KC-46 Tanker Aircraft: Key Aerial Refueling Capabilities Should Be Demonstrated Prior to the Production Decision
Published: 2015-04-09T00:00:00

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. Yet the mainstay of the U.S. tanker forces—the KC-135 Stratotanker—is over 50 years old. It is increasingly costly to support and its age-related problems could potentially ground the fleet. As a result, the Air Force initiated the $49 billion KC-46 program to replace the aerial refueling fleet. The program plans to produce 18 tankers by 2017 and 179 aircraft in total.
The National Defense Authorization Act for Fiscal Year 2012 included provisions for GAO to annually review the KC-46 program through 2017. This report addresses progress made in 2014 towards (1) achieving cost and performance goals, (2) meeting schedule targets, and (3) gathering manufacturing knowledge prior to the low-rate production decision. GAO analyzed key program documents and discussed development and production plans and results with officials from the KC-46 program office, other defense offices, and the prime contractor.
section_title: What GAO Found
paragraphs: The KC-46 acquisition cost estimate has declined by about 5.4 percent from $51.7 billion to $48.9 billion since February 2011 and the program is on track to meet performance goals. Most of the estimated cost decline is due to fewer than expected engineering changes and changes in military construction plans.
The Air Force delayed the production decision two months, to October 2015, due to wiring problems that Boeing experienced that delayed aircraft delivery and testing. For example, Boeing completed 3.5 hours of flight testing during a single flight of the 767-2C (a precursor to the KC-46 tanker) in 2014, compared to nearly 400 flight test hours it planned to conduct. With program office approval, Boeing restructured its nearly 2,400 development flight test hour plan to focus on demonstrating key KC-46 aerial refueling capabilities required for the production decision. Significantly less testing will now be conducted prior to the decision and only three test months will be on a KC-46, compared to the original plan of 13 months. This testing is intended to demonstrate design maturity and fix design and performance problems before a system enters production. Boeing remains at risk of not being able to demonstrate the aerial refueling capabilities in time to meet the new production decision date due to late parts deliveries, software defects, and flight test cycle assumptions, which could result in additional delays.
Program officials are gathering manufacturing knowledge to support a production decision, such as determining if suppliers can produce military subsystems in a production environment. However, the program office will have less knowledge about the reliability and performance of the KC-46 than planned because of reduced testing prior to the decision. While this increases the risk of discovering costly problems late in development, contract provisions specify that Boeing must correct these at no cost to the government.
section_title: What GAO Recommends
paragraphs: GAO recommends that the Air Force ensure that key aerial refueling capabilities are demonstrated prior to holding the production decision. The Air Force concurred with the recommendation.

section_title: Letter
paragraphs: The KC-46 tanker modernization program, valued at $49 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. It  recently completed its fourth year of a planned seven-year development  program to convert an aircraft designed for commercial use into an aerial  refueling tanker. Aerial refueling—the transfer of fuel from airborne  tankers to combat and airlift forces—allows U.S. military aircraft to fly  farther, stay airborne longer, and transport more weapons, equipment,  and supplies, and is critical to the U.S. military’s ability to project power  overseas and to effectively operate within a combat theater. KC-46  aircraft are expected to replace almost forty percent of the Air Force’s  aging aerial refueling tanker fleet, including the KC-135 Stratotanker. The  KC-135, currently the mainstay of the U.S. tanker force, is now over 50  years old on average and costs increasingly more to maintain and  support, with additional concerns that age-related problems could  potentially ground the fleet. The Air Force plans to develop, test, and field  18 KC-46 tankers by August 2017, and eventually field a total of 179  aircraft.
The National Defense Authorization Act for Fiscal Year 2012 requires that   This  we annually review and report on the KC-46 program through 2017.is our fourth report reviewing the program. In our three previous reports,  we made recommendations to the Department of Defense (DOD) to  improve the program, and DOD has addressed some of them. Appendix I  lists each of the reports, our recommendations, and what DOD has done  or is planning to do to address these recommendations. In this report, we  evaluated program progress towards (1) achieving cost and performance  goals; (2) meeting schedule targets; and (3) obtaining critical  manufacturing knowledge prior to the low-rate production decision.
