-141, thirty percent L-100, thirty percent LC-100, and ten percent C-17. 

However, Raytheon Polar Services’ ability to schedule and utilize the C-17 has been limited by 

the high demand for the aircraft within the USAF. In total, aircraft moved 2.6 million pounds 

southbound and 1.3 million pounds northbound during the 2000/2001 shipping season and 3.0 

million pounds southbound and 1.4 million pounds northbound during the 2001/2002 shipping 

season. In the 2002/2003 shipping season, aircraft carried 2,675 passengers southbound and 

3,001 passengers northbound.

Proposed BC-17X Logistics

Each roundtrip BC-17X flight from 

Christchurch to McMurdo Sound would 

take approximately 11 block hours.

If BC-17X commercial service were 

available, the BC-17X would replace the 

USAF C-17 on flights from Christchurch 

to McMurdo Sound. For the past few 

years, the USAF has been providing five 

to seven C-17 flights per season, generally 

during the early part of the shipping 

season in October.

In addition, since the last of the USAF’s 

C-141 fleet will be officially retired in 2006, the BC-17X could also carry the balance of cargo 

currently transported via C-141. During the 2002/2003 shipping season, the 39 C-141 flights 

moved approximately 700,000 pounds of southbound cargo (about 47 percent of the total 

southbound cargo). This same amount of cargo could be transported on only five BC-17X 

flights. The C-141 also moves about 2,000 passengers each season (about 65 percent of the total 

passengers), but, the BC-17X has not yet been approved for passenger transport.

There is also a possibility that some of the cargo currently moving via ocean would be shifted to 

the BC-17X.

After a C-17 makes an ice landing at McMurdo Sound, preparations 

are made to drive a huge D6 Caterpillar track vehicle off the rear of the 

aircraft.
103

Disclaimer on Cover applies

Conclusion / Letter of Agreement
104

Disclaimer on Cover applies

4.1.2 Worldwide Sodium Cyanide Distribution

Data Source Company

Number seventy on the Fortune 500, DuPont is a global 

science and technology company specializing in highperformance materials, specialty chemicals, pharmaceuticals, 

and biotechnology. With operations in more than seventy countries and about 79,000 

employees, DuPont earned $24 billion in revenues in 2002. DuPont Chemical Solutions is a 

segment of DuPont Safety and Protection, the organizational division focusing on specialty and 

industrial chemicals, nonwovens, aramids, and solid surfaces.

Mission

DuPont Chemical Solutions is the world’s largest producer of sodium 

cyanide, a chemical that can leach gold from unrefined ore. 

Traditionally, gold ore must be shipped from the mine to a processing 

plant to be purified, but the sodium-cyanide leaching process allows 

the ore to be purified at the mine site. 

The business’s customers are mining companies with gold mines 

throughout the world. Most of the mining sites (where the leaching 

process takes place) are in remote area with very limited access. They 

are generally not near large cities, seaports, or major airports.

Getting the sodium cyanide to the remote mine sites presents a 

logistics challenge for DuPont. The problem is further complicated by 

the hazardous nature of the product. Furthermore, because of the 

worldwide threat of terrorism, the security of this product has become 

a high priority. The present logistics supply chain puts the product at 

risk because it involves many stages of transport and multiple transfers 

between different modes of transportation.

Present Logistics

The sodium cyanide produced for the mining companies is in the form of pellet briquettes that 

are shipped in special sealed containers called FLO-BINS. The current distribution strategy is to 

move the product in twenty-foot ocean containers by truck and rail from the manufacturing plant 

in Memphis, TN to seaports in New Orleans, Charleston, Los Angeles, Oakland, and Seattle. 

The product then travels in via ocean to various destination seaports and via rail, truck, or barge 

to the austere inland mine sites. 

If the price of gold increases steeply in a short period of time, the demand for sodium cyanide 

increases rapidly as well. In the past, such sudden increases in demand have required DuPont to 

transport the product to the mine sites via air. 

This plant in Kwinana, 

Australia is designed to convert 

liquid sodium cyanide to a solid 

form for distribution to remote 

consumers.
105

Disclaimer on Cover applies

The product is sold FOB Memphis, and, even though DuPont technically pays the transportation 

companies, it rebills all the transportation expenses (including security and the costs of the 

nonreturnable FLO-BINS and ocean containers) to the purchaser.

DuPont estimates that it ships approximately 30 kilo tons (66.2 million pounds) of sodium 

cyanide in 1,209 twenty-foot containers from its plant each year, or about five containers per 

day. The volume of sodium cyanide shipped to each mine ranges from 500 tons (1.1 million 

pounds or twenty containers) to 10,000 tons (22.0 million pounds or 480 containers) per year.

Proposed BC-17X Logistics

With a maximum payload of 170,000 pounds, the BC-17X could carry three twenty-foot 

containers and five loose FLO-BINS of sodium cyanide per trip. This equates to a net sodium 

cyanide payload of 143,299 pounds per BC-17X flight. Since the present IATA regulations for 

restricted articles on cargo aircraft only allow ten pounds of hazardous material per container 

(but an unlimited amount per aircraft), a BC-17X operator would have to file an exemption to 

move the twenty-foot containers and FLO-BINS. It would probably be possible to obtain the 

exemption because of the unlikelihood that the sealed containers would leak. When an entire 

twenty-foot container fell off a ship at sea, there were no reports of contamination.

As a representative example of moving one BC-17X payload’s worth of sodium cyanide from 

Memphis to an inland Uzbekistan mine site, a model was created in which the BC-17X would 

have replaced just the portion of the logistics chain from the destination seaport (in this case, 

Naples) to the mine site. For an additional $1.72 per pound of sodium cyanide ($2.22 per pound 

versus $0.50 per pound), the combination ocean/BC-17X logistics system could have delivered 

the 143,299 pounds of sodium cyanide to the mine site 49 days faster than the present logistics 

system.

The BC-17X could also be incorporated into a more comprehensive gold mine supply plan. For 

example, in the Wabu Gold Mine case study (Section 3.2.3.3), the BC-17X logistics system 

reduces the total construction time by approximately two years, generating accelerated revenue 

for the mining company and allowing it to take better advantage of the gold price cycle. It is 

possible that the BC-17X could also be used throughout the life of the mine to bring in sodium 

cyanide and other consumables and to bring out processed gold and equipment in need to repairs. 

Conclusion

Despite the present logistics system’s high cost of security, it is still vulnerable to terrorist 

activity because it involves many stages of transport and requires multiple transfers between 

different modes of transportation. By reducing the total transit time and eliminating many of the 

transfers, the combination ocean/BC-17X logistics system would result in faster, more secure

delivery of the sodium cyanide to the mine sites. This in turn would allow the gold-mining 

companies to generate revenue faster and react more quickly to the changing price of gold 

(particularly in the case of a sharp, rapid price increase). In addition, while shipping the sodium 

cyanide via ocean may still be the least costly method of transporting this low-priced 

commodity, the last leg of transit from the seaport into the austere mine site may be best 

accomplished via air, and the BC-17X is the only aircraft that can fly such heavy loads into such 

austere airstrips.
106

Disclaimer on Cover applies

Letter of Agreement

While the DuPont representative concludes that a BC-17X operation would be too costly for 

DuPont to operate independently, he does support the idea of being able to offer a high-security 

option to clients and the possibility of partnering with a mining company. Moreover, he strongly 

supports bringing the BC-17X to the commercial marketplace. 
107

Disclaimer on Cover applies

4.2 Special Mission Market

The next subcategory of the BC-17X market is the Special Mission Market, the market for 

transporting heavy and/or outsize equipment and material loads that emerges as a result of 

humanitarian concerns, environmental regulations, national security needs, or international law. 

Economic benefits, while they may exist, are secondary rationales for using the BC-17X. The 

missions in this market may or may not include an austere airfield component.

The methodology of the following Special Mission Market examples is the same as that of the 

SAM Supply-Chain Market examples. (See Section 4.1: SAM Supply-Chain Market.) The 

format of the Special Mission Market Case Studies is similar to that of the SAM Supply-Chain 

examples. Again, we are not trying to quantify the SAM Special Mission Market in the same 

way as we did the SAM Project Market because the primary value of the BC-17X in these cases 

is not monetary. We are simply presenting some examples of the kinds of special missions for 

which the BC-17X would be appropriate. The full analyses for most of the following case 

studies can be found in Appendix L.

4.2.1 Aerial Firefighting

Data Source Organizations

The United States Forest Service (USFS) and the Bureau of Land 

Management (BLS) are the primary US government fire-suppression 

agencies, and they receive the bulk of the federal wildfire suppression and 

preparedness budget—$1.5 billion in 2003. They also contribute the 

majority of the equipment, personnel, and technologies used to fight large 

fires. The Federal Emergency Management Agency (FEMA) helps to 

manage and coordinate firefighting activities as well.

Mission

Since 1991, an average of 101,000 

wildfires has destroyed over 4 million 

acres of wildland and property in the 

United States each year. Although the 

number of wildfires per year has 

decreased, the severity of the fires has 

increased, thanks to a combination of 

more frequent droughts, a buildup of fuels, 

and the growth of the Wildland Urban 

Interface (WUI) over the past ten years. 

The WUI, defined as the border between 

rural and residential areas, has grown over 

the past several years and exposed more 

wildlife, people, and property to risk from 

wildfires. If wildfires continue to become more severe, the losses per acre, the number of human 

and animal casualties, and the costs of putting out fires are likely to increase.

During the last ten years, the number of wildfires in the United States 

has decreased, but their severity has increased significantly.
108

Disclaimer on Cover applies

Graph 4.2.1

The two most devastating fire seasons in the past 50 years were in 2000, when over 8 million 

acres were lost, and in 2002, when 7 million acres were destroyed. The losses resulting from 

those fires are estimated to have been in excess of $2.7 billion per year. On a per-acre basis, 

North America leads the world in value lost from wildfires. 

Aerial suppression of wildfires is largely carried out by the airtanker52

 In the beginning of 2002 there were 41 aircraft deployed under contract with either the USFS or 

the BLM at airtanker bases in the United States. The average age of the fleet was 45 years, and 

the average airtanker capacity was 2,570 gallons of retardant. Two fatal accidents in the summer 

of 2002 (involving an L-100A and a PB4Y) reduced the number to 39. Since 1992, there have 

been seven airtanker accidents resulting in 15 deaths,

fleet of the US Forest 

Service, which supports ground efforts to contain wildfires. By dropping fire retardant to create 

fire lines, the planes help prevent the fires from spreading. However, the growing severity of 

many of the fires is increasing the average number of annual airtanker sorties. With the current 

fleet’s tack capacity limitations, direct operating costs are increasing as well. 

Present Logistics

53 and over the past fifteen years, the 

airtanker fleet has averaged 14.32 accidents per 100,000 flight hours.54

In response to these accidents, the USFS permanently grounded 9 contract airtankers, five L100As and four PB4Y-2s, at a cost of $1.2 million. The USFS Office of Fire and Aviation 

Management also formed a Blue Ribbon Panel to review the agency’s aerial program. The 

 

 52 Airtankers are fixed-wing, twin-turboprop aircraft that have a retardant capacity of between 2,000 and 3,000 

gallons.

53 “Forest Service Planes Under Scrutiny,” The Associated Press, 7 October 2002. 54 US Department of Agriculture, USDA Aviation Safety Summary, 2001.
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109

Panel’s report, published in December 2002, concluded that the current aerial firefighting fleet is 

“unsustainable,”55 as “all large air tankers are experiencing rapid structural aging accentuated by 

routine overloading.”56 According to K. Dale Roberts, an FAA Structures Designated 

Engineering Representative, “Currently, no engineering basis exists to assume the existing [large 

airtanker] fleet is safe to fly today, much less in years to come.”57

The current USFS airtanker fleet cannot continue to operate in its present state, and BC-17Xs, 

fitted with appropriate tanking systems, would be more than adequate replacements. The BC17X can carry approximately 17,000 gallons of retardant, far more than the current fleet average 

of 2,570, and travel at average speeds to the drop 

zone of between 250 and 450 knots, depending on 

the altitude and the distance to the fire. 

