KC-46 Tanker Modernization: Delivery of First Fully Capable Aircraft Has Been Delayed over One Year and Additional Delays Are Possible
Published: 2017-03-24T00:00:00

Fast Facts:
The Air Force's KC-46 modernization program—initiated to replace a third of its aging aerial refueling fleet—is meeting its cost and performance targets. With fewer engineering changes than expected, the program's estimated total acquisition cost has decreased about $7.3 billion, or 14 percent, since its initial estimate.
However, the project remains behind schedule.
Boeing—the prime contractor—plans to deliver the first 18 fully capable aircraft to the Air Force by October 2018, 14 months later than initially planned. Potential delays in completing flight tests may further delay the delivery of aircraft.

Highlights:
section_title: Why GAO Did This Study
paragraphs: The KC-46 tanker modernization program, valued at about $44 billion, is among the Air Force's highest acquisition priorities. 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. The Air Force initiated the KC-46 program to replace about a third of its aging KC-135 aerial refueling fleet. Boeing was awarded a fixed price incentive contract to develop the first four aircraft, which are being used for testing. Among other things, Boeing is contractually required to deliver a total of 18 aircraft and 9 wing air refueling pod sets by August 2017. This is defined as required assets available. 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 is GAO's sixth report on this issue. It addresses (1) progress made in 2016 toward achieving cost, performance, and schedule goals and (2) development risk remaining. 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 Federal Aviation Administration, and Boeing.
section_title: What GAO Found
paragraphs: The KC-46 tanker modernization program is meeting cost and performance targets, but has experienced some recent schedule delays.
Costs: As shown in the table below, the program's total acquisition cost estimate has decreased about $7.3 billion, or 14 percent, since the initial estimate. This is primarily because there have been no requirements changes and there have been fewer engineering changes than expected.
(then-year dollars in millions)
Performance: The program office estimates that the KC-46 will achieve its key and technical performance capabilities, such as completing a mission 92 percent of the time. As noted below, though, much testing remains.
Schedule: The program fixed design problems and was approved for low-rate initial production in August 2016, a year late. Boeing (the prime contractor) will not meet the original required assets available delivery schedule due to ongoing Federal Aviation Administration certifications of the aircraft, including the wing air refueling pods, and flight test delays. As shown, the remaining schedule was modified to allow Boeing to deliver the first 18 aircraft and pods separately by October 2018, 14 months later than first planned.
GAO's analysis shows there is risk to the current delivery schedule due to potential delays in Federal Aviation Administration certifications and key test events. Boeing must also complete over 1,700 test points on average for each month from February to September 2017, a level that is more than double what it completed in the last 11 months. Program officials agree that there is risk to Boeing's test completion rate until it obtains Federal Aviation Administration approval for the design of all parts, including the pods, but test mitigation strategies are underway.
section_title: What GAO Recommends
paragraphs: GAO is not making recommendations.

section_title: Letter
paragraphs: The KC-46 tanker modernization program, valued at about $44 billion, is  one of the Air Force’s highest acquisition priorities and is to provide aerial  refueling to Air Force, Navy, Marine Corps, and allied aircraft. The  program recently completed its sixth year of a 9-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—is critical to the U.S. military’s ability  to effectively operate globally. KC-46 aircraft are intended to replace  roughly one-third of the Air Force’s aging aerial refueling tanker fleet,  comprised of about 455 aircraft that are mostly KC-135 Stratotankers,  and help the Department of Defense (DOD) meet the requirement for 479  tankers. The Air Force contracted with Boeing to develop, test, and  provide initial delivery of 18 KC-46 tankers by August 2017, and  eventually field a total of 179 aircraft.
The National Defense Authorization Act for Fiscal Year 2012 included a  provision that we annually review and report on the KC-46 program  through 2017. This is our sixth report reviewing the program. In this  report, we evaluate (1) program progress made in 2016 toward achieving  cost, performance, and schedule goals and (2) development risk  remaining. See the Related GAO Products listed at the end of this report  for our previous reports on the KC-46 program.