To assess progress toward achieving cost goals in the calendar year of  this review (2014), we analyzed briefings by program and contractor  officials; financial management documents; program budgets; defense  acquisition executive summary reports; and selected acquisition reports.  To measure progress toward achieving performance goals, we reviewed  current estimates of key performance parameters, key system attributes,  and technical performance metrics and compared them to threshold and  objective requirements. We also discussed changes in cost and  performance data with the KC-46 program office, other defense offices,  and the prime contractor, the Boeing Company (Boeing).
To assess progress toward meeting schedule targets, we analyzed test,  software, and manufacturing plans and metrics. We also compared  program milestones established when the program began to current  estimates and reviewed Defense Contract Management Agency monthly  assessments of KC-46 schedule health and program office schedule  analyses. We discussed schedule related issues with the Air Force’s KC- 46 program office, other defense offices, and Boeing. We visited Boeing’s  commercial production line and its facilities for system integration and  military modifications, and obtained information on the program’s testing,  software, and manufacturing plans and progress.
To evaluate progress towards obtaining critical manufacturing knowledge  prior to the low-rate production decision, we analyzed program office and  Boeing documents, such as manufacturing status briefings, system  engineering plan, and failure modes and effects analysis. Using these  documents, we evaluated whether the program was capturing  manufacturing knowledge recommended in prior GAO best practices  work. This included reviewing manufacturing readiness assessments and  comparing the results to DOD guidance and manufacturing best practices  identified in prior GAO work. Lastly, we interviewed program and Boeing  officials to discuss their progress in capturing critical manufacturing  knowledge.
We conducted this performance audit from July 2014 to April 2015 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 is considered to be a relatively low-risk  effort to integrate mostly mature military technologies onto an aircraft  designed for commercial use. The contract is for the design, manufacture,  and delivery of four test aircraft and includes options to manufacture the  remaining 175 aircraft. The contract requires Boeing to deliver 18  operational aircraft by August 2017 and specifies that Boeing must  correct any required deficiencies and bring development and production  aircraft to the final configuration at no additional cost to the government.  The contract limits the government’s financial liability and provides the  contractor incentives to reduce costs in order to earn more profit. Barring  any changes to KC-46 requirements by the Air Force, the contract  specifies a target price of $4.4 billion and a ceiling price of $4.9 billion, at  which point Boeing must assume responsibility for all additional costs. As  of December 2014, Boeing and the program office estimated costs would  be over the ceiling price by about $380 million and $1.4 billion,  respectively. The program office estimate is higher because it includes  additional costs associated with performance as well as cost and  schedule risk.
In all, the Air Force expects 13 production lots of aircraft to be delivered.  The contract includes firm fixed price contract options for the first  production lot in 2015 and the second production lot in 2016, and options  with not-to-exceed firm fixed prices for production lots 3 through 13.  According to program officials, Boeing plans to use a combination of  development and production aircraft to meet the contractual requirement  to deliver 18 aircraft by August 2017.
Boeing plans to modify the 767 aircraft in two phases to produce a  militarized aerial refueling tanker.
In the first phase, Boeing is modifying the 767 by adding a cargo door  and an advanced flight deck display borrowed from its new 787, and  calling this modified version the 767-2C. The 767-2C will be built on  Boeing’s existing production line.  In the second phase, the 767-2C will proceed to the finishing center to  become a KC-46. It will be militarized by adding aerial refueling  equipment, an aerial refueling operator’s station that includes  panoramic three-dimensional displays, and threat detection and  avoidance systems.
