KC-46 Tanker Aircraft: Challenging Testing and Delivery Schedules Lie Ahead
Published: 2016-04-08T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Aerial refueling—when aircraft refuel while airborne—allows the U.S. military to fly farther, stay airborne longer, and transport more weapons, equipment, and supplies. The Air Force initiated the KC-46 program to replace its aging KC-135 aerial refueling fleet. Boeing was awarded a fixed price incentive contract with a ceiling price of $4.9 billion to develop the first four aircraft, which will be used for testing. Boeing is contractually required to deliver the four development aircraft between April and May 2016. Boeing is also required to deliver a total of 18 aircraft by August 2017, which could include some of the development aircraft if they are brought to operational configuration. The program plans to eventually field 179 aircraft in total.
The National Defense Authorization Act for Fiscal Year 2012 included a provision for GAO to review the KC-46 program annually through 2017. This report addresses progress made in 2015 toward (1) meeting cost and performance goals and (2) delivering the aircraft on schedule. GAO analyzed key cost, schedule, development, test, and manufacturing documents and discussed results with officials from the KC-46 program office, other defense offices, the FAA, and Boeing, the prime contractor.
section_title: What GAO Found
paragraphs: KC-46 tanker aircraft acquisition cost estimates have decreased for a third consecutive year and the prime contractor, Boeing, is expected to achieve all the performance goals, such as those for air refueling and airlift capability. As the table below shows, the total acquisition cost estimate has decreased from $51.7 billion in February 2011 to $48.2 billion in December 2015, about 7 percent, due primarily to stable requirements that led to fewer than expected engineering changes. The fixed price development contract also protects the government from paying for any development costs above the contract ceiling price.
Source: GAO presentation of Air Force data. | GAO-16-346
Regarding the schedule, the program office delayed the low-rate initial production decision 9 months because Boeing had problems developing the first four aircraft. Boeing has largely addressed the problems, but proposed a new schedule to reflect the delays. (See figure below.) Boeing still plans to deliver 18 operational aircraft to the Air Force by August 2017—assuming the Air Force approves production. Operational testing will be completed later, in October 2017. While aircraft deficiencies could be discovered late, the plan presents little cost risk to the government because Boeing must correct deficiencies using its own resources. Boeing plans to deliver the aircraft over 6 months, instead of 14.
Note: The original schedule included delivery of four development aircraft in operational configuration by May 2016. Under the current schedule the last of these aircraft will be delivered by November 2017.
Boeing has a challenging road ahead to complete testing and deliver aircraft. Test officials believe Boeing's test schedule is optimistic and it may not have all aircraft available when needed to complete planned testing. Boeing also has not gotten several key aerial refueling parts qualified by the Federal Aviation Administration (FAA) and cannot get final FAA certification of KC-46 aircraft until this occurs. Program officials estimate there are 4 months of schedule risk to delivering 18 aircraft by August 2017 due to testing and parts qualification issues. Boeing is working on ways to mitigate the schedule risks.
section_title: What GAO Recommends
paragraphs: GAO is not making recommendations at this time. DOD's technical comments on a draft are incorporated as appropriate in the final report.

section_title: Letter
paragraphs: The KC-46 tanker aircraft modernization program, valued at $48 billion, is  among the Air Force’s highest acquisition priorities and is intended to  provide aerial refueling to Air Force, Navy, Marine Corps, and allied  aircraft. The program recently completed its fifth year of a planned 7-year  development program to convert a commercial aircraft into an aerial  refueling tanker. Aerial refueling—the transfer of fuel from airborne  tankers to combat and airlift forces—is critical to the U.S. military’s ability  to effectively operate globally. KC-46 aircraft are expected to replace  almost 40 percent of the Air Force’s aging aerial refueling tanker fleet,  which totals 455 aircraft, and is primarily made up of the KC-135  Stratotanker. According to Air Force Air Mobility Command officials, the  KC-135 fleet is heavily used, with one taking off every 12 minutes in fiscal  year 2015 to complete nearly 44,000 missions. On average, these  tankers refuel 236 aircraft every day. However, they are now 55 years old  on average and require substantial maintenance, spending more than 24  percent of their time in repair. The Air Force plans to develop, test, and  accept delivery of 18 KC-46 tankers by August 2017, and eventually field  a total of 179 aircraft. The KC-46 fleet is expected to provide more  refueling capacity, efficiency, and capabilities than its predecessor.