Benchmarked against the L-100, P-3, IL-76, AN124, and MD-11F using key fire-suppression 

criteria,

 

According to the Blue Ribbon Panel’s report, the only way to salvage the present fleet would be 

to conduct a comprehensive inspection and repair program. However, the inspection program 

would cost between $400,000 and $600,000 per aircraft type, the repairs would cost an unknown 

sum per aircraft, and there would be no guarantee that the fleet could continue to operate.

Proposed BC-17X Logistics

58 the BC-17X outperformed all other

platforms. Furthermore, a simulator session 

conducted in June 2002 to test the BC-17X’s 

performance while dropping retardant given 

various mission profiles and types of terrain 

produced very positive results. 

The BC-17X was operationally modeled to 

support firefighting for a 61-day period in July 

and August, the peak of the fire season in the United States when 57 percent of all fires occur. 

The estimated aircraft utilization was one BC-17X at three to four block hours per day, and the 

financial viability portion of the model indicated that, with reasonable cost and pricing inputs, 

such an operation could be both immediately profitable and economically sustained in the long 

run (with an internal rate of return of 47 percent by the seventh year of operations). 

Conclusion

Recent airtanker crashes have brought into question the ability of the current USAF aerial 

firefighting fleet to engage in safe, effective fire suppression, and the Blue Ribbon Panel’s report 

has declared that “all large airtankers are now at risk of catastrophic in-flight structural failure.”59

 55 Blue Ribbon Panel, Federal Aerial Firefighting: Assessing Safety and Effectiveness: Blue Ribbon Panel Report to 

the Chief, USDA Forest Service and Director, USDI Bureau of Land Management, December 2002, p.11.

56 Ibid, p. 15. 57 Ibid. 58 The criteria were each aircraft’s payload, speed, attack radius, drop performance, and required runway length. 

59 Blue Ribbon Panel, Federal Aerial Firefighting: Assessing Safety and Effectiveness: Blue Ribbon Panel Report to 

the Chief, USDA Forest Service and Director, USDI Bureau of Land Management, December 2002, p.16.

 

The BC-17X would provide a reliable alternative to the USFS’s aging airtanker fleet. 

A Blue Ribbon Panel was assigned to review U.S. Forest 

Service’s current aerial program. The panel’s report 

indicated that the current aerial firefighting fleet is 

unsustainable because it is rapidly aging and experiencing 

structural damage accentuated by routine overloading.
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The cost of the aircraft would be approximately $3.16 per gallon of retardant discharged, a slight 

premium over existing platforms ($2.28 for the L-100). However, the value of land saved from 

wildfires using BC-17Xs as substitutes for the current fleet is estimated to be between $50 

million and $100 million annually, depending on the utilization strategy. These land savings, 

along with the safety and reliability of the aircraft and the several million dollars in cost savings 

from not having to ground and repair the present fleet, provide ample reason for converting the 

unsustainable USFS airtanker fleet to BC-17Xs. 
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4.2.2 Spent Nuclear Fuel Transportation

Mission

The US nuclear electric power industry has built up the world’s largest inventory of spent 

nuclear fuel. Currently, there are approximately 43,000 metric tons of spent nuclear fuel being 

stored at approximately 73 facilities in 33 states, and this quantity is growing by about 2,000 

metric tons per year. 

In 1982, Congress passed the Nuclear Waste Policy Act, which, along 

with its subsequent amendments, mandated the development of an interim 

storage facility, a permanent storage repository, and a transportation 

system that safely links the nuclear power plants to the storage facilities. 

To date, over $18 billion in fees have been collected from the nuclear 

power industry to fund these developments (approximately $8 billion of 

which has been spent).

Approximately 85 percent of the US’s spent nuclear fuel is stored in facilities east of the 

Mississippi River. In order increase the geographic dispersion of the hazardous material, a 

permanent federal spent-fuel repository is proposed for Yucca Mountain in Nevada. The US 

Department of Transportation has been working with the Nuclear Regulatory Commission to 

ensure the qualified, secure, and cost-effective transportation of radioactive material to Yucca 

Mountain.

Present Logistics

On March 27, 2003, the Nuclear Regulatory Commission’s Advisory Committee on Nuclear 

Waste met to discuss Yucca Mountain transportation options. The committee members’ primary 

concerns were safety and cost, and they analyzed both trucking and train transportation in terms 

of each factor.

According to the committee, trucking would be the most cost-effective method of transporting 

the nuclear fuel. However, they were concerned about both the number of trucks required to 

move the large volume of material and the 

fact that the trucks would have to traverse 

heavily populated areas on the national 

highway system. Trains would be more 

expensive than trucks (because the trains 

would have to be dedicated only to spent 

nuclear fuel and could not carry mixed loads), 

and, while they would still have to move 

through densely populated areas on the 

existing national rail system, the percentage of 

the population that might be at risk of 

exposure to radiation in the event of an 

accident was somewhat smaller. The 

committee therefore found trains to be the 

The Nuclear Regulatory Commission is currently examining the 

safety and cost of different methods of transporting hazardous 

spent nuclear fuel to the proposed repository at Yucca Mountain 

in Nevada.
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more desirable mode of transportation for spent nuclear fuel. 

Proposed BC-17X Logistics

BC-17X air transportation offers several possible 

advantages over surface transportation. Most 

importantly, air transportation is, historically, the safest 

mode of transportation and would significantly reduce 

the risk of accidents en route. In addition, the BC17X’s large payload capacity could reduce the number 

of required trips, there are existing military airfields 

extremely close to Yucca Mountain that could 

accommodate the aircraft, the flight routes could be 

adjusted to bypass heavily populated areas, the short 

transit time would minimize public exposure to 

radiation, and since fewer individuals and less time would be involved in the transport of 

radioactive materials the risk of hijacking or sabotage would also be reduced. 

Conclusion

Rodger Comstock, an expert on nuclear safety who reviewed the findings of the Nuclear 

Regulatory Commission’s Advisory Committee on Nuclear Waste for the Council of Logistics 

Research, devised the following formula to calculate the public cost of each possible mode of 

transportation for the nation’s stock of spent nuclear fuel: Public Cost = Cost x Time in Transit x 

Population Exposed en Route. He concluded that, while trains are safer than trucks, air 

transportation is approximately one thousand times safer than either mode of surface 

transportation. 
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4.2.3 Kabul Embassy Project

Data Source Company

Exel Global Logistics, Inc., based in Houston, 

TX, is a global leader in supply-chain 

management, providing a wide range of logistics 

solutions to the manufacturing and retail 

industries. Exel operates in more than 120 

countries, employs about 67,000 people in 1,600 

locations, and had a 2002 turnover of 

approximately $7 billion.

Mission

The United States Embassy in Kabul, 

Afghanistan’s capital, has been empty since 

1989, when the civil war that followed the 

USSR’s agreement to withdraw from 

Afghanistan caused most foreign diplomats to 

leave the country. During the war, the US 

Embassy buildings were hit by rocket fire and 

looted, and one of the Embassy annexes was 

burned. Only after the Taliban government, 

which by 1996 controlled 90 percent of the 

country, was removed by allied forces in 

October 2001 was it considered safe to begin 

rebuilding the Embassy and re-establishing 

the US presence in Afghanistan.

The Embassy project is a $115 million 

contract to restore, rebuild, and update the 

existing Embassy facilities in Kabul, focusing 

mostly on the main three-story building. The 

two-year-plus project has been awarded to a 

confidential engineering, procurement, and construction company, and fieldwork is expected to 

commence in the summer of 2003. Exel Global Logistics was asked to bid on the forwarding 

services to move construction and refurbishment materials from the United States and a few 

foreign locations to the Embassy jobsite in Kabul.

It is estimated that over 2,000 twenty-foot ocean containers of freight will have to be moved 

from the US to the Embassy jobsite. Approximately 400 of the containers are expected to be 

classified as “Controlled Access Products” and will require specific security procedures. There 

will also be a number of pieces of rolling stock to be moved, such as cars, trucks, buses, and 

some construction equipment.

Kabul is located in east central Afghanistan at an elevation of 5900 

feet, making it one of the highest capital cities in the world.
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Present Logistics

About thirty percent of the material is expedited material that will require air shipment directly 

from Dulles International Airport in Washington, D.C. to Kabul. As there is virtually no 

commercial air service into Kabul at this time, all airfreight is expected to be moved by air 

charters (most likely AN-124s because of their ability to handle a large number of ocean 

containers per flight). Other airfreight that does not need to go directly to Kabul will be flown 

commercially into Karachi, Pakistan and transported to Kabul by truck. The exact mix of air 

charter and commercial airfreight is not known at this time. All ocean freight will move from its 

point of origin (mostly Port Baltimore) to the seaport in Karachi, and then to the jobsite in Kabul 

by truck. 

It is estimated that there will be over thirty million pounds of ocean freight (1,600 twenty-foot 

containers plus rolling stock) and eight million pounds of airfreight. The total transportation cost 

is estimated at $10 to $14 million, depending on the mix of air charters and commercial 

freighters. 

Proposed BC-17X Logistics

Under the Fly America Act, an American BC17X operator should have preference over a nonUS AN-124 operator on government projects; 

thus the BC-17X could replace the AN-124 in the 

overall logistics plan. It is estimated that it would 

take approximately 35 AN-124 charter flights to 

move the eight million pounds of airfreight. 

While it would take about 47 BC-17X flights to 

carry the same eight million pounds of freight, the 

USAF could use the return flights to haul freight 

and/or passengers back to the US. The AN-124 is 

not permitted to haul US equipment on return 

flights from Afghanistan to the US. 

Additionally, the security of the Controlled Access Products freight is extremely important and 

must be given every consideration. Using the BC-17X would allow the US to have total control 

of this freight throughout the entire logistics process.

Conclusion

The current program to rebuild the US Embassy in Kabul will be extremely difficult to carry out 

because of the complexity of moving equipment and materials into the region and the need to 

protect them during the construction process. While the BC-17X cannot carry quite as much 

freight per flight as the AN-124 and would be somewhat more expensive, it would offer several 

advantages, including compliance with the Fly America Act, the ability to carry US military 

equipment and personnel on return flights, and a high degree of security and reliability for the 

confidential air shipments. 

The U.S. embassy in Kabul has been abandoned since 1989 

but will now be rebuilt and restored.
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Letter of Agreement
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4.2.4 Humanitarian Relief to the Sudan

Data Source Organization

Set up in 1963, the World Food Programme (WFP) 

is the United Nations’ front-line agency in the fight 

against global hunger, providing food and other 

humanitarian aid to regions of famine throughout the world. In 2001, the WFP sent $1.74 billion 

in food aid to 77 million people in 82 countries, delivering 4.2 million metric tons of food by sea, 

air, river, road, and rail. The WFP has a staff of approximately 2,600, most of whom are field 

workers, and about 600 people work at the organization’s headquarters in Rome. Funded 

entirely by voluntary contributions of cash, food, and basic items needed to grow food, the WFP 

has the largest budget of any major UN agency. US government and private sources contribute 

about 73 percent of its total annual budget.

Project

The Sudan is the largest country in Africa, slightly 

more than one-quarter the size of the United States, 

and home to over 34 million people. Even in good 

years there are inadequate supplies of potable water, 

and agriculture is threatened by both soil erosion 

and desertification. Three years of recurrent 

drought have exacerbated the problem. 