The aerial refueling equipment 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 Air  Force fixed-wing aircraft being refueled. Air Force helicopters and all  Navy and Marine Corps aircraft refuel using the “hose and drogue”  system, which 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 Federal Aviation Administration has previously certified Boeing’s 767  commercial passenger airplane and will certify the design for both the  767-2C and the KC-46. The Air Force is responsible for certifying the KC- 46 and its military systems. The Air Force will also verify that the KC-46  systems meet contractual requirements and that the KC-46 and various  receiver aircraft are certified for refueling operations.
section_title: Program Cost Estimates Have Decreased and It is on Track to Meet Performance Goals
paragraphs: KC-46 total program acquisition cost estimates (development,  procurement, and military construction costs) have declined from $51.7  billion to $48.9 billion—$2.8 billion or about 5.4 percent—since the  program started in February 2011. Most of the estimated decline in costs  is due to fewer than expected engineering changes, savings from a  competitively awarded aircrew training system contract, and changes in  military construction assumptions. The program office projects that the  KC-46 will meet all key performance goals, including providing fuel to  other aircraft, by the end of development.
subsections: section_title: Cost Estimates Have Declined
paragraphs: The total cost to develop, procure, and field the KC-46 has declined by  about $2.8 billion from the February 2011 baseline, a 5.4 percent  decrease. The decrease is comprised of a reduction of approximately  $579 million in development funding, $1.2 billion in procurement funding,  and $980 million in military construction funding. Average program  acquisition unit costs have declined by the same percent because  quantities have remained the same. Table 1 summarizes the initial and  current estimated quantities and costs for the KC-46 program.
Both the development and procurement cost estimates have declined, in  part, because there have not been any major engineering changes since  a successful critical design review or significant technical risks that  program officials believe need to be addressed moving forward. In  addition, the government competitively awarded a contract for an aircrew  training system at a lower price than originally projected. The current  development cost estimate of approximately $6.6 billion reflects a  decrease of about $579 million from the original estimate. The estimate  includes $4.9 billion for the aircraft development contract and four test  aircraft, $300 million for aircrew and maintenance training systems, and  $1.4 billion for other government costs such as program office support,  test and evaluation support, and other developmental risks related to the  aircraft and training systems. The procurement cost estimate of $39  billion is about $1.2 billion less than the original estimate and will be used  to procure 175 production aircraft, initial spares, and other support  equipment.
The military construction estimate of $3.3 billion includes the projected  costs to build or modify aircraft hangars, maintenance and supply shops,  and other facilities to house and support the KC-46 fleet. The estimate is  $980 million less because of changes in military construction plans. For  example, the program will now modify more facilities and construct fewer  ones. In addition, the Air Force has decided to pay for some military  construction activities out of a central account rather than using program  funds.
section_title: Program on Track to Meet Key Performance Goals
paragraphs: The program office projects that the KC-46 aircraft will meet all of its key  performance goals, including receiving fuel from other tankers; providing  fuel to about 36 receiver aircraft, according to an Air Force official’s  projection; and having a certain amount of fuel to offload at various  distances. According to program officials, the current assessment is  based on their engineering expertise and the level of effort necessary to  meet the requirements. Ultimately, these performance goals will be  validated primarily through ground and flight testing. Table 2 includes a  description of the program’s key performance goals.
In June 2013, the Air Force Operational Test and Evaluation Center  published its own independent evaluation of whether the KC-46 aircraft  was on track to meet the key performance goals. The center identified a  few issues, such as drogue hose instability and 3-D display anomalies  that could affect Boeing’s ability to meet the tanker aerial refueling  capability key performance parameter. In general though, the center  agreed that the program was on track to meet all of the goals based on its  interviews with subject matter experts and examination of design  documents and laboratory test results. Program officials told us that the  center’s next assessment is scheduled to be issued in the fall of 2015 and  will be based on flight, ground, and laboratory test data.
Boeing has also developed a set of technical performance measures to  gauge its progress towards meeting contract specifications and three of  the key performance goals, including those related to fuel offload,  reliability and maintainability, and operational availability. For example,  one measure related to the amount of fuel that the aircraft can carry  certain distances (fuel offload versus radius) tracks operational empty  weight because, in general, every pound of excess weight equates to a  corresponding reduction in the amount of fuel the aircraft can carry to  accomplish its primary mission. Table 3 describes the seven technical  performance measures, depicts the minimum contractual specification or  target for each, and identifies the current status as of December 2014.
