KC-46 Tanker Aircraft: Program Generally on Track, but Upcoming Schedule Remains Challenging
Released: 2014-04-10T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: Aerial refueling allows U.S. military aircraft 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 $51 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 mandated GAO to annually review the KC-46 program through 2017. This report addresses (1) progress made in 2013 toward cost, schedule, and performance goals, (2) development challenges, if any, and steps to address them, and (3) progress made in manufacturing the aircraft. To do this, GAO reviewed 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, Boeing.

section_title: What GAO Found
paragraphs: The KC-46 program has made good progress over the past year—acquisition costs have remained relatively stable, the critical design review was successfully completed, the program is on track to meet performance parameters, and the contractor started building development aircraft. As shown, total program acquisition costs—which include development, production, and military construction costs—and unit costs have changed less than 1 percent since February 2011.

As of December 2013, Boeing had about $75 million of its management reserves remaining to address identified, but unresolved development risks. There are indications that the start of initial operational test and evaluation, which is scheduled for May 2016, may slip 6 to 12 months. According to the Director of Operational Test and Evaluation, more time may be needed to train aircrew and maintenance personnel and verify maintenance procedures.

The program released over 90 percent of the KC-46 design drawings at the critical design review, indicating that the design is stable. Overall, development of about 15.8 million lines of software code is progressing mostly according to plan. The next 12 months will be challenging as the program must complete software development, verify that the software works as intended, finalize developmental flight test planning, and begin developmental flight tests. Software problem reports are increasing and Boeing could have difficulty completing all testing if more retests are needed than expected. Developmental flight testing activities are also a concern due to the need for extensive coordination among government agencies, the need for timely access to receiver aircraft (aircraft the KC-46 will refuel while in flight), and the aggressive test pace. The program office is conducting test exercises to mitigate risks and working with Navy and United Kingdom officials to finalize agreements to have access to necessary receiver aircraft.

The program has also made progress in ensuring that the KC-46 is ready for low rate initial production in 2015. Boeing has started manufacturing all four development aircraft on schedule. The program office has identified its critical manufacturing processes and verified that the processes are capable of producing key military subsystems in a production representative environment. In addition, the program has established a reliability growth curve and will begin tracking its progress towards reaching reliability goals once testing begins. Boeing is experiencing some manufacturing delays due to late supplier deliveries on the first aircraft and parts delays for a test article of a critical aerial refueling subsystem, but the program has not missed any major milestones.

section_title: What GAO Recommends
paragraphs: GAO recommends that the Air Force determine the likelihood and potential effect of delays on total development costs, and develop mitigation plans, as needed, related to potential delays. DOD concurred with the recommendation.

section_title: Letter
paragraphs: The KC-46 tanker modernization program, valued at $51 billion, is the Air  Force’s highest acquisition priority. The program recently completed its  third year in development 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 project power overseas and to effectively operate  within a combat theater. It enables military aircraft to fly farther, stay  airborne longer, and transport more weapons, equipment, and supplies  than unrefueled forces. KC-46 aircraft are expected to replace over forty  percent of the KC-135 Stratotanker fleet, currently the mainstay of the  U.S. tanker force. This 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  we annually review and report on the KC-46 program through 2017. This  is our third report reviewing the KC-46 development program. In our first  report, we recommended that the Department of Defense (DOD) track  lessons learned, since the KC-46 is one of the few major programs to  award a fixed price incentive (firm target) development contract in recent  years. We also recommended fully implementing sound metrics so  planned key performance parameters could be measured appropriately.  Subsequently, the program office took steps to do so. In our second  report, we recommended that DOD analyze the root causes for the rapid  allocation of management reserves (funds set aside to address  development risks) and improve the KC-46 master schedule to comply  with best practices. DOD has since reviewed the use of management  reserves and is conducting schedule risk assessments. In this third  report, we (1) evaluate program progress toward cost, schedule, and  performance goals; (2) identify program development challenges, if any,  and steps to address these challenges; and (3) assess progress in  manufacturing aircraft. The National Defense Authorization Act for Fiscal  Year 2012 also requires that we analyze the results of developmental and  operational testing and any plans for correcting identified deficiencies. We  have not yet assessed testing results and plans to correct identified  deficiencies because flight testing has not officially begun.

To conduct work for our current review, we analyzed financial  management documents; program budgets; risk assessments; technical  performance indicators; flight test and manufacturing plans; and software  development plan and metrics. We also analyzed program plans and  discussed results with the Air Force’s KC-46 program office, other  defense offices, and the prime contractor, the Boeing Company (Boeing).  We visited Boeing’s commercial production line and its facilities for  system integration and military modifications.