Two decades of civil war have also crippled the 

country’s economy, leaving 2.9 million Sudanese 

dependent on food aid for survival. According to 

Kenneth Hackett, executive director of Catholic 

Relief Services, one of the largest relief 

organizations in the world, “What we see now in 

Africa is a looming food crisis of great 

proportions.”60

Another important factor in Sudan, as in many other 

war-devastated regions, is the large number of land mines scattered throughout the countryside. 

This poses a problem for adequate food distribution, since allowing large numbers of the starving 

population to travel on foot to major distribution centers would result in numerous deaths; 

instead, the food must be brought directly to the needy villages.

The WFP’s relief operation in the Sudan was selected as the main focus of this case study 

because the problems there have been ongoing for many years, the region needs large volumes of 

food aid, and air drops from distribution centers in the main cities to outlying areas are predicted 

 60 “Relief Agencies Unite to Warn of Disastrous Africa Food Shortage; Organizations Plead for Nations to Provide 

Assistance for Millions,” The Baltimore Sun, 4 December 2002, p. 14A.

Drought and Civil War have brought widespread 

starvation to Sudan, the largest country in Africa.
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to continue indefinitely. Food aid to the Sudan typically consists of grain, maize, sorghum, 

disaster supplies, and other equipment.

Another type of WFP project in which the BC-17X may be of use is emergency disaster relief, 

which occurs in two stages. First, the WFP provides immediate, first-response assistance, 

including food, tents, medical aid, and generators, to areas pummeled by earthquakes, floods, 

hurricanes, and the like. Once the initial relief supplies have been sent in, the WFP continues to 

provide aid during the rebuilding process. 

Present Logistics 

The Sudan has about 5,500 kilometers of railways 

and 12,000 kilometers of roads, less than 5,000 

kilometers of which are paved. The majority of the 

roads are simply dirt tracks impassable after heavy 

rains, and it is this lack of reliable ground 

infrastructure that drives the need to airdrop food. 

Grain destined for the Sudan initially travels by 

ship to Port Sudan on the Red Sea and to 

Mombassa in neighboring Kenya. The bags of 

grain then travel by truck to air distribution centers 

in Khartoum and El Obeid in the Sudan and Nairobi 

and Lokichokkio in Kenya. Food supplies are 

airlifted or airdropped from these distribution 

centers directly to individual villages and needy 

areas. 

Emergency disaster-relief materials are warehoused 

in Brindisi and flown directly to areas of need. 

Immediate first-response provisions generally 

require 30 to 50 flights per year, while recurring emergency relief to places like Afghanistan, 

Bosnia, and Rwanda can take up to 200 flights per year.

To support its various operations, the WFP maintains a leased, aging airfleet made up of L-100s, 

IL-76s, and AN-12 that is frequently delayed by maintenance problems. In the long term, at 

least part of the present fleet will have to be replaced.

BC-17X Logistics Plan

At the very least, the BC-17X could replace the IL-76s and L-100s in the Sudanese supply chain, 

and it may be possible for it to replace the AN-12s as well. While the BC-17X costs more per 

metric ton than the IL-76, it is approximately equivalent in cost to the L-100, and it can carry 

significantly more weight than both. With its short, austere airfield capability, the BC-17X could 

create additional value by flying directly from Mombassa to the various drop sites, eliminating 

the need for trucking. The BC-17X could also be used for emergency disaster relief during 

downtime from scheduled projects. 

Sudanese men unload bags of maize from a World Food 

Programme humanitarian airdrop.
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Realistically, the WFP would probably not have the resources to operate a BC-17X on its own, 

but might be able to do so on a part-time basis. For example, if a BC-17X was being used on a 

large construction project near a relief site (such as the Chad-Cameroon Petroleum Development 

and Pipeline Project described in Section 3.2.3.10), the WFP could rent space on the plane, or 

entire flights during the project’s air cargo downtime. Operating the aircraft in this way would 

greatly reduce the cost to the WFP. 

Conclusion

Since the BC-17X can carry 2.2 times the weight of the IL-76 and 4.1 times the weight of the L100, having the aircraft available would give the World Food Programme a number of options: it 

could deliver more food to the same locations, it could deliver the same amount of food to more 

locations, or it could deliver the same amount of food to the same locations in less time than the 

present supply chain. Considering the rampant famine in the Sudan, this would have some value 

in terms of human life that would offset the higher cost of the BC-17X.

Since cost is a much less important issue for the WFP’s emergency disaster relief than it is for 

recurring grain distribution, the WFP believes there is a definite place for the BC-17X’s large 

payload and austere landing capabilities in emergency humanitarian operations. 

4.3 Heavy Outsize Market

The final segment of the BC-17X Extended Market is the Heavy Outsize Market (HOM), the 

market for transporting individual cargo pieces that are too heavy for and/or too large to fit on 

conventional commercial wide-body passenger/cargo aircraft. While the BC-17X is more 

expensive than the similarly outsize-capable AN-124, a BC-17X operator could reasonably 

expect to capture some portion of the HOM currently being serviced by the aircraft. For 

example, the Fly America Act and US cabotage regulations would require potential US 

customers to favor an American BC-17X operator over a non-US AN-124 operator when moving 

cargo originating in the United States or paid for by the US government. The BC-17X would 

also carry some of the freight presently moving on military C-17s because, while the US 

government can carry commercial freight if no commercial carrier is capable of moving it, the 

US government is prohibited from competing for commercial cargo with a commercial carrier. 

The November 2000 CAMAA Report analyzed the BC-17X’s potential in the HOM, 

concentrating mostly on one-off charters, and concluded that the 2003 BC-17X HOM would 

support approximately four aircraft. By 2012, the HOM could have the potential to support as 

many as ten BC-17Xs. 61

 61 The number of BC-17Xs potentially supported by the HOM is lower than the number reported in the November 

2000 CAMAA Report because duplicate SAM business was removed. These numbers were derived from Phase I 

Tables A-13 (Utilization Rates and Aircraft Demand) and A-14 (Revenue Forecast). 

 The combined SAM Project Market and HOM has the potential to 

support 51 BC-17Xs in 2003 and 71 BC-17Xs by 2012. Upward adjustments of the total 

supportable fleet size may be made as the Special Mission Market and the SAM Supply-Chain 

Market become more defined.
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Risk Reduction Report on 

the Short Austere Market

Section 5:

Implementation Issues for a

Prospective BC-17X Operator
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5. Implementation Issues for a Prospective BC-17X Operator

5.1 Summary of the Possible Financial Return of a Ten-Aircraft Fleet 

To provide an example of the kind of financial return a potential BC-17X operator could expect, 

Boeing conducted a detailed financial analysis for the Council for Logistics Research using data 

from fifteen of the SAM case studies and estimates of complementary HOM business.62 More 

specifically, Boeing computed the number of aircraft days required to support the fifteen case 

studies, selected logical and convenient hubs for the aircraft operations, and developed a fleet 

plan that filled the hours available beyond the SAM projects with HOM missions.63

Assuming a ten-aircraft fleet and an aircraft price of $140 million,

 This assured 

a reasonable utilization of each aircraft that optimized its profit potential. The analysis did not 

include US government business.

64

5.2 Risk

the financial analysis 

generated an Internal Rate of Return (IRR) on the before-financing cash flow of 18.3 percent and 

an after-financing cash flow, or a Return on Equity (ROE), of 32.9 percent. Since the generated 

IRR on the before-financing cash flow exceeds the CAMAA target of fifteen percent, there may 

be room for flexibility on the assumed aircraft price. The analysis concluded that SAM projects 

are thirty percent more profitable than HOM missions and that a SAM-based BC-17X operator 

could be very profitable. More details on the financial analysis can be found in Appendix M. 

In any new business venture there are a variety of risks that must be understood and managed. 

Aside from the general risks associated with creating and entering a new market (which are 

mitigated by detailed analyses like the studies described in this report), the most substantive risks 

for a prospective BC-17X operator are CAMAA risks, economic risks, geopolitical risks, and 

competitive aircraft risks. While the risks associated with the larger CAMAA project, such as 

certification issues and keeping the BC-17X production line operational, are outside the scope of 

this report, it is appropriate to discuss the other three categories of risk in greater detail.65

 62 Sodium Cyanide Distribution and Humanitarian Aid to the Sudan were excluded because these case studies had 

not yet been completed at the time the financial analysis was conducted.

63 The analysis assumed that all fifteen case studies were concurrently operational. While the actual case studies do 

not take place at the same time, this is a reasonable assumption because of the substantial size of the SAM Project 

Market identified in the market forecast. There is enough potential business to assume that a BC-17X operator 

could locate fifteen similar but operationally concurrent projects at any given time.

64 The assumption of a ten-aircraft fleet is based on the expected Boeing delivery schedule outlined in Section 

3.3.2.3: Phase Three: Calculating a Ten-year BC-17X SAM Project Market Forecast. A CAMAA committee 

selected the price of $140 million per BC-17X as a starting point for the financial analysis. This price yields an 

above-average industry IRR of 18.3 percent on the before-financing cash flow and includes maintenance as outlined 

in Boeing’s Maintenance Support Agreement. 

65 Some of the issues involved in FAA certification of the BC-17X are described in footnote twelve. 
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5.2.1 Economic Risks

Since the individual construction projects that make up the SAM Project Market, the largest 

component of the BC-17X Extended Market, require considerable upfront capital investment, the 

health of the world economy is a critical factor in gauging the economic risks of a BC-17X 

operation. As noted in the SAM Project Market Forecast (Section 3.3.2.3), the global GDP, a 

measure of the health of the world economy, is strong and predicted to increase. Moreover, the 

GDP in developing countries, where most SAM Projects are located, is even stronger and 

predicted to increase even faster. 

It is important to recognize, however, that the SAM Project Market is heavily weighted in the 

energy sector—of the 289 projects identified as BC-17X-eligible, 70 percent are in the that 

sector. The more germane issue, therefore, is the health of the energy sector. While a drastic 

reduction in oil and gas development projects would negatively affect the BC-17X market 

potential, such a situation is very unlikely. 

Most current projections predict that the oil and gas development, pipeline, and refinery 

industries will continue to grow and that the global demand for petroleum products will not abate 

within the next twenty years. For example, the European Union’s continuing concern over 

securing adequate oil and gas supplies stems from an understanding that their demand for these 

products is rising (the European transportation sector is particularly voracious in its petroleum 

consumption) while their internal production is declining.66 The developed world’s everincreasing demand for oil and gas is driving new exploration of untapped reserves in remote 

locations in the former Soviet Union, in the Middle East, and around the world.67

5.2.2 Geopolitical Risks

 Moreover, as 

developing countries in Asia, Sub-Saharan Africa, the former Soviet Union, and the Americas 

continue to grow, their own demand for energy will increase. Thus, while the health of the 

energy sector may fluctuate temporarily, overall it is quite secure for at least the next several 

decades. 

There are two ways in which the risk of geopolitical unrest is relevant to a prospective BC-17X 

operator: first, it could hurt the SAM Project Market and, second, it could limit the number of 

countries the BC-17X operator could safely service. 

In the past, regional military clashes and political unrest have curtailed investment in the start or 

continuation of large construction projects. For example, the past twenty years of geopolitical 

turbulence in the Middle East have resulted in periodic fluctuations in the regional exploration 

and production of oil and gas. However, since demand has not declined, the general trend in the 

Middle Eastern petroleum industry has still been growth. Furthermore, the resulting inclination, 

 66 ETAP Programme, "Assessment of internal and external gas supply options projects for the EU, evaluation of 

the supply costs of new natural gas supply projects to the EU and an investigation of related financial 

requirements and tools," http://europa.eu.int/comm/energy. 67 Green Paper-Towards a European Strategy for the Security of Energy Supply, European Union Technical 

Document, November 2000, p. 5.
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at least on the part of the United States, to reduce dependence on Middle Eastern petroleum has 

driven the development of increasingly austere petroleum reserves, such as those in the Russian 

Federation and Alaska, that are even more likely to benefit from the BC-17X. 