The program office is projecting that it will meet each of the technical  performance measures. For example, program officials currently project  that the aircraft will meet the weight target of 204,000 pounds. The  program office assesses the measures on a monthly basis, relying on  data from testing, models and simulations, prior tanker programs, and  actual data (such as aircraft weight).
section_title: Wiring Issues Have Impacted the Program Schedule and Other Challenges Pose Risk to the Flight Test Pace
paragraphs: Due to wiring problems, Boeing has had scheduling delays in delivering  the first developmental aircraft, even though it met all of its program  milestones leading up to the critical design review in July 2013. In  addition to using up almost all of the 5 month schedule margin, these  problems have led Boeing and the program office to delay the first flight of  the first development aircraft by almost 7 months to December 2014, and   by 2 months to October 2015. As  the KC-46 low-rate production decisiona result of the wiring problems, Boeing only completed 3.5 hours of flight  testing in 2014, compared to nearly 400 flight test hours it planned to  conduct. Figure 2 illustrates the delays to key milestones since the  program began in February 2011.
With the program office’s approval, Boeing revised its nearly 2,400  development flight test hour plan to account for wiring-related delays and  to focus on demonstrating key KC-46 aerial refueling capabilities that are  required for the production decision. Under the revised schedule, Boeing  will now complete roughly 22 percent of development flight testing prior to  the low-rate production decision compared to its original plan of 66  percent, providing DOD with less flight test knowledge at this program  milestone. In addition, only 3 test months will be on a KC-46 prior to the  decision compared to the original plan of 13 months. Other development  challenges, including late delivery of parts, software defects, and  assumptions related to flight test cycle times pose additional risk to the  flight test pace needed to demonstrate aerial refueling capabilities. These  challenges could result in additional schedule delays.
subsections: section_title: Program Has Experienced Schedule Delays Due to Wiring Problems
paragraphs: Boeing discovered wire separation issues while it was manufacturing the  first development aircraft, which were caused by an inaccurate wiring  design. After discovering this in the spring of 2014, Boeing spent six  weeks conducting an audit to identify the scope of the problem and  develop potential fixes. Wiring on the first development aircraft was over  90 percent complete when the audit started. Boeing officials told us that  the audit found thousands of wire segments that needed to be changed.  Boeing officials estimate that these changes impacted 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. Boeing officials told us that they have resolved the wire  separation issues and have resumed manufacturing the second  development aircraft. Due to its fixed price contract, Boeing bore the cost  to fix the wiring issues, which Boeing officials estimated at approximately  $40 million.
As a result of these problems, Boeing did not execute the first year of the  flight test program as planned, flying only 3.5 hours in calendar year 2014  compared to its plan of flying nearly 400 hours, about 1 percent. Boeing  had planned to use four aircraft for flight test activities in 2014; however, it  was only able to complete one flight at the end of December 2014 on one  aircraft—a 767-2C. That aircraft is not scheduled to make another flight  until April 2015 because Boeing has to perform additional work, such as  completing ground testing and installing modified body fuel tanks. Boeing  projects that the second development aircraft—a KC-46 tanker—will  begin testing in June 2015.
section_title: Moving Forward, Pace of Revised Development Flight Test Schedule May Be Too Optimistic Given Remaining Challenges
paragraphs: Boeing revised the development test schedule to acknowledge the wiring- related delays. In doing so, it significantly reduced testing on each aircraft  prior to the October 2015 low-rate production decision than originally  planned. Figure 3 depicts the decrease in the amount of flight testing prior  to the low-rate production decision.
Under the baseline schedule, Boeing would have completed 36 months of  flight testing across the four development aircraft prior to the low-rate  production decision. This would have enabled Boeing to complete about  66 percent of the nearly 2,400 development flight test hours, including  aerial refueling demonstration flights that are entrance criteria for that  decision, as well as some of the activities necessary to support the start  of initial operational test and evaluation.Boeing plans to complete a little more than 8 months of flight testing prior  to the low-rate production decision, or about 22 percent of development  flight test hours. According to program officials, the vast majority of the  KC-46 testing over the next several months will now be spent on  demonstrating aerial refueling capabilities—a key data point necessary to  hold the low-rate production decision. They also stated that the second   Under the revised test schedule,  development aircraft—a KC-46 tanker—will be used to support the  demonstrations, and any flight test delays of that aircraft will create day  for day delays in the program. Flight test delays would also increase  schedule risk for later milestones, most notably to the start of operational  testing. The revised plan increases concurrency between development  test and production, but not significantly.