To assess progress toward achieving cost, performance, and schedule  goals, we compared cost estimates and program milestones established  at the start of development to current estimates and milestone dates. This  data was contained in defense acquisition executive summary reports,  selected acquisition reports, and various program briefings provided by  Boeing. We also examined current estimates of technical performance  capabilities contained in program briefings. To assess development risk  remaining, we compared Boeing’s planned to actual flight test hours and  activities, and examined the risks to test completion. We reviewed the  annual report of the Director of Operational Test and Evaluation as well  as the Air Force Operational Test and Evaluation Center’s second  operational assessment of the KC-46 program. As part of our overall  review, we examined Defense Contract Management Agency monthly  assessments of the KC-46 program and 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 412th Test Wing, the Federal Aviation Administration,  and Boeing on progress made in 2016. We assessed the reliability of  cost, schedule, and test 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 August 2016 to March 2017 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. 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 787 aircraft and is calling this  modified version the 767-2C. The 767-2C is built on Boeing’s existing  production line. In the second phase, the 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. See figure 1 for an example of boom refueling.
The “hose and drogue” system is comprised of a long, flexible refueling  hose and a parachute-like metal basket that provides stability. Drogue  refueling is available via the centerline drogue system in the middle of the  aircraft, or via a wing air refueling pod (WARP) located on each wing.  WARPs are used for simultaneous refueling of two aircraft. See figure 2  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 (referred to as a type certificate) and is to  certify the design for both the 767-2C and the KC-46 with Amended and  Supplemental type certificates, respectively. The Air Force is then  responsible for certifying the airworthiness of the KC-46. The Air Force is  also to verify that the KC-46 systems meet contractual requirements and  that the KC-46 and various receiver aircraft are certified for refueling  operations.
Boeing was awarded a fixed price incentive (firm target) contract for  development. 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. A  fixed price incentive development contract was awarded for the program  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 limits the government’s  financial liability and provides the contractor incentives to reduce costs in  order to earn more profit. 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. The contract  includes firm fixed price contract options for the first 2 production lots,  and options with not-to-exceed fixed prices for production lots 3 through  13. The Air Force has already exercised the first 3 production lots totaling  34 aircraft and negotiated firm fixed prices for production lot 3. The  original development contract requires Boeing to deliver 18 operational  aircraft, 9 WARP sets and 2 spare engines by August 2017. The contract  refers to this as required assets available, while we refer to it as fully  capable aircraft in this report. In addition, according to the contract, all  required training must be complete, and the required support equipment  and sustainment support must be in place by August 2017.
Barring any changes to KC-46 requirements by the Air Force, the  development contract specifies a ceiling price of $4.9 billion for Boeing to  develop the first 4 aircraft, at which point Boeing must assume  responsibility for all additional costs. Due to several development-related  problems experienced over the last 2 years, Boeing currently estimates  that development costs will total about $5.9 billion, or about $1 billion over  the ceiling price. The government is not responsible for the additional  cost.
section_title: Program Is Tracking to Cost and Performance Targets, but Aircraft Delivery Will Be Delayed
paragraphs: The KC-46 program is meeting total acquisition cost and performance  targets, but has experienced some recent schedule delays. The  government’s cost estimate has declined for a fourth consecutive year  and is now about $7.3 billion less than the original estimate. In addition,  the aircraft is projected to meet all performance capabilities. However,  Boeing experienced some problems developing the aircraft. As a result, it  now expects to deliver the first 18 fully capable aircraft in October 2018  instead of August 2017, 14 months later than expected.
subsections: section_title: Cost Estimates Continue to Decrease
paragraphs: The Air Force is continuing to work within its total program acquisition  cost estimate for the KC-46, which includes development, procurement,  and military construction costs. The total program acquisition cost now  stands at $44.4 billion. This is about $7.3 billion less than the original  estimate of $51.7 billion or about 14 percent less. Average program  acquisition unit costs have decreased by the same percent because  quantities have remained the same. Table 1 provides a comparison of the  initial and current quantity and cost estimates.