We conducted this performance audit from May 2013 to April 2014 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. See appendix I for more  information on our scope and methodology.
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. This program is  one of a few weapon system programs to use a fixed price incentive (firm  target) contract for development in recent years. Defense officials stated  that a fixed price incentive (firm target) contract was appropriate 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 KC-46 development contract is  designed to hold Boeing accountable for cost associated with the  development of four test aircraft and includes options to manufacture the  remaining production lots. 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. We previously reported that both the program office  and Boeing have estimated that development costs would exceed the  contract ceiling price. As of March 2014, Boeing and the program office  estimated costs would be over the ceiling price by about $271 million and  $787 million, respectively. The program office estimate is higher because  it includes additional costs associated with performance as well as cost  and schedule risk.

In all, 13 production lots are expected 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. The contract also  requires Boeing to deliver 18 operational aircraft by August 2017. In  addition, all required training must be complete, and the required support  equipment and sustainment support in place by August 2017. Contract  provisions also 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. After the first two production lots,  the program plans to produce aircraft at a rate of 15 aircraft per year, with  the final 6 aircraft procured in fiscal year 2027. Separate competitions  may occur for later acquisitions, nominally called the KC-Y and KC-Z, to  replace the rest of the KC-135 fleet and the KC-10 fleet (the Air Force’s  large tanker).

Boeing plans to modify the 767 aircraft in two phases to produce a  militarized aerial refueling tanker:  In the first, Boeing is modifying the 767 with 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, the 767-2C will proceed to the finishing center to  become a KC-46. It will be militarized by adding air refueling  capabilities, an air refueling operator’s station that includes panoramic  three-dimensional displays, and threat detection and avoidance  systems.

The Federal Aviation Administration (FAA) has previously certified  Boeing’s 767 commercial passenger airplane and will certify the design  for both the 767-2C and the KC-46. Boeing established plans for the FAA  to accomplish the 767-2C and the KC-46 certifications concurrently rather  than consecutively, which is the typical procedure. The Air Force also has  to certify the KC-46 and will use the FAA’s findings to make the overall  airworthiness determination. See Figure 1 for a depiction of the  conversion of the 767 aircraft into the KC-46 tanker.

The new KC-46 tanker is expected to be more capable than the KC-135 it  replaces in several respects. Unlike the KC-135, it 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, as well as a  permanent hose and drogue refueling system. The KC-135 has to land  and switch equipment to transition from one mode to another. Also, the  KC-46 is expected to be able to refuel in a variety of night-time and covert  mission settings and will have countermeasures to protect it against  infrared missile threats. The KC-135 is restricted in tactical missions and  does not have sufficient defensive systems relative to the KC-46.  Designed with more refueling capacity, improved efficiency, and  increased cargo and medical evacuation capabilities than its predecessor,  the KC-46 is intended to provide aerial refueling to Air Force, Navy,  Marine Corps, and allied aircraft. Appendix II compares, in more detail,  the current capabilities of the KC-135 with the planned capabilities of the  new KC-46 tanker.

section_title: Program Is Continuing to Meet Cost, Schedule, and Performance Estimates
paragraphs: KC-46 total program acquisition costs (development, production, and  military construction costs) have remained relatively stable since program  start, changing less than 1 percent since February 2011, and the program  is meeting schedule and performance goals. Boeing set aside $354  million in contract funds to address identified, but unresolved  development risks. As of December 2013, Boeing had about $75 million  remaining to address these risks. Based on Boeing’s monthly usage, we  calculate that the management reserves will be depleted about 3 months  before the KC-46’s first flight and approximately 3 years before the  development contract is completed. The government, however, would  bear no financial risk for future work if Boeing uses all of its management  reserves as long as the Air Force does not make changes to the KC-46  requirements, schedule, or other relevant terms and conditions of the  contract. Our prior work has found that flight testing is likely to uncover  problems that will require management reserves to address.
subsections: section_title: Key Acquisition Cost, Schedule, and Performance Metrics Have Remained Relatively Stable
paragraphs: The KC-46 total acquisition cost estimate has remained relatively stable  since February 2011 although there have been some minor fluctuations  among the development, procurement, and military construction costs  that make up this estimate. The largest change is in the program’s  development cost estimate, which has decreased by about $345 million,  or about 5 percent. Development cost reductions can be attributed to  fiscal year 2013 sequestration cuts, support for DOD’s Small Business  Innovative Research fund, and cuts to a fund dedicated to tanker  replacement. According to program officials, these reductions have not  affected the program because it had set aside funds to address  engineering changes, which have not occurred thus far. Overall, total  acquisition and unit costs have decreased less than 1 percent and  quantities have remained the same. Table 1 summarizes the initial and  current estimated quantities, costs, and milestone dates for the KC-46  program.