The intent of developmental testing is to demonstrate the maturity of a  design and to discover and fix design and performance problems before a  system enters production. Our past work has shown that beginning  production before demonstrating that a design is mature and that a  system will work as intended increases the risk of discovering deficiencies  during production that could require substantial design changes and  costly modifications to systems already built.
The program is also working to resolve other development challenges  that pose additional schedule risk to the flight test pace needed to  demonstrate aerial refueling capabilities, such as late delivery of parts,  software defects, and assumptions related to flight test cycle times. These  challenges could result in additional schedule delays. The following is a  summary of these development challenges and any steps Boeing is  taking to address them.
Late delivery of parts for aircraft final assembly: Boeing’s suppliers are  having difficulties delivering several key aerial refueling parts. For  example, the telescope actuator, which extends and retracts the  boom, needs to be redesigned in order to work properly. A redesigned  telescope actuator is tentatively scheduled to be delivered in April  2015, enabling the boom that will be used to support the July/August  2015 demonstration flights to be delivered two weeks prior to its June  2015 need date. In another example, the supplier of the wing aerial  refueling pod and centerline drogue system is experiencing delays in  delivering these subsystems due to design and manufacturing issues  with a number of parts. To stay within schedule targets, Boeing and  the supplier have developed a plan to complete parts qualification  testing and safety of flight testing in parallel. Program officials have  said that one of the risks of this parallel approach is that discoveries  during safety of flight testing could drive design changes that would  then require qualification testing to be re-done. Boeing has sent  engineers and other staff to help the aerial refueling suppliers  overcome these challenges, and held regular management meetings  to stay abreast of the latest developments.
Defects in delivered software: Boeing and the program office consider  the resolution of software problems as one of the program’s top risks.  According to program documentation, open problem reports may have  peaked in December 2014, at roughly 780 priority problem reports.  Boeing fixed 170 of these problems over the past few months. As of  March 2015, however, a little over 600 problem reports were still not  resolved, including several hundred that must be addressed prior to  the KC-46 first flight, currently planned for June 2015. Many of these  problems are related to the military subsystems and either adversely  affect the accomplishment of an essential operational or test capability  or increase the project’s technical, cost, or schedule risk—and no  workaround solution is known. Additional problems may be identified  as Boeing integrates the last two software modules related to aerial  refueling. Boeing expects to fully integrate these software modules in  April 2015, about 10 months later than originally planned.
Flight test cycle time assumptions: The program may not be able to  meet the established timeframes, or cycle times for flight testing. Both  Boeing and the program office regard maintaining the planned flight  test rate of 65 hours per month for the 767-2C aircraft and 50 hours  per month for the KC-46 aircraft’s military tests as one of the  program’s greatest risks. DOD test organizations have shown that the  planned military flight test rate is more aggressive than other  programs have demonstrated historically. The Director of  Operational Test and Evaluation also reported that the test schedule  does not include sufficient time to address deficiencies discovered  during tests. Despite these concerns, Boeing predicts that it can  achieve the flight test rates as it has local maintenance and  engineering support and control over the flight test priorities as testing  is being conducted at Boeing facilities. Deviations from its proposed  flight test cycle times could pose risk to the program’s ability to  capture the knowledge necessary to hold the low-rate production  decision in October 2015.