The Air Force has been able to decrease its cost estimate over the past 4  years primarily because it has not added or changed requirements and  therefore there were fewer engineering changes than expected.  According to program officials, the Air Force’s initial cost estimate  included a large amount of risk funding for possible requirements  changes, based on its experience with prior major acquisition programs.  Military construction costs have also come in below estimates.
section_title: Performance Metrics Are on Track
paragraphs: The program estimates that the KC-46 will achieve its performance  capabilities.  This includes 9 key performance parameters and 5 key  system attributes that are critical to the aircraft’s military capability and 7  technical performance capabilities that track progress to meeting contract  specifications. For example, the aircraft is expected to be ready for  operational use when required at least 89 percent of the time and, once it  is deployed for an aerial refueling mission, be able to complete that  mission 92 percent of the time. Appendix I provides a description of each  of the key performance parameters and system attributes as well as the  status of technical performance capabilities.
The program has collected actual test data that validates a few of the  performance capabilities. For example, the aircraft is using less than  1,557 gallons of fuel per flight hour, its fuel usage rate target. In addition,  the program also closely tracks the actual weight of the aircraft because  weight has a direct effect on the amount of fuel that can be carried. As of  January 2017, the program had approximately 595 pounds of margin to  the operational empty weight target of 204,000 pounds. The program also  tracks a reliability growth metric—the mean time between unscheduled  maintenance events due to equipment failure—and set a reliability goal of  2.83 flight hours between these events by the time the aircraft reaches  50,000 flight hours. According to program officials, as of September 2016,  the program had completed about 1,300 flight hours and was achieving  1.56 hours compared to its goal of 1.72 hours by that time. Program  officials believe that the reliability will improve as additional flight hours  are completed and as unreliable parts are identified and replaced.
Program officials also report that the program does not yet have actual  flight test data to validate many of the other key and technical  performance capabilities, such as those for operational availability and  mission capability mentioned above. In lieu of flight test data, it assesses  the measures on a monthly basis, relying on other information such as  data from ground testing; models and simulations; and prior tanker  programs. Test officials eventually expect to collect and analyze this data  through flight testing. In some cases the program will be tracking progress  towards achieving some performance capabilities while the aircraft is in  operation. For example, in addition to the reliability growth metric  mentioned above, Boeing is expected to demonstrate that mechanical  problems on the aircraft can be fixed within 12 hours at least 71 percent  of the time once the aircraft has accumulated 50,000 flight hours.
section_title: Key Schedule Milestones Have Slipped at Least One Year
paragraphs: Since our last report in April 2016, the Under Secretary for Acquisition,  Technology and Logistics approved the KC-46 program to enter low-rate  initial production in August 2016, one year later than originally planned. In  addition, the Air Force has exercised contract options for the first 3 low- rate production lots of aircraft. We previously reported that the delay to  the low-rate initial production decision was the result of problems Boeing  had wiring the aircraft, design issues discovered with the fuel system  components, and a fuel contamination event that corroded the fuel tanks  of one of the development aircraft. Those problems have been  overcome, but time was lost working through them. Until the low-rate  initial production decision, the program had met its major milestones.
Boeing and KC-46 program officials modified the program schedule in  January 2017 to reflect the work remaining, including obtaining Federal  Aviation Administration confirmation that the aircraft’s parts all match their  design drawings. While the Federal Aviation Administration has approved  the design of many aircraft components, it is expected that the WARPs  will be the last subsystem to receive design approval for all of its parts  and to demonstrate that the parts conform to the designs. According to  Boeing officials, the company and its WARP supplier had underestimated  the level of design drawing details the Federal Aviation Administration  needed to review to determine that the parts conformed to the approved  design. According to these officials, the WARP supplier has been  negotiating with its various sub-tier suppliers over the past 3 years for the  necessary design documentation. Program officials estimate that the  WARP design will be approved by the Federal Aviation Administration in  July 2017, which will then allow Boeing to complete remaining  developmental flight tests and meet other key milestones. Program  officials do not consider the WARP design to be a significant program risk  because the WARPs performed well in flight testing leading up to the low- rate initial production decision. Changes to key milestones are shown in  table 2.