The National Defense Authorization Act for Fiscal Year 2012 included  provisions for GAO to review and report on the KC-46 program through  2017.This is our fifth report reviewing the program. In this report, we  evaluate program progress made in 2015 toward (1) meeting cost and  performance goals; and (2) achieving schedule targets. See the Related  GAO Products section for a list of our previous reports on the KC-46  program.
To assess progress toward meeting cost and performance goals, we  examined Department of Defense (DOD) and Air Force cost estimates  contained in defense acquisition executive summary reports, selected  acquisition reports, and program briefings and we examined current  estimates of key and technical performance capabilities contained in  program briefings. To assess progress toward achieving schedule  targets, we examined various program office, Defense Contract  Management Agency, and Boeing (who is the prime contractor)  documents that allowed us to compare (1) program milestones  established at the start of development to current estimates, (2) planned  to actual ground and flight test hours and activities, and (3) original to  current production plans. Among others, documents included program  office schedule analyses, integrated test team documents, Defense  Contract Management Agency monthly assessments of the KC-46  program, and Boeing production schedules. We also examined annual  reports issued by the Deputy Assistant Secretary of Defense for Test and  Evaluation and the Director of Operational Test and Evaluation. As part of  our overall review, we attended monthly meetings between the program  office and Boeing to obtain additional insight on program progress. We  visited Boeing production facilities. Finally, we interviewed officials from  the Air Force’s KC-46 program office, other defense offices, the Federal  Aviation Administration (FAA), and Boeing on progress made in 2015. We  assessed the reliability of cost, schedule, test, and manufacturing data by  interviewing agency officials knowledgeable about the data, and we  determined that the data were sufficiently reliable for the purposes of this  report.
We conducted this performance audit from July 2015 to April 2016 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: In February 2011, Boeing won the competition to develop the Air Force’s  next generation aerial refueling tanker aircraft, the KC-46. Boeing was  awarded a fixed price incentive (firm target) contract for development  because KC-46 development was considered to be a relatively low-risk  effort to integrate military technologies onto a 767 aircraft designed for  commercial use. The contract is designed to hold Boeing accountable for  costs associated with the design, manufacture, and delivery of four test  aircraft and includes options to manufacture the remaining 175 aircraft. It  features two key delivery dates, requiring Boeing to first deliver four  development aircraft between April and May 2016, and second, if the Air  Force exercises the first two production options, deliver a total of 18  operational aircraft by August 2017. It also specifies that Boeing must  correct any deficiencies and bring development and production aircraft to  the final configuration at no additional cost to the government.In  addition, all required aircrew and maintainer training must be complete  and the required support equipment and sustainment support must be in  place by August 2017. The contract includes firm-fixed-price contract  options for the first and second production lots in 2016, and options with  “not-to-exceed” ceiling prices for lots 3 through 13. Barring any changes,  the development contract specifies a target price of $4.4 billion and a  ceiling price of $4.9 billion, at which point Boeing assumes responsibility  for all additional costs. By December 2015, both Boeing and the program  office estimated that Boeing would incur additional costs to complete  development of the aircraft of about $769 million and $1.4 billion,  respectively.
To develop a tanker, Boeing modified a 767 aircraft in two phases:  In the first phase, Boeing modified the design of the 767 with a cargo door  and an advanced flight deck display, borrowed from its new 787, and is  calling this modified design the 767-2C. The 767-2C is being built on  Boeing’s existing production line. In the second phase, a 767-2C was  militarized and brought to a KC-46 configuration.
The KC-46 will allow for two types of refueling to be employed in the  same mission— a refueling boom that is integrated with a computer- assisted control system and a permanent hose and drogue refueling  system. The boom is a rigid, telescoping tube that an operator on the  tanker aircraft extends and inserts into a receptacle on the aircraft being  refueled. The “hose and drogue” system involves a long, flexible refueling  hose stabilized by a drogue (a small windsock) at the end of the hose.  See Figure 1 for a depiction of the conversion of the 767 aircraft into the  KC-46 tanker with the boom deployed.