The second issue is that a BC-17X operator may be reluctant to provide air cargo service to 

hostile environments. Generally, this should not be a problem because when one region becomes 

inhospitable to western commerce other regions tend to take up the slack, and very few places in 

world have been inaccessible for long periods of time. (North Korea and Myanmar are the most 

notable exceptions.) Additionally, because of their substantial size, cost, and benefits, most 

SAM Project Market construction projects have the support of the national governments in the 

areas where they are located.

Both types of geopolitical risk are mitigated by the wide dispersion of SAM Project Market 

project sites. (See Map 5.2.2, in which each dot is a BC-17X-eligible project.) Though most oil 

and gas projects are located in Asia and the Middle East, mining and infrastructure projects are 

distributed throughout the southern hemisphere. Therefore, if political crises, hostilities, or other 

geopolitical problems arise in one region, there will be projects ongoing or soon to be started in a 

number of other regions. 

Map 5.2.2

The BC-17X’s ability to exploit austere environments increases the number of locations where 

project work is possible by opening up project sites that were previously inaccessible or 

prohibitively expensive to develop. If the United States is actively involved in quelling 

hostilities in areas where there is unrest, the BC-17X operator’s participation in the Civil Reserve 

Air Fleet will generate additional business. Once the conflict has ended, the BC-17X operator 

may benefit from infrastructure rebuilding projects.
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5.2.3 Competitive Aircraft Risks

There is always the risk that a competitive aircraft will be created in the future (although none 

are currently being developed with the possible exception of the A-400), but a prospective BC17X operator faces little competitive risk from existing aircraft. The BC-17X operator’s primary 

source of revenue, the SAM, can only be serviced by the BC-17X. For example, the BC-17X’s 

two closest competitors are the outsize-capable AN-124, which cannot access short, austere 

airfields, and the austere-airfield-capable L-100, which cannot carry the outsize freight, volume 

of cargo, or tonnage required to make air shipment profitable for most austere projects. It is, 

however, worthwhile to compare each of these competitors to the BC-17X in order to understand 

the dynamics of their markets and to anticipate and prepare for a possible competitive response.

AN-124

Since the AN-124’s market and capabilities were analyzed in depth for the November 2002 

CAMAA Report, they will be described here only briefly. In terms of its technical

specifications, the AN-124 has a larger maximum payload than the BC-17X (220,000 pounds 

versus 170,000 pounds), but requires a substantially larger airfield (8,200 feet long and 164 feet 

wide versus 4,000 feet long by 90 feet wide). The top three AN-124 carriers are Volga-Dnepr 

(with a 69 percent US market share), Antonov (with a 29 percent US market share), and Polyot 

(with only a 2 US percent market share), and they operate a combined total of 23 aircraft, only 

thirteen of which are currently airworthy. In 2002, the organizations that purchased the most US 

AN-124 charters were the US Department of Defense, SDV, and Lockheed. As can be expected 

with such a customer base, the US cargo carried by AN-124s in 2002 consisted mostly of 

satellite, oil, military, and aircraft equipment. Globally, AN-124 business is divided roughly 

equally among ad-hoc flights, emergency Project Market flights, and commodity flights. 

Aircraft availability and price are considered to be the two most important decision factors for 

customers selecting an outsize air cargo carrier.

The demand for the AN-124 has fluctuated with the larger economy but has generally remained 

stable. AN-124s have consistently flown between 170 and 270 US charter flights per year since 

1994, and Alexey Isakin, Chairman of the Board at Volga-Dnepr, estimates the value of the 

current global outsize air cargo market to be approximately $270 million per year.68 2002 was a 

record year for the AN-124; Volga-Dnepr, for example, doubled its tonnage and revenue in the 

first six months of the year, lifting over 24,000 tons at a cost of more than $80 million. Much of 

the increase was in humanitarian aid flights to Afghanistan. In 2003, Graham Pierce, Senior 

Vice-President of Commercial Accounts for Air Foyle HeavyLift (another AN-124 charter 

operation), told International Freighting Weekly that, with demand still strong in Afghanistan, “it 

was difficult to find enough specialist outsize aircraft to fulfill requests for cargo” in Iraq.69

The AN-124 is a relatively inexpensive aircraft, costing only about $8,000 per block hour 

compared to $20,000 per block hour for the BC-17X, and, as such, it is likely to capture the 

majority of the HOM that does not fall under the Fly America Act. (The specific amount of the 

HOM that the BC-17X could expect to service is detailed in Section 4.3: Heavy Outsize Market.) 

 68 Tom Zaitsev, “First Ten Months Show Extent of Volga-Dnepr Revival,” 22 November 2002. 69 Will Waters, “Baghdad Skies Ready to Open Up for Cargo,” IFW, 5 May 2003.
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Its strong HOM position, however, bodes well for a prospective BC-17X operator because it 

demonstrates that there is an ongoing demand for outsize air cargo services, making it all the 

more reasonable that there would be a long-term demand for outsize air cargo services into 

austere airfields. In addition, the SAM and HOM could have synergistic effects because 

expanding outsize air cargo capabilities in general should increase the overall demand for outsize 

cargo in both markets.

L-10070

5.3 Stabilizing Factors

The L-100 and its military variant, the C-130, were designed to transport freight into austere 

airfields. Compared to the BC-17X, however, the L-100 requires a longer runway (at least 5,000 

feet versus 4,000 feet for the BC-17X) and can carry significantly less cargo. (Its maximum 

payload is 50,600 pounds versus 170,000 pounds for the BC-17X.) There are 51 commercial L100s in existence, but only 47 are operational, and the largest commercial operators are 

Transafrik, Safair, and Lyden. Intense competition for market share and global infrastructure 

development is putting downward pricing pressure on all the operators. Many commercial L100s are locked into long-term contracts, such as those with the World Food Programme, and the 

rest compete in the ad-hoc charter market. The aircraft generally does not compete for large 

project work, and it does not appear well suited to scheduled service. 

Priced at approximately $2,500 per block hour, the L-100 is much less expensive than the BC17X on a block-hour basis; however, due to the BC-17X’s capacity advantage, the cost per ton 

mile is actually lower on the BC-17X. Furthermore, the BC-17X outperforms the L-100 in terms 

of range and speed. Since the weight, range, and speed characteristics of the BC-17X make it 

cheaper than the L-100 on flights longer than 1,000 nautical miles with payloads greater than 

50,600 pounds, the L-100 would not pose a significant competitive threat in a prospective BC17X operator’s primary market, the SAM.

Economic, geopolitical, and competitive risk are concerns for any global industry, but a 

prospective BC-17X operator’s position with regard to such risks is very favorable. Any 

jeopardy that a BC-17X operator might face is mitigated by the growing need for the exploitation 

of resources that the BC-17X supports, the size and geographic distribution of the SAM, and the 

lack of truly competitive aircraft.

In addition, early assessments of the general need for the commercial capability of the BC-17X 

show that the potential market for the aircraft has a built-in resilience associated with large 

construction project opportunities. Several factors are at work, among them the following:

1. High prices for oil and gas have proven constant and support continued exploration.

2. The US desire to find sources of petroleum outside the Middle East will drive exploration 

of more austere and primitive environments.

 70 Since the L-100 market was not analyzed in the November 2002 CAMAA report, a more detailed description of 

the aircraft and its market can be found in Appendix N.
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3. The reordering of world alliances and improved relations between the United States and 

its former adversaries have opened vast areas to mining as well as oil and gas recovery 

projects.

4. Future efforts to develop mineral resources will generally be confined to austere 

locations, since the easy-to-get-to areas have already been tapped.

5. Undeveloped countries taking advantage of their natural resources will build cash 

reserves to undertake infrastructure projects not possible before.

Armed conflict also stabilizes the amount of business available to a BC-17X operator, first 

because of the likelihood that its aircraft will be made available to the CRAF during the conflict, 

and second because, once the conflict has been resolved, the aircraft can be used to distribute 

humanitarian aid and rebuild infrastructure. 
Risk Reduction Report on 

the Short Austere Market

Section 6:

Review Board Comments
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6. Review Board Comments

Draft copies of the Risk Reduction Report on the Short Austere Market were sent out for review 

to four respected industry experts: Robert Baker, former Vice Chairman of AMR/American 

Airlines; Klaus Knappik, Chairman of Deutsche Post Global Mail; Matthew Stacom, Vice 

Chairman of Cushman & Wakefield; and Ram Menen, Director of Emirates SkyCargo and a 

former President of The International Air Cargo Association.71

 71 For the full text of the Ram Menen letter, see Appendix O.

 All four Red Team members 

read the report and endorsed its conclusions. The following are excerpts from their reviews, 

grouped by category:

Analysis Reviews

“In every case study, the higher cost of airfreight adds cost efficiency to the overall supply chain. 

...The cost savings and [accelerated net benefits] could be on the conservative side.” –Ram 

Menen

"US companies such as Bechtel, Halliburton, etc. are world leaders in large construction projects 

and are increasingly having problems finding reliable equipment for [the] urgent [transportation 

of] oversized and heavy material to countries that lack infrastructure (commercial airports, port 

congestions, paved roads, etc.)—for example, see the oil projects in Sakhalin Island. The BC17X is uniquely equipped to overcome these problems." –Klaus Knappik

“You have taken the very complex matter of developing a SAM forecast and made it simple 

enough for anyone to understand.” –Robert Baker

“I believe your methodology is sound.” –Matthew Stacom

Recommendations for Further Research

“You will need to examine more of the issues relating to civil certification of the BC-17X and 

technical support in SAM locations.” –Ram Menen

“You need to develop a five-year penetration forecast, a business plan, and a P&L to justify 

financing.” –Matthew Stacom

Recommendations for Potential Operators

“Servicing the SAM will be critical to the successful deployment of the [BC-17X]. ...The initial 

target audience will have to be project owners who will be able to see the [net] benefit of taking 

on higher transportation costs for a certain segment of the total supply chain. [The BC-17X’s 

entry into the commercial market] will have be driven top down.” –Ram Menen
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“The project business lets [the operator] sell long-term contracts, which are vital to the success of 

such a high-cost aircraft because [the operator] can then get a higher utilization while also having 

the ability to pre-sell backhauls.” –Robert Baker

“The aircraft seems expensive, and the company that operates it must hit the ground running and 

not wait for delivery of the aircraft to start signing up contracts. This will be very difficult to do 

within a new SAM.” –Robert Baker

“The best [plan] would be to start with a fleet of two or three units to test the business model and 

create confidence, and then gradually increase the fleet size as per market demand.” –Ram 

Menen

Overall Conclusions

“The case studies with the confirmation letters are very powerful, and it will be very hard to 

disagree with the forecast methodology and results. I believe that you have a winner.” –Robert 

Baker

“The future energy needs of the world will continue to create major projects of the proportions 

that you have studied. Hence, the SAM market will continue to be a growth market.” –Ram 

Menen

"There is a real market niche for the transportation of project-related heavy and oversized cargo. 

Today, this market is almost exclusively covered by Russian equipment. The BC-17X is superior 

in technical terms and has a broader ability to serve project-related destinations than the AN-124 

or IL-76." –Klaus Knappik

“Your main argument is that these planes are necessary for the United States to maintain our 

preeminence in aircraft design and construction. The United States is becoming a ‘service 

provider’ to the world as we push manufacturing into other countries because of labor costs. To 

our ultimate demise, we are teaching the world how to put us out of the manufacturing business.” 