The October 2013 development cost estimate of about $6.8 billion  includes several contracts for various activities. For example, the program  office awarded Boeing a contract for $4.9 billion to develop 4 test aircraft  and budgeted over $0.3 billion for the development of aircrew and  maintenance training systems. An estimated $1.6 billion is needed to  cover other government costs, such as program office support, test and  evaluation support, contract performance risk, and other development  risks associated with the aircraft and training systems. The procurement  cost estimate of $40.3 billion is to procure 175 production aircraft, initial  spares, and other support equipment. The military construction estimate  of $4.2 billion includes the projected costs to build aircraft hangars,  maintenance and supply shops, and other facilities to house and support  the KC-46 fleet at 10 main operating bases, 1 training base, and the  Oklahoma City Air Logistics Complex depot.

Boeing is also meeting the high level schedule milestones. Most recently,  it conducted the critical design review (CDR) in July 2013, on schedule.  However, there are indications that the start of initial operational test and  evaluation, which is scheduled for May 2016, may slip. DOD’s Office of  the Director, Operational Test and Evaluation, which is responsible for  approving operational and live fire test and evaluation within each major  defense acquisition program, recently issued its 2013 annual report and  continued to recommend that the Air Force plan for a 6- to 12-month  delay to the start of initial operational test and evaluation to allow more  time to train aircrew and maintenance personnel and verify maintenance  procedures. The KC-46 program office agrees that the test schedule is  aggressive, but does not believe the delays are certain.

The program office projects that the KC-46 aircraft will meet the  requirements of all nine key performance parameters by the end of  development. Satisfying these key performance parameters will ensure  that the KC-46 will be able to accomplish its primary mission of providing  worldwide, day and night, adverse weather aerial refueling as well as its  secondary missions. See appendix III for a list of the KC-46 key  performance parameters. The program office has developed a set of  metrics to help gauge its progress towards meeting the performance  parameters. For example, one metric 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. Boeing currently projects that the aircraft  will meet the weight target of 204,000 pounds.

section_title: Funding Set Aside to Alleviate Program Risk Is Almost Depleted
paragraphs: At the outset of development, Boeing set aside $354 million from contract  funds in a management reserve account, about 7 percent of the contract  ceiling price, to address identified, yet unresolved, development risks.  Last year we reported that Boeing had accomplished approximately 28  percent of the development work and had allocated about 80 percent of  the contract’s management reserves. We raised concerns about the high  rate at which the management reserves were being used because doing  so early in a program is often an indicator of future contract performance  problems.

Since then, there have been two major actions related to management  reserves in 2013. First, in January 2013, Boeing returned $72 million to  the management reserves account because program officials determined  that the program would pay for fuel for test flights rather than Boeing, new  labor rates were lower than planned, and Boeing calculated costs  associated with some types of labor incorrectly. Second, in August 2013,  Boeing allocated about $42 million of its management reserves, with the  largest portion, $24 million, used for a wet fuels laboratory. Boeing initially  planned on using corporate funding for the wet fuels laboratory, which  was intended for general wet fuels research. However, since the  laboratory became more focused on meeting the specific needs of the  KC-46 program, Boeing determined it was more appropriate to use  management reserves. The other $18 million was used for a variety of  other efforts, including minor design and architectural changes. The  following figure illustrates management reserve allocation since program  start and projects when reserves will be depleted.

As of December 2013, about $75 million in unallocated reserves remain.  If the current usage trend continues—a monthly average of over $9  million—the program office projects management reserves will be  depleted in September 2014, about 3 months before the start of KC-46  developmental flight testing and approximately three years before the  development contract is completed. According to GAO’s Cost Estimating  and Assessment Guide, significant use of management reserves early in  a program may indicate contract performance problems and decreases  the amount of reserves available for future risks, particularly during the  test and evaluation phase when demand may be the greatest. Barring  any changes to KC-46 requirements, schedule, or other relevant terms  and conditions of the contract by the Air Force, Boeing would be solely  responsible for the cost of future changes if it uses all of its management  reserves, so the government bears no financial risk.