Boeing provided an updated schedule to the program office in January  2015 that may address some of the risks we highlighted. As part of the  updated test plan, the program office and Boeing also revised their  approach to conducting operational test and receiver aircraft certification.  The new approach re-phases some receiver aircraft certification and  shifts test execution responsibility for 10 receiver aircraft from Boeing to  the government. This approach may result in adding additional risk to the  program should the Air Force fail to complete the testing on time. The  new schedule and associated contract modifications are expected to be  approved by early 2015. Program officials stated that they are reviewing  the information to determine whether they need to further adjust  milestone dates, including the low-rate production decision and the start  of operational test. That analysis has not yet been completed.
section_title: Program is Continuing to Gather Manufacturing Knowledge to Support the Production Decision
paragraphs: The program office and Boeing continue to collect most of the necessary  manufacturing knowledge to make informed decisions as the program  approaches its low-rate production decision in October 2015. However,  the program is behind in some of these activities, which will make it  difficult for program officials to assess the reliability of the aircraft prior to  production, and could also mean less efficient production processes.
Last year we began reporting on the program’s efforts to capture  manufacturing knowledge that is important to make a well informed low- rate production decision. This knowledge is based on practices we  identified in previous work that are used by leading commercial  companies, including (1) identifying key system characteristics and  critical manufacturing processes; (2) establishing a reliability growth plan  and goals; (3) conducting failure modes and effects analysis; (4)  conducting reliability growth testing; (5) determining whether processes  are in control and capable; and (6) testing a production-representative  prototype in its intended environment. Table 4 provides a description of  these activities and progress the KC-46 program has made for each.
Identify key system characteristics and critical manufacturing processes:  Since the 767-2C will be manufactured on Boeing’s existing 767  production line, the program office and Boeing have focused their  attention on identifying the key system characteristics and critical  manufacturing processes for the military unique subsystems. They have  identified these processes and completed two prior rounds of  assessments in support of the preliminary and critical design reviews.  Currently, they are assessing nine critical manufacturing processes for  low-rate production, such as the assembly and installation of aerial  refueling components. Six of the assessments have been completed,  including the assembly and test of the wing aerial refueling pod and  centerline drogue system that had been delayed over four months. As  mentioned previously, the supplier has had difficulty delivering these  subsystems on time due to design and manufacturing issues with a  number of parts. The program did not identify any action items for two of  the completed assessments. For the other four, Boeing must undertake  several actions, including developing a plan on how it would qualify and  deliver key parts on time, such as the telescope actuator and the refueling  receptacle panel. The remaining three assessments are expected to be  completed in early summer 2015. The results were not available for us to  analyze during this review.
Set reliability growth plan and goals: The program office has established  a reliability growth curve and goal. To assess reliability growth, the  program is tracking the mean time between unscheduled maintenance  events due to equipment failure, which is defined as the total flight hours  divided by the total number of incidents requiring unscheduled  maintenance. These failures are caused by a manufacturing or design  defect and require the use of Air Force resources, such as spare parts or  manpower, in order to fix them. The program has set a reliability goal of  2.83 flight hours between unscheduled maintenance events and expects  to be at 2 hours at the start of initial operational test and evaluation. Since  the first flight dates have slipped on all four development aircraft, the  program will likely have less reliability knowledge than planned prior to its  low-rate production decision.
Conduct failure modes and effects analysis: Boeing has completed the  initial failure modes and effects analysis that covers 41 subsystems and  plans to update it as flight testing is conducted. Boeing and the program  office rely on this analysis to determine which subsystems on the aircraft  are likely to fail, when and why they fail, and whether those subsystems’  failures might threaten the aircraft’s safety.
Conduct reliability growth testing: Boeing has taken steps to improve the  aircraft’s reliability, but is behind in its reliability growth efforts because of  delays to the start of development flight testing. Boeing is currently testing  prototypes of critical parts, uncovering failures, and incorporating design  changes or manufacturing process improvements. For example, program  officials told us that Boeing has initiated testing in its labs and facilities  and its subcontractors’ equipment must pass specific test procedures to  be considered acceptable. Boeing conducted the 767-2C first flight at the  end of December 2014, which will allow the program to begin tracking the  aircraft’s reliability against the growth curve (i.e., in terms of mean time  between unscheduled maintenance). However, this was almost seven  months later than planned. Detecting reliability problems early lessens the  impact on the development and production programs. In addition, if  problems are not detected until after an aircraft has been fielded, it could  result in a reduction in mission readiness and higher than expected  operations and sustainment costs because the aircraft have to be fixed.