The FAA has previously certified Boeing’s 767 commercial passenger  airplane (referred to as a type certificate) and will certify the design for  both the 767-2C and the KC-46 with amended and supplemental type  certificates, respectively. The Air Force is responsible for certifying that  the KC-46 works as intended. The Air Force will also verify that the KC-46  systems meet contractual requirements and certify the KC-46 with various  specified receiver aircraft for refueling operations.
section_title: Estimated Program Costs Are Decreasing and Performance Goals Are Expected to Be Met
paragraphs: For the third consecutive year, the program office has reduced its  acquisition cost estimate and it continues to estimate that Boeing will  meet performance goals. The total KC-46 program acquisition cost  estimate (development, procurement, and military construction costs) has  decreased $3.5 billion or about 7 percent—from $51.7 billion to $48.2  billion—since the program started in February 2011. The decrease is due  primarily to stable requirements, fewer than expected engineering  changes, and changes in military construction plans. In addition, the  government competitively awarded a contract for an aircrew training  system at a lower price than originally projected. Average program  acquisition unit costs have decreased by about the same percent  because quantities have remained the same. Table 1 provides a  comparison of the initial and current quantity and cost estimates for the  program.
The current development cost estimate of $6.3 billion includes:   $4.9 billion for Boeing’s aircraft development contract;  nearly $1 billion for other costs, including training systems development,  program office support, and test and evaluation support; and   roughly $400 million for risks associated with developing the aircraft and  training systems.
The program office estimates that Boeing will meet key performance  capabilities, such as those related to air refueling and airlift, but has not  yet fully verified the estimates through ground and flight testing. Boeing  has developed a set of seven technical performance measures to gauge  its progress toward meeting these key capabilities, and the program  currently predicts that Boeing is on track to meet these measures. For  example, the program projects that the aircraft will be able to perform one  of its assigned missions at least 92 percent of the time, and that  maintainers will be able to fix aircraft problems within 12 hours at least 71  percent of the time. Appendix I lists the status of KC-46 technical  performance capabilities.
section_title: Program Has Revised Testing and Delivery Schedules Due to Problems Early in Development
paragraphs: The KC-46 program originally planned to hold its low-rate initial  production decision in August 2015, but had to delay the decision 9  months, to May 2016, because Boeing experienced problems developing  the aircraft. Although these problems have largely been addressed,  Boeing and the government had to revise test and delivery schedules.  The changes deferred development aircraft deliveries and, if the Air Force  exercises its first two production lot options, will compress production  aircraft deliveries. As Boeing implements the new schedule, challenges to  flight test completion could affect its ability to deliver aircraft on time.
subsections: section_title: Boeing Experienced Problems Developing the Aircraft that Delayed the Production Decision
paragraphs: Since the critical design review in July 2013, Boeing has made progress  developing the aircraft’s systems, including the extensive electrical and  fueling systems that will allow the KC-46 to perform its primary mission.  Boeing has also developed and integrated the software needed to  support KC-46 operations. Boeing, however, experienced three major  development challenges that ultimately contributed to a 9-month delay to  the low-rate initial production decision. The following is a summary of  these development challenges and steps Boeing has taken to address  them.
Wiring design issues: Wiring on the first development aircraft was nearly  complete in the spring of 2014 when Boeing discovered wire separation  issues caused by an incorrect wiring design. Boeing officials told us that a  subsequent wiring audit found thousands of wire segments that needed to  be changed. Boeing officials estimate that these changes affected about  45 percent of the 1,700 wire bundles on the aircraft. Boeing suspended  wiring installation on the remaining three development aircraft for several  months while it worked through the wiring issues on the first development  aircraft. The required wiring rework led to a delay in the first flight of the  first development aircraft and to manufacturing delays on the other  development aircraft. Although Boeing has largely addressed this issue, it  continues to execute some wiring rework across each of the development  aircraft.
Aerial refueling system redesign: Boeing identified several aerial refueling  parts that needed to be redesigned. For example, according to program  officials, the single-point refueling manifold, which is a mechanism that  distributes and regulates the flow of fuel to various components,  contained a coupler that was not built to withstand the pressure  experienced during refueling operations. Following failures during testing,  Boeing redesigned the manifold and began using a coupler manufactured  by a different supplier. According to officials, Boeing also determined that  the process used to manufacture the fuel system’s fuel tube welds did not  meet requirements. Boeing has since changed the weld process and  implemented an x-ray inspection process for these parts. The process  changes caused a delay to the first flight of the second development  aircraft, which is being used for aerial refueling testing.