–Matthew Stacom

“I was extremely skeptical about the role that this aircraft could play in the civil commercial field 

because the cost of ownership and operation was prohibitive compared to the other civil aircraft 

already in service, but the ability of the BC-17X to operate out of short austere runways is its 

prime strength and the key to entering the commercial market. ...[The air cargo industry, myself 

included,] were looking at the cost that [the BC-17X] would add to the project without looking at 

the overall cost efficiency gained and the ability to generate revenues by reducing the project 

completion time and pressing into operation earlier. ...Depending on the term and conditions 

and the way it is put into the market, there is a definite potential role for the BC-17X in civil 

[projects]. ...I am sure this venture will be a successful one.” –Ram Menen
Risk Reduction Report on 

the Short Austere Market

Bibliography
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Bibliography

Unless otherwise noted, all information in this report was obtained from repeated conversations 

with various representatives of the case study organizations and internal analyses conducted by 

the SAMCS team. The following outside sources, as referenced in the footnotes, provided 

supplemental information:

The Boeing Company. BC–17X Business Case Financial Report. April 2003. 

The Boeing Company. C-17 Globemaster III: Technical Description and Planning Guide. 

2002.

The Boeing Company. World Air Cargo Forecast 2002-2003. 

http://www.boeing.com/commercial/cargo/flash.html. 2002.

The Boeing Company, Airlift and Tanker Division, Business Development. Fleet Plan. 

“Financing Assumptions.” 4 April 2003.

The Boeing Company, Airlift and Tanker Division, Integrated Defense Systems. MD-17 

General Briefing Update. 1998

Blue Ribbon Panel. Federal Aerial Firefighting: Assessing Safety and Effectiveness: Blue 

Ribbon Panel Report to the Chief, USDA Forest Service and Director, USDI Bureau of 

Land Management. December 2002.

Commercial Application of Military Airlift Aircraft. Final Report. 20 November 2000.

Commission on the Future of the United States Aerospace Industry. Final Report. 2002.

Department of Defense. Department of Defense Transportation Policy. March 1990. 

ETAP Programme. "Assessment of internal and external gas supply options projects for the EU, 

evaluation of the supply costs of new natural gas supply projects to the EU and an 

investigation of related financial requirements and tools." 

http://europa.eu.int/comm/energy.

Eskew, Michael L. Executive Speeches. 

http://www.pressroom.ups.com/execforum/speeches/speech/0,1402,38,00.html. 

May 2002.

“Foreign Oil Firms to Stop Receiving Perks in Russia.” The Wall Street Journal. 2 April 2003.

“Forest Service Planes Under Scrutiny.” The Associated Press. 7 October 2002. 

Green Paper-Towards a European Strategy for the Security of Energy Supply. European Union 

Technical Document. November 2000. 
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“Interview with Marianne Drain.” Business Information Service for Newly Independent States. 

May 2002. 

Northern Gas Pipelines: Mackenzie Valley Pipeline Project. 

http://www.arcticgaspipeline.com/Delta%20Route.htm. 2002.

“Oil Producers Flock to Island in Russia with Fragile Ecology.” The Wall Street Journal. 4 

September 2002.

“Relief Agencies Unite to Warn of Disastrous Africa Food Shortage; Organizations Plead for 

Nations to Provide Assistance for Millions.” The Baltimore Sun. 4 December 2002, p. 

14A.

“UPS’s Eskew Sees Logistics Golden Age Coming, Bringing Good Corporate Governance With 

It.” Traffic World. 14 October 2002, p. 22.

US Department of Agriculture. USDA Aviation Safety Summary. 2001.

Waters, Will. “Baghdad Skies Ready to Open Up for Cargo.” IFW. 5 May 2003.

The World Bank. The Global Economic Prospects. 2003.

The World Bank. Global Economic Prospects and the Developing Countries. 2003.

Worldwide Projects, Inc. Database. http://www.worldwide-projects.com. 1997-2002.

Zaitsev, Tom. “First Ten Months Show Extent of Volga-Dnepr Revival.” 22 November 2002.
Risk Reduction Report on 

the Short Austere Market

Biographies
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Biographies

Team Biographies

William R. Boesch, Senior Project Consultant

Mr. Boesch has been a senior executive in the transportation and logistics industry for over 30 

years. He retired as Chairman of American Airlines Cargo Division in 1998, having served as 

President of the Cargo Division from 1991 to 1997. In 1997 and 1998, Mr. Boesch served as 

Director of U.S. Aviation Policy for the White House Commission on Aviation Security. Since 

that time he has worked for the USAF on the Commercial Application of Military Airlift Aircraft 

(CAMAA) project and for private parties as a logistics consultant. Mr. Boesch served as 

Chairman of the International Air Transport Association (IATA)’s Cargo Executive 

Subcommittee and as Vice Chairman of its Cargo Committee. He has been a member of the 

board of Air Cargo Incorporated, Air Cargo International, The ETR Group, and The International 

Air Cargo Association (TIACA). Mr. Boesch was recently appointed to the Board of Directors of 

Deutsche Post Global Mail.

Robert F. Agnew, Aviation and Marketing Consultant

Mr. Agnew is President and COO of Morten Beyer & Agnew and has an extensive background 

in aviation/marketing consulting and providing aircraft valuations to banks, airlines and other 

worldwide institutions. Mr. Agnew develops enhanced methods of securitization and insurance 

solutions through technical due diligence for clients in the financial and insurance industries. 

Prior to founding Morten Beyer & Agnew, he headed a company that provided consulting 

services to the travel, transportation and telecommunications industries. Mr. Agnew has 

received a Master’s Degree in Business Administration from the University of North Dakota, is a 

former USAF navigator with the Strategic Air Command, and is a member of both the Business 

Practices Committee of the National Defense Transportation Association and the National 

Defense Transportation Association’s Military Airlift Committee.

Jeremy Akel, Airline Consultant and Government Advisor

Mr. Akel is Vice President of Business Consulting at Morten Beyer & Agnew (MBA) and has 12 

years of aviation industry experience in business planning and financial analysis. He joined 

MBA after working for Andersen Consulting, where he was an Airline Consultant, advising 

airlines on financial restructuring after the September 11 terrorist attacks. Recently, he has 

been advising the US government on the viability of various airline business plans. Mr. Akel has 

also worked for Continental Airline’s Long Range Planning Group on competitive benchmarking 

and revenue management strategies, and was an Aerospace Engineer with the National 

Transportation Safety Board. He holds a Master’s Degree in Business Administration from 

Georgetown University and Bachelor’s Degree in Aerospace Engineering from the University of 

Colorado. Mr. Akel worked on the Fire Suppression Study for the SAMCS Report.
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William Alexander, Congressional Consultant

Mr. Alexander served 24 years in the United States Congress. He was a member of the 

congressional leadership for 22 years and served as Chief Deputy Majority Whip in the House of 

Representatives. His principal responsibilities as a congressman centered on appropriations, 

including subcommittees with oversight of the Department of Justice, (including the FBI, Secret 

Service, U.S. Marshals, U.S. Border Patrol, and DEA) as well as the Departments of State and 

Commerce. Mr. Alexander was selected for numerous prestigious foreign and domestic 

assignments involving national defense, trade relations, major project development, 

transportation, communications, and agriculture. His educational background includes a 

Bachelor’s Degree from Rhodes College and a JD from Vanderbilt University. Mr. Alexander 

has consulted on a number of the case studies conducted for the SAMCS Report.

Heather Boesch, Communications and Written Report

Ms. Boesch recently graduated with an honors degree in Economics from Harvard University 

and was one of the first 24 members of her class to be inducted into Phi Beta Kappa. 

Throughout her academic career, she has had significant experience writing, organizing and 

editing large research projects. A member of the SAMCS team since June of 2002, Ms. Boesch 

assisted with team communication and was responsible for editing the case studies and for 

crafting and editing the text of the Interim and Final Reports.

Harry Bray, Boeing BC-17X Marketing and Financial Analysis

Mr. Bray has held various management positions within Boeing relating to strategic and 

operational planning and program cash-flow and earnings reporting. For the past ten years his 

focus has been operator financial and fleet planning supporting aircraft marketing and sales. 

Before joining Boeing, Mr. Bray developed business plans for and served as a member of the 

board of various organizations. He also participated in the acquisition and turnaround of an 

electronics company where he held the position of Vice President of Marketing and Sales. As a 

member of the Boeing BC-17X team, he works with potential operators to develop financial and 

operating plans that define the business structure and investments necessary to meet investmentreturn requirements.

Dennis Caren, Ocean Logistics and IT Systems Advisor

Mr. Caren, who collected the Freeport and Raytheon data for the case study project, has over 35 

years of experience in the international transportation industry. A former Vice President of 

Columbus Lines/Hamburg Sud, the largest privately owned shipping company in Germany; he 

has often worked closely with large commercial shippers such as Caterpillar, John Deere, and 

Massey Ferguson. In the 1980s, Mr. Caren pioneered the introduction of software products and 

services developed by Starcom International, a subsidiary of National Intergroup, for the 

shipping industry. He is currently the President of Caren & Associates, whose client list includes 

Weyerhaeuser Corporation, Topgallant, Mid-America Overseas, The Journal of Commerce, 

Netcom, Cargo Manager Systems and many of the world’s larger project forwarders and 

shippers. 
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Shari Cohen, Airline Industry Researcher and Government Consultant

Ms. Cohen is the Director of Development for the Congressional Award Foundation and serves 

as the liaison between the Board of Directors Financial Development Committee and the United 

States Congress. Previously, Ms. Cohen served as Special Services Manager for American 

Airlines in Frankfurt, Germany and Washington, D.C. She researched and developed the AN124 aircraft data that is part of the SAMCS report. 

Rodger H. Comstock, Nuclear Security Consultant

Mr. Comstock is currently a principal of Executive Management Services International 

specializing in the nuclear security. Formerly, he held the position of Group Vice President at a 

large private-sector nuclear security services firm. Mr. Comstock has had extensive experience 

with security requirements for the storage and transportation of nuclear waste promulgated by 

the Nuclear Regulatory Commission, the Department of Energy, and other government 

regulatory agencies. Mr. Comstock earned a Bachelor’s Degree in Public Administration from 

California State University at Los Angeles.

Jean-Marie Depelchin, Case Study Consultant

Mr. Depelchin graduated with a degree in English Studies from Lille University in France and 

has over 30 years of experience in the air and sea transportation industry. Specializing in 

warehousing, shipping, and stevedoring, Mr. Depelchin has held a number of executive positions 

within the French air transportation industry. Prior to his retirement in 2001, Mr. Depelchin was 

the Marketing and Commercial Manager at Bollore, handling all stevedoring operations in 

France and Europe. Mr. Depelchin worked with several of the European case study companies 

for the SAMCS project.

Arthur C. French, Senior Operations/Logistics Advisor

Mr. French holds a Bachelor’s Degree in International Trade and Transportation from 

Pennsylvania State University. During his 30-year career with Emery Worldwide, Mr. French, 

who served as Vice President of Operations, built and designed its worldwide ground and air 

network. As a consultant, he developed computer imaging and tracking systems for Emery and 

for American Airlines. His client list also includes Litton Industries, Air Express International, 

and EDS. As a volunteer for the International Executive Service Corporation, Mr. French also 

provided feasibility analyses for the conversion of Russian military air bases into civilian cargo 

hubs. Mr. French, currently a Program Manager at Council for Logistics Research, Inc., 

performed much of the analytical work for the case studies.
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Klaus Geissler, Logistics Industry Management Consultant

Mr. Geissler has 21 years of experience as an international freight forwarder involved in air/sea 

projects and logistics. He is the founder, Chairman, and CEO of adi Consult GmbH, a 

management consulting firm for the logistics industry. Previously, Mr. Geissler served as 

President and COO of ATEGE International in Frankfurt, Germany. He is a member of the 

International Air Cargo Association (serving as Vice Chairman of the IATA/Forwarders 

Committee Steering Board until 1998), of Freight Forward Europe (serving as Chairman until 

1998), and of the Advisory Board at Frankfurt Airport Cargo Division, as well as founder and 

Chairman of The Challenge Group.