Overall, the current schedule reflects a 14-month delay in Boeing  delivering the first 18 aircraft with 9 WARP sets under the terms of the  development contract, referred to as 18 fully capable aircraft in table 2.  Instead of meeting an August 2017 date, the program office now  estimates that Boeing will deliver the first 18 aircraft by February 2018  and the 9 WARP sets separately by October 2018. Air Force officials are  negotiating for considerations from Boeing to account for lost military  tanker capability associated with the delivery delays. According to  program officials, the lost capability includes lost benefits—such as the  Air Force not being able to grow the overall U.S. tanker fleet to 479  aircraft until later—and additional costs—such as the government having  to maintain and sustain legacy aircraft and its test infrastructure longer  than originally planned. The planned delivery of the first 18 aircraft,  though 6 months late, will provide boom and drogue refueling capability to  the warfighter. When delivered, the WARPs will enable the refueling of  two receiver aircraft simultaneously, a capability that is not used as  frequently, according to Air Force officials. Air Force officials said the  current schedule and considerations will be part of a contract modification  that is expected to be finalized in summer 2017. Figure 3 provides a  closer look at the original and current delivery schedules.
As shown, under the current schedule Boeing plans to deliver aircraft  over a compressed 6-month period of time compared to its original plan to  deliver aircraft over a 14-month period of time. This delivery period  assumes Boeing will deliver 3 aircraft per month, a greater pace than  planned during full rate production. According to program officials, Boeing  is already in the process of manufacturing 18 aircraft from the first 3 low- rate production lots; 12 of these aircraft are over 70 percent complete.
The current schedule also takes into account the decision by the Under  Secretary for Acquisition, Technology and Logistics to designate  productions lots 3 and 4 (of 15 aircraft each) as low-rate instead of full- rate lots. This was done to help Boeing avoid a break in production while  it completes developmental and operational testing. The program expects  to begin delivering these aircraft in 2018 and 2019, respectively. As a  result, as shown in figure 4, concurrency between developmental flight  testing and production has increased. The Air Force will have contracted  for 49 aircraft before developmental flight testing is completed,  representing 27 percent of the total aircraft, compared to the original plan  of 19 aircraft, or about 11 percent. Further, the first 18 aircraft without  WARPs will be delivered before most of operational testing has been  completed.
There is risk that Boeing may identify problems during flight testing that  will lead to design changes. However, according to the terms of the  development contract, the cost to fix these discoveries will be borne by  Boeing, as it is required to bring all aircraft to the final configuration after  completion of testing.
section_title: Boeing Faces Challenges Meeting the Current Delivery Schedule
paragraphs: Boeing faces two primary challenges in meeting the current delivery  schedule, both of which relate to its developmental test schedule. Our  analysis indicates that testing may take longer than the program is  estimating. If test points are not completed at the planned rate, then  aircraft deliveries will be delayed, indicating that the new delivery  schedule is optimistic.
Electromagnetic Effects Testing Schedule: First, there is risk that  Boeing will not be able to complete required electromagnetic effects  testing on the KC-46 in May 2017, as currently planned. Boeing  officials stated this is because the WARP supplier has not yet  provided all detailed design drawings to the Federal Aviation  Administration for approval. While Boeing had planned on delivery of  an approved WARP by March 2017, it now expects that to occur in  late July 2017. The original plan, according to agency officials, was to  have all aircraft parts, including the WARPs, conform to design  drawings and gain Federal Aviation Administration approval prior to  this testing. During the testing, the KC-46’s electrical systems will be  examined to verify that they do not create any electromagnetic  interference, a process that requires a unique government facility that  is also in high demand by other programs. Consequently, Boeing  officials report that if the KC-46 is not ready for its scheduled time,  these critical tests could potentially be delayed until the facility is  available. The program is working on ways to mitigate the potential for  delays in the delivery of the first 18 aircraft. For example, program  officials stated that they are considering separate electromagnetic  testing on the aircraft and the WARPs.