Fuel contamination: A mislabeled fuel substitute used for ground testing  in July 2015 led to the contamination of the fuel system on the second  development aircraft and resulted in another delay to its first flight.  According to Boeing, a distributor provided a product improperly labeled  as a fluid approved for use as a fuel substitute. The material provided by  the distributor and used during a ground test was an industrial cleaner  and is highly damaging to aluminum. The incident became apparent when  seals in the fuel system began to leak about 30 days after the substance  was introduced. By then, the aircraft’s centerline drogue system, fuel  manifold, and piping were corroded. Due to the extent of the corrosion,  Boeing had to take parts from the third development aircraft to repair the  second development aircraft’s damaged fuel system. Since that time,  Boeing has had difficulty obtaining replacement parts for the third  development aircraft from a new supplier and had to delay some testing  on that aircraft. Boeing considers the contamination of the fuel system a  one-time event and no longer uses the supplier responsible for  mislabeling the packaging of the fuel substitute.
section_title: Boeing Plans to Deliver Aircraft in a Compressed Timeframe
paragraphs: As a result of the development problems, Boeing has used all of its  schedule reserve and had to revise its testing schedule. To preserve the  August 2017 operational aircraft delivery date, Boeing and the Air Force  also had to revise the aircraft delivery schedule. Originally, Boeing  contracted to complete developmental flight testing and deliver the four  development aircraft by April and May 2016. Boeing planned to conduct  operational testing starting in April 2016 and to complete that testing in  October 2016. Boeing also planned to bring the four development aircraft  to operational configuration and deliver those aircraft, along with 14  additional production aircraft, to the Air Force over 14 months, prior to  August 2017.
The current schedule is much more compressed because Boeing has not  completed the developmental flight test program. As of January 2016  Boeing has two development aircraft flying developmental flight tests. The  other two aircraft are expected to be ready for developmental flight testing  in early March and April 2016, respectively. Boeing now plans to deliver  four production aircraft to the Air Force to begin operational testing in May  2017, a year later than originally contracted. It plans to bring two  development aircraft to operational configuration and deliver those  aircraft, along with 16 additional production aircraft (2 more than it  originally planned to deliver in this timeframe), to the Air Force over the 6  months leading up to August 2017. Operational testing will be completed  about 2 months after the aircraft are delivered. While this risks late  discoveries of aircraft deficiencies, Boeing must correct them at its own  cost. Figure 2 illustrates the original and current schedules for test and  delivery.
In anticipation of the Air Force exercising its options for production lots 1  and 2, Boeing recently began building low-rate initial production aircraft  using its own resources. Boeing also plans to enhance its production  capabilities by opening a second finishing center to militarize 767-2C  aircraft and bring them to a KC-46 configuration. Assuming the Air Force  exercises its options for production lots 1 and 2, program officials stated  that Boeing may need an additional 4 months beyond August 2017 to  deliver all 18 aircraft due to challenges it faces with its developmental test  program.
section_title: Boeing Faces Challenges Completing Revised Developmental Test Program
paragraphs: Boeing is about 2 years into its developmental test program to determine  if the aircraft works as intended. The developmental test program  contains about 700 ground and flight test activities to be completed over a  38-month period. At the end of January 2016, Boeing had completed 114  of the test activities. This included a demonstration of the aircraft’s aerial  refueling capability with an F-16 aircraft using the boom, which is needed  to support the low-rate initial production decision. Boeing faces two  primary challenges to completing its planned developmental test program.  These challenges and actions Boeing is taking to address them are  described below.
Complete optimistic test program: Since Boeing lost time addressing  problems while developing the aircraft, it must now attain a high degree of  test efficiency to adhere to the new schedule. Test efficiency refers to  Boeing’s ability to complete scheduled test activities on time. DOD  developmental test officials believe that the schedule for completing the  remaining test activities is risky because Boeing has not completed test  activities at the rate it planned and upcoming tests will be more complex.  In January 2016, for example, Boeing completed 7 of 55—13 percent—of  the test activities that had been scheduled for that month because aircraft  were in maintenance longer than expected, there were delays in  completing earlier ground testing, and Boeing may have overestimated  how much it could complete with two aircraft. Overall, as shown in figure  3, Boeing had planned to complete 29 percent of its total test activities  through January 2016, but has completed 16 percent.
Boeing may also face difficulties achieving the test efficiency it needs to  complete the remaining 84 percent of the test activities. For example,  Boeing may have overestimated how many flight hours it can complete  over the next several months because the last two development aircraft  will begin flight testing later than expected due to production delays.  Further, upcoming test activities will focus to a large extent on  demonstrating KC-46 aerial refueling capabilities, which test officials  consider to be more complex than the testing already completed. Finally,  the company must still complete tests that were not performed in earlier  months, which had not been factored into the latest test plans provided  for our review.
To mitigate these risks, Boeing test officials told us that they are working  to improve test efficiency. For example, testers are continually reviewing  test plans to identify areas to reduce duplication or eliminate unproductive  activities.