Ingo Granzow, Case Study Consultant

Mr. Granzow is Director of Sales and Marketing for Geis SDV Germany GmbH in Frankfurt. 

He also serves as a member of the Geis SDV Group’s Country Management-Europe. For more 

than 20 years, Mr. Granzow held various executive positions at Panalpina, and has spent 

considerable time working in Algeria, Senegal, Singapore, Thailand, Turkey, China, 

Switzerland, Russia, and Belgium. Mr. Granzow founded a daughter company to handle all 

global ocean freight procurement activities of the Panalpina group. For the SAM case study 

project, he has worked with the European case study organizations.

Alfred G. Hutchins, Forecast Consultant

Al Hutchins, the President and General Manager of Bucher, Hutchins, Kohler and Patterson, 

Inc., assisted with the analytical assessments of the project market database. Mr. Hutchins has 

over 25 years of experience in line management and the organizational development of 

integrated product development teams. A recognized authority in the field of unmanned 

systems, Mr. Hutchins is frequently retained to advise major aerospace firms on a wide range of 

strategic and tactical issues. 

Paul Jackson, Logistics Operations, Marketing, Business Development and Strategy 

Advisor

Mr. Jackson has over 40 years of experience in the logistics industry. Currently the Chief 

Executive Officer of Triangle Management Services, a UK-based logistics consulting firm he 

founded in 1984, Mr. Jackson is a regular speaker on freight, express, and mail strategy 

throughout the world. As an executive at British Airways, Air Express International, and 

Unilever, he developed comprehensive multi-modal systems for the transportation of freight by

air, sea and land. Mr. Jackson worked with the European case study organizations. 
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L. Nick Lacey, Commercial Aviation Consultant

Mr. Lacey, a former Colonel in the U.S. Air Force, is an Executive Vice President at Morten 

Beyer & Agnew and is responsible for the organization’s regulatory and general consulting 

operations. Previously, Mr. Lacey served as the Director of Flight Standards for the Federal 

Aviation Administration, developing and enforcing operational and safety standards for the US 

commercial aviation industry. Prior to that assignment, Mr. Lacey was president of his own 

consulting firm, providing assistance on airline business plans, certification, privatization, 

acquisition and defense contracting. Mr. Lacey earned his Bachelor’s Degree at Wagner College 

in New York, and his Master’s Degree in Business Administration at the University of Puget 

Sound. 

Julius Maldutis, Statistical and Airline Industry Advisor

Dr. Maldutis holds a PhD in Economics and Statistical Analysis from Columbia University and 

is a former Professor of Statistical Analysis at Columbia Graduate School. A senior airline 

industry analyst for Solomon Smith Barney and CIBC Oppenheimer, he has long been a 

respected spokesperson on airline industry affairs. Dr. Maldutis recently served as President of 

the aerospace and airline industry’s New York-based Wings Club. 

William Murphy, Project Management Consultant

Mr. Murphy has over 30 years of experience in the petrochemical engineering and construction 

industry. A former Director of Global Logistics for the oil field and engineering and 

construction units of Halliburton, where he worked for 28 years, he is currently the Director of 

Global Account Management and Business Development for the Energy sector of EXEL Global 

Logistics. Mr. Murphy holds both a Bachelor’s and Master’s Degree in Mechanical Engineering 

from the University of Louisville. He has provided data for and consulted on several of the 

SAMCS project case studies.

David Patterson, SAM Project Market Forecast

Mr. J. David Patterson is a Senior Partner and Vice President of Bucher, Hutchins, Kohler and 

Patterson, Inc. (BHK&P, Inc.), an aerospace and defense industry consulting firm specializing in 

acquisition management and business capture strategies. Mr. Patterson has held executive 

positions at Steven Myers and Associates, Inc. and the Boeing Company, and he was the first 

program director for the application of the military C-17 cargo aircraft to the commercial outsize 

air cargo market. Prior to working in private industry, Mr. Patterson served in the United States 

Air Force where he attained the rank of Colonel. He is a graduate of the NATO Defense College 

in Rome and has held management and leadership positions at major command headquarters, 

including the Headquarters of the U.S. Air Force, the Office of the Chairman, Joint Chiefs of 

Staff, and the Office of the Secretary of Defense, Inspector General.
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Jack D. Patterson II, Project Data Base Regression Analysis 

Mr. Patterson is a Converted Products Technician, R&D Engineering, for Cargill Dow LLC, 

where he helped develop a statistical model for the largest biodegradable plastics manufacturing 

process in the United States. His work includes systems design and technical and analytical 

support for Cargill Dow’s North American and European Films and Rigids platform. Mr. 

Patterson is responsible for onsite technical consultation at customers’ facilities with regard to 

biopolymer sheet extrusion and related product conversion methods. He is also active in the 

design and commissioning of Cargill Dow’s sheet extrusion facility in Minnesota. Mr. Patterson 

preformed the regression analysis on the incomplete project business data.

Alvis Pauga, Forecast Consultant

Mr. Pauga, who helped analyze the Port Import and Export Reporting System (PIERS) and US 

Census Bureau data, is a management professional with expertise in international trade and 

transportation, marketing, market research, consulting, and marketing systems development. 

Responsible for promoting the Automated Export System (AES), which processes electronic 

export declarations for the US Customs and Census Bureaus, Mr. Pauga developed and ran PCLab workshops to teach export industry professionals how to use AES Direct, software for filing 

export declarations on the internet. A recognized authority on market research and transportation 

analysis using international trade and commodity flow data, Mr. Pauga founded and served as the 

first chairman of International Trade Data Users, Inc., a nonprofit organization that works to 

improve the accuracy and availability of trade and transportation statistics. 

Anne Renouf, Geopolitical Risk Consultant

Dr. Anne Renouf has twenty years of experience in domestic and international technology 

development financing and capital formation for public-sector programs. As Chairman and 

Manager of several US government task forces and interagency programs for the Environmental 

Protection Agency, Federal Power Commission, and Federal Energy Administration, she 

developed innovative means of financing infrastructure projects. Dr. Renouf subsequently 

launched an international finance consulting firm, SaraTech Finance, a subsidiary of CSAT, 

whose network of international associates specializes in project financing, technology transfer 

and commercialization, and venture capital. 

Dallas Sherman, Air Cargo Industry and Business Development Advisor

Mr. Sherman, who worked on the many of case studies, is a director of Tailwind International. 

He has over 25 years of management experience in international air cargo, and has assisted in the 

development of various emerging entrepreneurial growth ventures in the United States and 

Europe. In particular, he participated in the startup and development of Airborne, the worldwide 

expansion of UPS, and the development of European Expedite, a wholesale express airline with 

service to eleven Western European countries. As a marketing executive for American Airlines, 

Mr. Sherman specialized in domestic and international sales and market expansion, aircraft 

leasing and purchase, and re-engineering analyses and program implementation.
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J. Michael Stepp, Jr., Case Study Consultant

Mr. Stepp joined Morten Beyer & Agnew (MBA) in May 2002 with six years of experience in 

the aviation, tourism, and aerospace industries. Previously he worked for Arthur Andersen, 

where he was a Senior Consultant in the firm’s Airline Consulting Practice working in the 

airline, aerospace, and business aviation industries. Mr. Stepp specializes in operational 

benchmarking, cost management, strategic planning and business process reengineering. He 

holds a Bachelor’s Degree in Government from Georgetown University.

Erik van Baaren, Case Study Consultant

Mr. van Baaren joined Triangle Management Services in 1999, where his focus has been in the 

postal and express sectors, with particular emphasis on primary and secondary market research. 

At Erasmus University of Rotterdam, his Master’s thesis in Business Administration dealt with 

the feasibility of an underground logistics system at Schiphol Airport. After graduation, he 

continued to work on this and other research projects as a full-time employee of the university. 

Mr. van Baaren, who speaks Dutch, English, French and German, has done case study field work 

for both Phase One and Phase Two of the SAM case study project.

Dick Warden, Gold Industry Consultant

For over 25 years, Mr. Warden was the Senior Portfolio Manager for a major gold investment 

fund at IDS/American Express. His opinions are highly respected in the gold industry, and Mr. 

Warden was asked by Freeport McMoRan Copper & Gold, one of the case study companies, to 

fly to Indonesia to look over their regional mining operations. Mr. Warden worked with Mr. 

Caren on the Wabu Mine Case Study.

Roger Whitehead, Airfield Analysis Study

Mr. Whitehead has fourteen years of operational experience as a USAF meteorologist and 

twenty-four years of experience in command and control, radar, weather-systems development, 

planning, and acquisition management, and systematic software reuse theory and application. 

He served in the USAF for 21 years, retiring as a Lieutenant Colonel. As a member of the 

Council for Logistics Research team of associates, Mr. Whitehead has conducted a number of 

technical studies for the SAM case study project, including reports on austere airfields, the use of 

the AN-124, and potential commercial business opportunities for the BC-17X. He has a 

Bachelor’s Degree in German from the University of Maryland, a Master’s Degree in 

Meteorology from the University of Oklahoma, and a Bachelor’s Degree in Mathematics from 

Washington State University.
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Review Board Biographies

Robert W. Baker

Mr. Baker held a variety of senior positions during his 35-year career at American Airlines, 

including Senior Vice President-Information Systems, Vice President-Southern Division, Vice 

President-Freight Marketing, Vice President-Passenger Sales and Advertising, and Vice 

President-Marketing Automation Systems. In 1985, Mr. Baker was promoted to Executive Vice 

President and became responsible for much of the company’s operations. Mr. Baker was elected 

Vice Chairman of AMR/American Airlines in January 2000, and he retired in 2002. He received 

a Bachelor’s Degree in Economics from Trinity College, a Master’s Degree in Business 

Administration from the Wharton School of the University of Pennsylvania, and an Honorary 

Doctorate from Embry-Riddle Aeronautical University. 

Klaus Knappik

Currently the Chairman of Deutsche Post Global Mail and a member of the Management Board 

of Deutsche Post, one of the largest logistics companies in the world, Mr. Knappik has worked in 

the logistics industry for more than 30 years. He served as Chief Executive Officer and 

President of SAirLogistics (part of the Swissair Group) and President of Jacky Maeder Ltd. 

International Forwarding. Mr. Knappik also served as Chief Operating Officer of Danzas 

Corporation. In addition, Mr. Knappik has been a Member of the Board at Swiss Post, Cargolux 

Airlines, and Panalpina World Transport and the Vice Chairman of the IATA Cargo Committee. 

Mr. Knappik is highly respected in the logistics industry and provided valuable feedback 

throughout the SAM case study project.

Ram Menen 

Mr. Menen, the Director of Emirates SkyCargo, began his aviation career at Kuwait Airways in 

1976 and later joined British Airways, where he set up their Kuwaiti cargo program. In 1984 he 

was recruited by Al Ghanim/Al Qutub Shipping Agencies to open an airfreight forwarding unit 

in Dubai. A year later, Mr. Menen helped launch the cargo division of Emirates Airlines, 

Emirates SkyCargo, which for 18 years has been internationally recognized for its operational 

excellence. An active participant in cargo industry affairs, Mr. Menen is one of the founding 

members of The International Air Cargo Association (TIACA), serving as Vice President in 

1993/94 and as President, CEO, and Chairman of the Board in 1995/96. Today, he is a trustee of 

the organization and a member of its President’s Council. In March 2000, International 

Freighting Weekly (IFW) presented Mr. Menen with their Lifetime Achievement Award, and Air 

Cargo News USA named him “Cargo Executive of the Year” in 2002.