section_title: Program Stabilized the KC-46 Design and Is Now Focused on Software Development and Testing Challenges
paragraphs: The program office and Boeing held the program’s CDR in July 2013 and  released over 90 percent of the total engineering design drawings, a key  indicator that the design is stable. The program is now focused on  completing software development and integration, as well as test plans in  preparation for developmental flight testing. Software development plans  changed over the course of the past year in large part because the  program solidified requirements at CDR and Boeing brought two of the  program’s software intensive system components in-house and found  ways to use some of its existing software. Overall, software development  is progressing largely according to plan; however, software verification  testing has not yet started and software problem reports are increasing.  The flight test program is also a concern because it depends on  coordination among several separate government entities, requires timely  access to receiver aircraft (the aircraft the KC-46 will refuel while in flight),  and requires a more aggressive pace than on past programs. The  program office is conducting a series of rehearsal test exercises and is  working with Air Force officials to finalize agreements related to receiver  aircraft availability to mitigate these risks.
subsections: section_title: Program Successfully Completed Its Critical Design Review
paragraphs: The program office held its CDR in July 2013, with Boeing releasing over  90 percent of the total engineering design drawings. The 90 percent  drawing release met a contractual requirement and is consistent with  acquisition best practices that use this metric as an indicator that the  design is stable. According to program officials, as of December 2013,  Boeing had released 98.6 percent of the expected engineering design  drawings and the remaining drawings relate almost exclusively to aircraft  interiors and are not considered to be complex. Figure 3 shows the  number of design drawings completed since Boeing began tracking it in  May 2011.

Prior to CDR, the program office and Boeing took a number of steps to  ensure the program had a stable design. This included holding a series of  sub-system CDRs, replacing two system components that were not  sufficiently mature, and addressing previously identified risks, such as  aircraft weight. Currently, Boeing is working to alleviate lingering  instability in key physical components related to aerial refueling—the  centerline drogue system and wing aerial refueling pod. Boeing still  considers the instability of these components to be a moderate program  risk, and its strategy is to conduct modeling and simulation studies and  perform ground tests to help mitigate this risk.

section_title: Software Development Is Progressing
paragraphs: As of January 2014, Boeing estimates that 15.8 million lines of code will  be needed for the KC-46. Boeing plans to rely primarily on reused  software from its commercial aircraft for the 767-2C and more heavily on  modified or new software for the military subsystems on the KC-46. As  shown in table 2, the most recent plan is for Boeing to reuse existing  software for 83 percent of its software needs, which has helped reduce  risks associated with software development.

According to program officials, the changes in reused, modified, and new  software between 2011 and 2013 are largely the result of the program  solidifying requirements for CDR and Boeing’s effort to reduce the risk  associated with the development of two software-intensive system  components related to situational awareness. According to these officials,  there were limitations with the original software developer’s software and  Boeing ultimately decided to bring the development effort in-house,  leveraging existing software code to mitigate risk.

Overall, we found that software development is currently progressing  mostly according to Boeing’s plan. As shown in figure 4, as of January  2014, Boeing reported that 73 percent of software had been delivered  compared to its plan for having 76 percent at this time (96 percent of the  planned activities).

A large portion of the software that has been delivered to this point is  reused software that is needed for the initial build of the 767-2C aircraft. A  small amount of development work related to the aerial refueling  software, about 3 percent, is behind schedule. The remaining software,  related to key military subsystems for remote vision and situational  awareness, among other capabilities, is expected to be delivered to  Boeing through the beginning of June 2014.

section_title: Software Test Schedule Will Be Challenging
paragraphs: While the program’s progress for software development is encouraging,  program officials are expecting software verification testing, which has not  yet begun, to be challenging. Notably, Boeing must verify the software  code to determine if it works as intended. Approximately 735,000 lines of  the code are new and relate in large part to key military unique systems.  Moreover, Boeing’s software integration lab that simulates the KC-46  cockpit will be at near capacity between February and June 2014. Boeing  could have difficulty completing all testing if more retests are needed than  expected.

In addition to capacity concerns, we found that software problem reports  are increasing. There were over 600 software problem reports as of  January 2014 that needed to be addressed, which will add pressure to an  integration lab already operating at near capacity. Thirty-five percent of  the problem reports were considered urgent or high priority problems that  need to be fixed as quickly as possible. Program officials stated that  avionics flight management computer software has been a major  contributor to the problem reports to date and that Boeing is working  closely with this supplier to ensure problems are addressed. This  particular supplier has recently increased the number of staff working on  this software effort from 3 to 24 people to address the backlog of problem  reports.

section_title: Pace of Flight Test Schedule Poses Future Risk
paragraphs: The program’s flight test schedule continues to be a concern due to the  need for extensive coordination among government entities, the need for  timely access to receiver aircraft, and its aggressive pace. The following  is a summary of the various testing concerns and the steps, if any, the  program office and Boeing are taking to address them.