Obtain FAA approval of key components: FAA and program officials  report that while most of the KC-46 components have been deemed  ready for certification by the FAA, two key aerial refueling systems have  not. In order to obtain airworthiness certification from the FAA, the KC-46  and its components must be designed, built, and then tested through the  FAA’s regulatory process. The supplier for the centerline drogue system  and wing aerial refueling pods, however, built the systems without  following FAA processes. Consequently, the supplier was told by the FAA  in late 2014 that the FAA would need to inspect the individual parts to  ensure design conformance. During this process, the supplier discovered  a design flaw with the aerial refueling pods, which caused further delays.  Originally, Boeing estimated that these components would be ready for  the FAA to certify by February 2014, and it now projects that they will be  ready by July 2017, over 3 years later.
To help mitigate schedule risk, Boeing obtained FAA approval in January  2016 to begin testing the KC-46 developmental aircraft without the two  aerial refueling components being fully qualified. This will allow the  program to proceed with most of the KC-46 certification testing. Once the  remaining components have completed qualification testing, Boeing will  need to conduct some additional testing to reach full airworthiness  certification for the aircraft. The Air Force would then be able to conduct  its review to determine that the aircraft and all its systems meet contract  requirements and conform to the final design. However, because of these  and earlier development delays, Boeing will not be able to complete  development activities until June 2018, 5 months later than required. The  Air Force and Boeing have agreed in principle to contract changes that  reflect the delay. In exchange for extending the development aircraft  delivery schedule, Boeing will provide, among other things, 4 production  aircraft for operational testing and additional test infrastructure at Boeing  Field to support a receiver aircraft needed for system specification  verification and aerial refueling certification testing.
After Boeing completes the developmental flight test program, the Air  Force will begin 5 ½ months of operational testing to determine if the KC- 46 aircraft performs effectively and suitably in its operating environment.
Boeing has solved many of its early manufacturing problems and has  taken steps to mitigate potential schedule risks. However, the company  has a challenging road ahead in testing and delivering aircraft in a  compressed amount of time, including possibly producing two more  operational aircraft than it originally planned. If the Air Force exercises its  options for production lots 1 and 2, any future delays may affect Boeing’s  ability to deliver all 18 operational aircraft by August 2017, but that risk is  being measured in months rather than years.
section_title: Agency Comments
paragraphs: We are not making any recommendations in this report. We provided a  draft of this report to the KC-46 program office for review and comment.  The program office provided technical comments, which we incorporated  into this report as appropriate.
We are sending copies of this report to the appropriate congressional  committees; the Secretary of Defense; the Secretary of the Air Force; and  the Director of the Office of Management and Budget. The report is also  available at no charge on the GAO website at http://www.gao.gov.
If you or your staffs have any questions concerning this report, please  contact me at (202) 512-4841 or sullivanm@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. GAO staff who made major contributions to  this report are listed in appendix II.
section_title: Appendix I: Status of KC-46 Technical Performance Capabilities
subsections: section_title: Technical performance measure Operational empty weight
paragraphs: Description  Maximum weight of the aircraft without usable fuel.
Gallons of fuel per hour used by the aircraft during a mission.
Percentage of time aircraft performed at least one assigned mission.
Percentage of time mechanical problems were fixed within 12 hours  (after 50,000 fleet hours).
Percentage of breaks per sorties (after 50,000 fleet hours.
Probability of completing the aerial refueling mission and landing  safely.
Probability an aircraft will be ready for operational use when  required.
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Cheryl Andrew, Assistant  Director; Andrea Bivens; Kurt Gurka; Stephanie Gustafson; Kristine  Hassinger; Katheryn Hubbell; Roxanna Sun; and Nate Vaught made key  contributions to this report.
section_title: Related GAO Products
paragraphs: GAO, KC-46 Tanker Aircraft: Key Aerial Refueling Capabilities Should Be  Demonstrated Prior to the Production Decision, GAO-15-308  (Washington, D.C.: April 9, 2015).
GAO, KC-46 Tanker Aircraft: Program Generally on Track, but Upcoming  Schedule Remains Challenging, GAO-14-190 (Washington, D.C.: April  10, 2014).
GAO, KC-46 Tanker Aircraft: Program Generally Stable but  Improvements in Managing Schedule Are Needed, GAO-13-258  (Washington, D.C.: February 27, 2013).
GAO, KC-46 Tanker Aircraft: Acquisition Plans Have Good Features but  Contain Schedule Risk, GAO-12-366 (Washington, D.C.: March 26,  2012).