 
142

Disclaimer on Cover applies

142

Matthew Stacom

As Vice Chairman of Cushman & Wakefield, Inc., Mr. Stacom has played an integral role in the 

development, sale, and leasing of commercial properties in major cites throughout the United 

States, including the Sears Tower in Chicago, for which he was the project manager, supervising 

the construction of the four-million square foot building, and the exclusive rental and 

management agent. Mr. Stacom is a graduate of Lehigh University and the New York Graduate 

School of Business and a two-time winner of the Real Estate Board of New York’s “Most 

Ingenious Deal” Award.
The Boeing Company 

2401 E. Wardlow Road 

Long Beach, CA 90807 

(562) 593-8933

C1-0AE1-BC17-06-0103 

22 March 2006 

To: Mr. Mansour Rafat 

 Program Manager, BC-17 

Federal Aviation Administration LAACO 

 Northwest Mountain Region 

 Los Angeles Aircraft Certification Office 

 3960 Paramount Boulevard 

 Lakewood, CA 90712-4137 

Subject: Petition for Exemption from 14 CFR Part 21 Section 21.27(a) for 

Boeing Model BC-17 Freighter Aircraft

This letter transmits the following enclosures: 

 Record Summary 

 Conformity Request 

 Record of Discussion 

 Petition for Exemption 

 Certification Plans 

 Issue Paper Responses 

 BC-17 Main Configuration Differences Between Used and New Aircraft 

The DER has verified, in accordance with established procedures, that the data listed on FAA 

Form 8110-3 are in compliance with the applicable sections of the regulations identified on 

the 8110-3. 

 The DER recommends your approval of the data listed on the 8110-3. 

 The DER approved the data listed on the 8110-3. 

The enclosed data are being sent for: 

 FAA approval 

 FAA acceptance of DER approved data 

 FAA concurrence 

 FAA action 

 FAA comments 

 FAA information only 

The enclosed data which are considered to contain proprietary information are identified with 

a proprietary legend. Upon completion of your review, the FAA should place the data in the 

repository located at the Boeing1 / BC-17 facility in Long Beach, California. 

Sincerely, 

 [signature on original on file] 

Robert P. Ciesla 

BC-17 Program Manager 

Enclosures: A , B & C 

 

1

 McDonnell Douglas Aircraft Company, the Applicant, is a wholly-owned subsidiary of The Boeing Company 
 C1-0AE1-BC17-06-0103

22 March 2006 

Enclosure A 

BOEING PROPRIETARY 

Copyright © 2006 The Boeing Company Unpublished Work 

All Rights Reserved 

FOR OFFICIAL USE ONLY. This document contains information EXEMPT FROM MANDATORY 

DISCLOSURE under the FOIA. 

Exemption 4 applies. 

RECORD SUMMARY 

SUBJECT: Petition for Exemption from 14 CFR Part 21 Section 21.27(a) for 

Boeing Model BC-17 Freighter Aircraft 

REFERENCE: 1) Boeing letter C1-0AE1-BC17-05-0103 “Applications for Extension 

of Type Certificates for Boeing BC-17” 

2) Boeing letter C1-0AEO-BC17-05-0101 “Application for Extension 

of Type Certificate and Revised Certification Basis for BC-17” 

3) FAA Exemption No. 319, issued 04/23/64 

Enclosure Title of Enclosure

B Petition for Exemption from 14 CFR Part 21 Section 21.27(a) for Boeing 

Model BC-17 Freighter Aircraft 

C BC-17 Configuration Differences Between The “Used” and “New” Aircraft 
The Boeing Company 

2401 E. Wardlow Road 

Long Beach, CA 90807 

(562) 593-8933 

C1-0AE1-BC17-06-0103 

22 March 2006 

To: Federal Aviation Administration 

Northwest Mountain Region 

Transport Airplane Certification Directorate 

Attention: ANM-114 

1601 Lind Avenue, S.W. 

Renton, WA 90855 

Subject: Petition for Exemption from 14 CFR Part 21 Section 21.27(a) for 

Boeing Model BC-17 Freighter Aircraft 

Reference: 1) Boeing letter C1-0AE1-BC17-05-0103 “Applications for 

Extension of Type Certificates for Boeing BC-17” 

 2) Boeing letter C1-0AEO-BC17-05-0101 “Application for 

Extension of Type Certificate and Revised Certification Basis 

for BC-17” 

 3) FAA Exemption No. 319, issued 04/23/64 

Pursuant to the Federal Aviation Administration procedures for processing 

petitions for rule making (Title 14 CFR Part 11 Subpart A), The Boeing 

Company, manufacturer of the McDonnell Douglas C-17/BC-17 model aircraft, 

hereby files subject petition for an exemption from the requirements of FAR 

21.27 (a) for a commercial derivative of the C-17 identified as the Boeing Model 

BC-17 Freighter Aircraft. 

Substance of rule from which relief is sought:

Part 21 Section 27 – Issue of type certificate: surplus aircraft of the Armed Forces 

states in 21.27(a) that “Except as provided in paragraph(b) of this section an 

applicant is entitled to a type certificate for an aircraft in the normal, utility, 

acrobatic, commuter, or transport category that was designed and constructed in the 

United States, accepted for operational use, and declared surplus by, an Armed 

Force of the United States, and that is shown to comply with the applicable 

certification requirements in paragraph (f) of this section.” 
 C1-0AE1-BC17-06-0103 

22 March 2006 

Page 2 of 8 

Nature of extent of relief sought:

Relief is sought to allow certification of the Model BC-17 Freighter Aircraft under 

14 CFR 21.27 without the need for the aircraft to be accepted for operational use 

and declared surplus by the an Armed Force of the United States ( specifically the 

United States Air Force). 

Description of aircraft covered:

The BC-17 is a demilitarized version of the USAF’s C-17, an aircraft that provides 

the USAF with a complete air mobility package: flexibility, speed, room for heavy 

and outside cargo and landing capability into short and/or austere fields. The aircraft 

is powered by four Pratt & Whitney F117-PW-100 turbofan jet engines, essentially 

the same PW2000 series powerplant as certified on the Boeing Model 757 aircraft. 

The flight deck features two Head-Up Displays (HUDs) that serve as Primary Flight 

Displays and are designed to enhance the aircraft’s flight safety by providing 

primary flight information in a heads up environment. 

Although designed and utilized for military transport in U.S. Department of Defense 

(DOD) operations, a much more harsh operational environment than is typically 

experienced by commercial aircraft, the C-17 has been used in numerous 

humanitarian and disaster relief applications around the world. The unique design 

features of the C-17/BC-17 make it ideally suited to provide commercial cargo 

delivery capabilities not available in any other airplane type certified by the FAA. 

Information provided in support of petition:

Since the BC-17 is the commercial derivative of the USAF’s C-17 Globemaster 

heavylift airlifter, it is not entitled to certification under 14 CFR 21.27(b). Type 

Certificate applications have been submitted and extensions requested by the 

reference No. 1 and No. 2 documents. 
 C1-0AE1-BC17-06-0103 

22 March 2006 

Page 3 of 8 

Airlift capability is critical to the DOD’s strategy for protecting U.S. national 

security interests around the globe. The C-17 today plays an important role in DOD 

operations, enabling the Armed Forces to perform previously impossible tasks – to 

transport oversized, heavy equipment and large quantities of material to places 

where it is most needed and, that in the past, could not be served by large aircraft. 

 

The C-17 was designed, built and tested to a rigorous set of standards specified by 

the USAF. It entered operational service in June 1993 and has a long and enviable 

safety record. It continues to prove its airworthiness in difficult operational 

conditions in the ongoing war on terrorism. Its rugged design enabled the aircraft to 

bring the crew home safely in spite of sever damage suffered in a missile attack. 

The C-17 has proven to be a highly reliable aircraft; demonstrating mission-capable 

rates exceeding the USAF’s minimum performance specification and that far exceed 

that for other airlifters in the USAF inventory. The BC-17 is the beneficiary of the 

C-17’s demanding design requirements and outstanding service history. 

There is an ongoing debate about the need for additional airlift capacity in the U.S. 

military and the kinds of aircraft required. The C-17 is currently in production and 

efforts are ongoing to secure a follow-on contract for aircraft beyond ship number 

180. The Congressional Defense Committees have recognized the value of filling 

whatever heavy, outsize lift is required with the most cost effective fleet structure, 

including better use of the Civilian Reserve Air Fleet (CRAF). To that end, the 

Secretary of the Air Force was directed in the FY05 Defense Appropriations 

Committee Report to provide a report on expanding the CRAF with heavy outsize 

cargo capacity without the need for government investment or substantial 

involvement. 

The USAF determined that the basis of a successful CRAF program relies on four 

key factors. First, the CRAF must satisfy a portion of the wartime requirement for 

outsize airlift, a capacity that does not currently exist in the CRAF fleet. Second, the 

outsize aircraft must be available and certified for commercial use. Third, a solid 
 C1-0AE1-BC17-06-0103 

22 March 2006 

Page 4 of 8 

commercial market for outsize aircraft must exist. Fourth, industry must be willing 

to invest in and manage this new U.S. Business. Industry validated studies 

conducted by USAF consultants provided evidence that there is a viable commercial 

outsize air cargo market for the BC-17. An Air Mobility Command assessment 

indicated that at least 10% to 12% of the DOD wartime outsize cargo requirement 

could be satisfied with a CRAF carrier. 

The key to enticing commercial companies to acquire the BC-17 for CRAF 

missions, as well as commercial operations, is affordability. The C-17 is an 

expensive aircraft by commercial standards considering its payload – range 

capability. Based on previous estimates, strict compliance to FAR Part 25 would 

impose a severe financial burden that makes acceptance of the aircraft by the civil 

market problematical. With a relatively small number of aircraft over which to 

spread the development costs, the price to a commercial customer becomes 

prohibitive. Utilizing FAR 21.27 for the certification process will minimize the 

changes from the USAF configuration, thus reducing the development and 

certification cost while maintaining substantially the same level of airworthiness. 

Granting this exemption will facilitate minimizing the certification cost and 

schedule and result in an affordable aircraft that can fulfill the CRAF role during 

contingency operations and in time of war. A precedent for granting an exemption 

of this type can be found in reference 3 above. 

Reasons why granting an exemption is in the public interest:

The current USAF C-17 fleet of 148 aircraft has accumulated 1,000,000 hours of 

flight with an excellent safety record. The BC-17 can be expected to demonstrate 

the same high level of safety when introduced into the commercial fleet, providing 

heavy and outsize cargo carrying capability and unique short field performance for 

the public sector. Today, airlift of heavy and outsized cargo by freight forwarders 

and operators requires the use of foreign registered aircraft without a type certificate 

of the same safety standards as would be granted by the FAA. The U.S. Government 

contracted over 250 An-124 flights worth approximately $85M from January 2002 
 C1-0AE1-BC17-06-0103 

22 March 2006 

Page 5 of 8 

through September 2005. The continued use of the An-124 illustrates not only the 

lack of U.S. carriers with outsize aircraft, but the usefulness of commercial 

augmentation when there is insufficient organic outsize capacity available. A U.S. 

owned CRAF carrier operating the BC-17 allows the USAF to “Buy American” and 

provides U.S. industry an alternative to a Russian based monopoly in the heavy and 

outsized air cargo market. 

The BC-17 can be a valuable element in protecting U.S. national security interests. 

Acting in a CRAF role the BC-17 will support military operations in the global war 

on terrorism. At home and around the world, the BC-17 will be used to provide 

rapid humanitarian relief to the victims of natural and man made disasters such as 

tsunamis, hurricanes, fires, droughts and earth quakes, freeing up the USAF C-17 

fleet for more military specific missions. The BC-17’s short and austere field 

capability makes it an ideal tool to facilitate the rebuilding of Iraq, furthering U.S. 

foreign policy objectives. The BC-17’s ability to exploit austere environments 

increases the number of locations where project work such as oil and gas 

development, pipelines and refinery projects is possible, offsetting the loss of 

projects in areas of political instability, hostilities, or other geopolitical problems. 