Determine processes in control and capable: The program has started  activities to determine whether manufacturing processes are in control  and capable of producing parts consistently with few defects. The  program’s review of critical manufacturing processes for the military  unique subsystems involves evaluating several risk areas, including  whether processes are in control and capable. Program officials said that  they plan on verifying that military subsystem suppliers have procedures  in place to collect process control data prior to the low-rate production  decision. They told us they do not plan on analyzing that data, but will rely  on Boeing for process control management.
Test a production-representative prototype in its intended environment:  The program has not begun testing a production-representative KC-46  tanker in its intended environment. As discussed previously, the program  planned to have 13 months of flight testing between two fully configured  KC-46 tankers by the low-rate production decision. Due to program  delays, it is likely to complete only three months of flight testing on one  fully configured KC-46 tanker prior to this decision. While this increases  the risk of discovering costly problems late in development, when the  more complex software and advanced capabilities are tested, contract  provisions specify that Boeing must correct any required deficiencies and  bring development and production aircraft to the final configuration at no  additional cost to the government.
section_title: Conclusions
paragraphs: The next several months are critical to Boeing’s ability to demonstrate  that the KC-46 can successfully perform its aerial refueling mission and  that the company is ready to start producing the aircraft. Based on our  analysis, Boeing is at risk of not meeting the entrance criteria needed to  support the projected October 2015 low-rate production decision, and will  have less knowledge about the reliability of the aircraft than originally  planned. The small schedule margin that was built into the program has  eroded, largely due to problems Boeing experienced while wiring the  aircraft. Only one flight test has been conducted to date on a 767-2C  aircraft. No flight testing has been conducted on a KC-46 tanker. The  flight test pace it now hopes to achieve to support the low-rate production  decision is in jeopardy because of late deliveries of key aerial refueling  parts, a large number of software defects that need to be corrected, and  optimistic flight test cycle assumptions. Although Boeing should bear the  costs of any design or manufacturing problems that may occur, the  department must be careful not to hold the low-rate production decision  and award a production contract before it has adequate knowledge that  the KC-46 can perform its aerial refueling mission.
section_title: Recommendation for Executive Action
paragraphs: Given that the KC-46 program has encountered significant delays to the  start of development test and the schedule moving forward remains risky,  we recommend that the Secretary of Defense direct the Air Force to  ensure that key aerial refueling capabilities are demonstrated prior to the  low-rate production decision.
section_title: Agency Comments
paragraphs: The Air Force provided us with written comments on a draft of this report,  which are reprinted in appendix II. The Air Force concurred with our  recommendation. The KC-46 program office plans to collect all required  data prior to the low-rate production decision, including the demonstration  of key aerial refueling capabilities. We also incorporated technical  comments from the Air Force 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 staff 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 III.
section_title: Appendix I: Status of Prior GAO Recommendations
paragraphs: Appendix I: Status of Prior GAO  Recommendations GAO report  Recommendation  GAO-12-366  DOD should (1) closely monitor the cost, schedule, and  performance outcomes of the KC-46 program to identify  positive or negative lessons learned and (2) develop  metrics to track achievement of key performance  parameters.
Actions taken by DOD  Program is in the process of compiling a list of lessons  learned and has developed metrics to track the  achievement of key performance parameters.
GAO-13-258  DOD should (1) analyze the root causes for the rapid  allocation of management reserves and (2) improve the  KC-46 master schedule so that it complies with best  practices.
Program is monitoring the use of management reserves on  a monthly basis and is in the process of updating the  master schedule so that it complies with best practices,  such as including all government activities.
GAO-14-190  DOD should determine the likelihood and potential effect  of delays on total development costs and develop  mitigation plans as needed.
The program completed its cost and schedule risk  assessment in February 2015.
section_title: Appendix II: Comments from the Department of the Air Force
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: Michael J. Sullivan, (202) 512-4841 or sullivanm@gao.gov.
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Cheryl Andrew, Assistant  Director; Rodney Bacigalupo; Jeff Hartnett; Katheryn Hubbell; John  Krump; Robert Swierczek; and Ozzy Trevino made key contributions to  this report.