Flight Test Completion Rate: Second, Boeing is projecting that it can  complete test points over the remaining developmental flight test  schedule at a rate higher than it has been able to demonstrate  consistently. If test points are not completed at the planned rate,  then aircraft deliveries will be delayed. The developmental flight test  program contains about 29,000 total test points to be completed over  a 32-month period. Government test officials report that these test  points are a combination of Boeing-specific tests that it is conducting  to reduce the risk of test failure and government-specific tests to verify  the KC-46’s performance. Boeing has completed 53 percent of  planned testing since the KC-46 developmental flight test program  began in January 2015. The company would need to complete an  average of 1,713 test points per month to complete remaining testing  on time so that it can begin delivering aircraft in September 2017. As  shown in figure 5, Boeing has only completed this number of test  points once, in October 2016, when it completed 2,240 test points,  which program officials reported was part of a planned test surge.
Boeing test data shows that from March 2016 to January 2017, it  completed an average rate of 811 test points per month. As shown in  figure 6, at that rate, we project that Boeing would finish the remaining  13,706 test points in early June 2018, 9 months later than the planned  completion date.
The Director for Operational Test and Evaluation has previously assessed  and continues to assess the KC-46 schedule as aggressive and unlikely  to be executed as planned, stating that execution of the current schedule  assumes historically unrealistic test aircraft flight rates. Boeing’s test  schedule is based on flying 65 flight test hours on 767-2C aircraft per  month and 50 hours on KC-46 aircraft per month. The program has  actually averaged—across all aircraft in the development test program— about 25 hours per aircraft per month. A government test official stated  that similar programs in the past have sustained a pace of about 30 hours  a month per aircraft. Government test officials noted that a large portion  of testing completed so far was for Boeing-specific test points that could  include tests that were cancelled if Boeing believed it had sufficient data  already, and more time will likely be needed to plan and coordinate  upcoming government-required testing.
Boeing test officials believe the company can complete developmental  testing by September 2017 because they plan to increase the number of  test points it can complete per month by adding flight hours on nights and  weekends. Boeing officials also believe the test pace will gain greater  efficiency as the aircraft’s design and test plans stabilize. The program  was working on a “test once” approach with Boeing, the Federal Aviation  Administration, and DOD whereby common test activities required by  multiple entities would only be performed once. According to program  officials, Boeing is moving away from the test once approach and towards  sequential testing as a mitigation strategy. They report that Boeing  expects this will help it perform key tests more quickly because it will not  need to wait for several systems to be approved for testing. Program  officials, however, believe that the transition to a new testing approach  will require weeks of test plan rewriting, and that obtaining approval for  the design of all parts, including the WARPs, from the Federal Aviation  Administration will continue to pose risk to test completion as currently  planned.
section_title: Agency Comments
paragraphs: We are not making recommendations in this report.  We provided a draft  of this report to DOD for comment. DOD did not provide any written  comments, but the KC-46 program office provided technical comments,  which we incorporated 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 II.
section_title: Appendix I: KC-46 Key Performance Parameters and System Attributes and Status of Technical Performance Capabilities
paragraphs: The program office has 14 key performance parameters and system  attributes that are critical to the KC-46 aircraft’s military capability and 7  technical performance capabilities that track progress to meeting contract  specifications. Table 3 provides a description of each key performance  parameter and system attribute. Table 4 provides the status of each  technical performance capability.
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; Kurt Gurka; Stephanie Gustafson; Katheryn Hubbell; Nate  Vaught; and Robin Wilson made key contributions to this report.
section_title: Related GAO Products
paragraphs: KC-46 Tanker Aircraft: Challenging Testing and Delivery Schedules Lie  Ahead. GAO-16-346. Washington, D.C.: April 8, 2016.
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.
KC-46 Tanker Aircraft: Program Generally on Track, but Upcoming  Schedule Remains Challenging. GAO-14-190. Washington, D.C.: April  10, 2014.
KC-46 Tanker Aircraft: Program Generally Stable but Improvements in  Managing Schedule Are Needed. GAO-13-258. Washington, D.C.:  February 27, 2013.
KC-46 Tanker Aircraft: Acquisition Plans Have Good Features but  Contain Schedule Risk. GAO-12-366. Washington, D.C.: March 26, 2012.