Two other potential applications for the BC-17 that have national security 

implications are the transportation of spent nuclear fuel and aerial firefighting. The 

U.S. nuclear power industry has the world’s highest inventory of spent nuclear fuel, 

approximately 43,000 metric tons stored at approximately 73 facilities in 33 states 

and growing annually by 2000 metric tons. Driven by the nation’s need to reduce 

dependence on foreign oil and to reduce noxious emissions, the growth of nuclear 

generated electricity is assured if the U. S. Government can provide safe 

transportation and storage of the waste. Surface transport has significant security 

weaknesses. The majority of the rail lines and highway routes are accessible to 

would-be protesters, or saboteurs. Because surface transport is relatively slow, each 

shipment has a relatively long duration, which creates a relatively long duration of 

threat. The BC-17 offers a vastly superior opportunity for security because airspace 
 C1-0AE1-BC17-06-0103 

22 March 2006 

Page 6 of 8 

has limited access and the higher speed reduces the duration of the threat. The BC17’s cargo handling capability and performance characteristics make the aircraft an 

ideal vehicle to address this politically charged security issue. 

The U.S. fire seasons are becoming more severe due to climate changes, untreated 

fuels and the growth of the wild land urban interface. Property value loss will 

increase as the population grows in rural areas. Since the current air tanker fleet has 

limited tank capacity, increased fire severity has increased the average number of air 

tanker sorties. In addition, the existing fleet has become unreliable and their safety 

record is unacceptable. The BC-17 is technically superior, has significantly greater 

capacity and is safer than existing platforms. The BC-17 will provide greater 

flexibility to fire-suppression managers and can deliver an annual value benefit (cost 

avoidance) to the United States of between $50M and $100M annually depending 

on utilization strategy. Protecting the public’s property is a benefit that is of interest 

to everyone. 

As the Commission on the Future of the United States Aerospace Industry, Final 

Report of 2002 concludes in its first recommendation, “the integral role aerospace 

plays in [the United States] economy, ...security, ...mobility, and ...values makes 

global leadership in aviation and space a national imperative.” It is essential to the 

United States international competitiveness in the aerospace industry (and the 

commercial and trade advantages that derive from that position) that U.S. 

companies manufacture and operate aircraft such as the BC-17, that can penetrate 

the relatively untapped air cargo markets of the future, service the U.S. industrial 

base, and play an important role in fostering U.S. national interests. 

The type certification of the Model BC-17 under FAR 21.27 prior to it being 

declared surplus is in the public interest because: 

(1) The production and sale of the aircraft would be of direct financial 

advantage to the U.S. Government either as an offset in a USAF C-17 

recapitalization program or as a reduction in the acquisition cost of new 
 C1-0AE1-BC17-06-0103 

22 March 2006 

Page 7 of 8 

C-17s due to the economic advantage associated with a C-17 production rate 

that includes the BC-17. The U.S. taxpayer is the ultimate beneficiary. 

(2) Boeing will be able to provide more effectively for solutions to any 

problems posed by operational services because of the availability of 

technical and production competence for an airplane that is designed for 

maximum commonality with the C-17. 

(3) U.S. jobs will be created for the operator and preserved for the manufacturer 

by the entry of the BC-17 into the commercial heavy and outsize air cargo 

market, generating tax revenue for the U.S. Government. 

(4) The BC-17 will benefit the public by providing a safe alternative for 

transport of heavy and outsize cargo while facilitating operations into two to 

three times as many airports due to its short and austere field capability. 

Summary of Boeing Petition

This petition addresses FAR Part 21, Section 21.27 (a). It requests that the Model 

BC-17 be exempt from the requirement for the aircraft to be accepted for 

operational use and declared surplus by an Armed Force of the United States. A 

precedent exists for granting such an exemption. The BC-17 is a demilitarized 

version of the C-17, an aircraft that has demonstrated, under severe operating 

conditions, an outstanding safety record. The granting of this exemption will be in 

the public interest because it will not adversely affect flight safety and will facilitate 

the most cost effective development of the Model BC-17 for commercial service, 

national security reasons and CRAF enhancement. 

Accordingly, pursuant to the provisions of 14 CFR, section 11.25, Boeing hereby 

petitions for an exemption from the requirement for the Boeing Model BC-17 

Freighter Aircraft to be accepted for operational use and declared surplus, prior to 

being eligible for certification under 14 CFR 21.27. 
 C1-0AE1-BC17-06-0103 

22 March 2006 

Page 8 of 8 

Boeing would appreciate your prompt review and concurrence with this request. 

Should you have any questions regarding this subject, please contact the 

undersigned at 562-593-8933 

Sincerely, 

 [signature on original on file] 

R. P. Ciesla 

BC-17 Program Manager 
The Boeing Company 

2401 E. Wardlow Road 

Long Beach, CA 90807 

(562) 593-8933 

C1-0AE1-BC17-06-0103 

22 March 2006 

Enclosure C 

BC-17 “USED” VS “NEW” CONFIGURATION DIFFERENCES 

GENERAL ASSUMPTIONS 

Focusing on Class I and major Class II projects only 

USED (P1-P40) 

• Assumed Block 13 configuration less Extended Range 

• P1-P40 are at a minimum Block 12 configuration, and most will be 

modified to Block 13 by Dec 2006 

• Assumed will probably get one of the heritage Block 8 aircraft (P33-

P40) 

NEW (P153+) 

Assumed Block 17 since first aircraft completion is Jun 2006 
 C1-0AE1-BC17-06-0103 

Enclosure C 

22 March 2006 

Page 2 of 3 

CLASS I AND CLASS II DEFINITIONS 

CLASS I: Any changes to base lined configuration documentation that has the 

following impact. 

All proposed engineering changes to the System Specification (MDC 

S001), Air Vehicle Specification (MDC S002 (I), or the System Segment 

Support Equipment General Specification (MDC S003) which require 

the issuance of a Specification Change Notice (SCN). 

CLASS II: Any proposed engineering change not meeting Class I criteria that 

can be effected entirely by the contractor within the scope of the System 

Specification (MDC S001), Air Vehicle (MDC S002 (I), and System Segment 

Support Equipment General Specification (MDC S003) without changing the 

Government approved configuration baseline. Class II changes shall be 

evaluated and reported via the change process for their impact to the following: 

a. Engineering Order Release that meets one of the following criteria: 

1. Affects form, fit, or function of the part 

2. Causes a detailed part number change 

3. Causes an end item (assembly) part number change 

4. Causes an installation part number change 

b. Support Documentation 

c. Support Software 

d. Training Systems 

e. Spares 

f. Retrofit 

g. Life Cycle Cost (LCC) 

h. Support Equipment 
 C1-0AE1-BC17-06-0103 

Enclosure C 

22 March 2006 

Page 3 of 3 

BC-17 CONFIGURATION DIFFERENCES BETWEEN THE 

“USED” AND “NEW” AIRCRAFT 

“N/EAT” Nacelle redesigned the fan duct, core reverser centerbody, and engine 

inlet for acquisition cost savings (P40 – 5/15/98) 

Composite Horizontal (P-51 – 6/25/99)

Extended Range (P-71– 2/15/01)

Fuel Venting and Contamination improves fuel gauging and reduces sumping 

(P100 – 3/14/03)

Communications Open System Architecture (COSA) provides the air 

mobility command requirements for communications at all crew stations using 

LRU open architecture intercom and communication controls (P-121 – 7/02/04)

Avionics Modernization (32 components) satisfies the requirements to replace 

obsolete parts -- no changes in functionality (P121, P135, P138 – 7/02/04) 

Weather Radar (WxR) provides the Next Generation commercial WxR 

systems for replacement of the existing APS-133 (P138 – 7/26/05)

Stab Strut project will prevent in-flight deployment, uncommanded jacking, 

and door linkage damage as well as to simplify system operation, training, and 

installation (P138 – 2/25/05)

On Board Inert Gas Generating System (OBIGGS) II removes current high 

pressure storage and replaces it with the next generation continuous flow (P138 

– 7/26/05) 

High Frequency Data Link (HFDL)/Required Navigation Performance 

Improvements (RNPI) upgrades the navigation system for GATM compliance 

and provides new datalink capability in HF radio system (P-153 – 6/22/06) 

Incorporates 16 Avionics S/W PICRs (Rev. A) 

Incorporates 5 Flight Control S/W PICRs (Rev. B) 

Additional Takeoff and Landing Performance resulting from Messier Bugatti 

Brake Incorporation 

(P-153 – 6/22/06)
HAL Petition Exhibit 12

From this chart below, the reader will note that from 1970 - 2004 the number of 

fatal accidents (worldwide) has trended downward while the number of 

departures has tripled from 6 million to over 22 million annually. There can be 

only a few key reasons for this continued improvement - that would be advanced 

aircraft technology and better training (also a product of advanced technology 

aircraft simulators) which results in better operational awareness and aircraft 

reliability.

It stands to reason that because the C-17 was developed in the 1980’s and put 

into service in the early 1990’s, this aircraft is much more technically advanced 

and thus safer than an aircraft developed in the 1960’s. As we previously pointed 

out the C-17 will provide an equal or better equivalent level of safety than the 

military C-130E which was approved by the FAA for commercial use in 1964 via an 

exemption request. 

Data Source – AirDisaster.com – Accident Rates By Year

0

10

20

30

40

50

60

70

80

69 73 57 57 61 43 35 34 41 63 39 57 54 52 40 32 36 20

MILLIONS

Worldwide Fatal Accident and Aircraft 

Departures Data for 1970-2004

No. of Accidents

No. of Flts
HOMELAND 

DEFENSE 

ASSISTANT SEEWARY OF DEFE~SE 

2600 DEFENSE PENTAGON 

IASHlNGTON, DC 2030 1-2600 

FEB 2 6 2008 

Mr. Paul D. Asmus 

Founder & President 

Humanitarian Air Logistics 

P.O. Box 61088 

Palo Alto, CA 94306 

Dear Mr. Asmus: 

Mr. McHale asked that I respond to your letter and Executive Summary regarding 

Humanitarian Air Logistics. Your are 100 percent correct in your conclusion that the 

U.S. Government should seek a more efficient and effective means of providing 

humanitarian support in response to catastrophic international and domestic disasters. 

While the Department of Defense does provide a significant amount of 

humanitarian support in response to catastrophic international and domestic disasters, the 

Department is not the U.S. Government lead for orchestrating the Federal response. The 

Department of Defense is in support of the lead Federal agency. 

I recommend that your company provide your Executive Summary to the two U.S. 

Government leads for humanitarian assistance: (1) Department of State for international 

response and (2) The Federal Emergency Management Agency for domestic response. 

Thank you for the opportunity to review and comment on your proposal. 

Sincerely, 

Peter F. Verga 

Principal Deputy 
COMMANDER, U.S. PACIFIC COMMAND 

(USPACOM) 

CAMP H .M . SMITH, HAWAII 96861 -4028 

Admiral Timothy J. Keating, USN 

Commander, U.S. Pacific Command 

Box 64028 

Camp H.M. Smith, Hawaii 96861-4028 

Mr. Paul D. Asmus 

Founder & President 

Humanitarian Air Logistics 

P.O. Box 61088 

Palo Alto, CA 94306 

Dear Mr. Asmus, 

12 June 2009 

Thank you for your letter regarding support to humanitarian assistance and 

disaster relief missions. To support Federal Agencies in these missions, the United 

States Transportation Command (USTC) provides authodzed commercial carriers to 

United States Pacific Command. Humanitarian Air Logistics could potentially add to 

existing capabilities and provide greater flexibility in choices for USTC to support these 

assistance and relief operations. The USTC point of contact is Ms. Margaret Leclair, 

SES, Director of Acquisition, and she can be reached at (618) 576-4300 or 

Margaret. Leclai r@ ustranscom. mil. 

Sincerely, 

b 

TIMOTHY J. KEATING 

Admiral, U.S. Navy