Coordinating on concurrent test activities: Government agencies and  Boeing have agreed to a “test once” approach, whereby many of the  test activities for FAA certification, developmental testing, aerial  refueling, and operational testing will be combined to achieve greater  efficiency. Currently, Boeing, the program office, the Air Force,  Navy, FAA, and officials from the Office of the Secretary of Defense  organizations for developmental and operational testing are finalizing  detailed test plans, which are needed to guide flight test activities that  are scheduled to begin in June 2014 for the 767-2C and in January  2015 for the KC-46. The program office is conducting a series of  rehearsal test exercises before any flight tests take place to ensure  that all parties understand their roles and responsibilities during  testing. Program officials report that three of four such exercises have  been completed, with the next scheduled for September 2014.  Officials said this exercise will focus on preparing for the KC-46’s first  flight.

Ensuring receiver aircraft availability: To meet the test schedule,  receiver aircraft, such as the F-22 A and the F/A-18 C, are needed at  certain locations and times to participate in the program’s test  activities. The program office has finalized one memorandum of  agreement with Air Force officials for access to 14 receiver aircraft  and stated that it is currently in the process of developing two  additional agreements with the Navy for two additional types of aircraft  and the United Kingdom for their respective aircraft. If the receiver  aircraft are not available when needed, the Air Force risks affecting  Boeing’s test schedule.

Maintaining flight test pace: The program office and Boeing report that  maintaining the program’s flight test pace is among the program’s  greatest risks. Program officials explained that this risk captures both  the 65 hour per month commercial test pace for the 767-2C aircraft  and the 50 hour per month military test pace for the KC-46 aircraft. To  adhere to the aggressive test schedule, Boeing officials stated that  they plan to fly development aircraft 5 to 6 days per week with roughly  5 to 6 hours per mission (which DOD test organizations have shown is  more aggressive for the military flight testing than other programs  have demonstrated historically). Boeing officials believe they can  achieve the test pace required because of Boeing’s testing experience  with other commercial aircraft and the KC-10 tanker program. In  addition, Boeing has local maintenance and engineering support  available to support the test program as well as control over flight test  priorities for the commercial testing since the development aircraft are  being tested at Boeing facilities.

section_title: Manufacturing Has Begun with Some Delays
paragraphs: The program has made progress in readying the KC-46 for low rate initial  production in 2015. Boeing has started manufacturing all four  development aircraft on schedule, but has experienced some delays with  the first aircraft. The program office and Boeing have also taken several  steps to capture the necessary manufacturing knowledge to make  informed decisions as the program transitions from design into  production. This includes identifying and assessing critical manufacturing  processes to determine if they are capable of producing key military  subsystems in a production representative environment. The program  also established a reliability growth curve and Boeing will begin tracking  its progress towards reaching reliability goals once testing begins. Boeing  is making progress manufacturing most of the military unique  subsystems, but a test article for a critical aerial refueling subsystem has  been delayed by almost a year due to parts issues.
subsections: section_title: Development Aircraft Manufacturing Has Started
paragraphs: Boeing has started manufacturing all four development aircraft on  schedule, but has experienced some delays with the first aircraft. The Air  Force plans to eventually field a total of 179 aircraft no later than January  2031. Figure 5 displays the time line for the manufacture of the  development, low rate production, and full rate production aircraft.

Boeing began producing the first development aircraft (a 767-2C) in June  2013, and Boeing officials said the aircraft was 76 percent complete as of  mid January 2014. The aircraft was scheduled to be powered on for the  first time in early December 2013, but program officials told us that  activity has slipped until the end of April 2014. Boeing officials attributed  the schedule slip to late supplier deliveries. Completion of major  assembly operations has also slipped from mid January until mid March.  Program officials told us that Boeing has been able to resequence tasks  thus far to avoid affecting the critical path, such as adding the body fuel  tanks to the first 767-2C earlier and in a different facility than originally  planned. Program officials are assessing whether these delays will affect  the timing of the first flight of the 767-2C, scheduled for June 2014.

Boeing and program officials said that manufacturing of the second  development aircraft was going better than on the first aircraft, reporting  that the aircraft was 65 percent complete as of mid January 2014.  Officials added that there had been a 75 percent reduction in overall parts  shortages. The third and fourth aircraft just began production in late  October 2013 and mid January 2014, respectively. From the first to the  fourth development aircraft, Boeing is anticipating improvement in its  ability to manufacture the aircraft. For example, the first aircraft is  scheduled to take about 11 and a half months from the start of major  assembly until first flight while the fourth aircraft is only scheduled to take  about 7 months. Once complete, the four development aircraft will then  enter the finishing center at various points between June 2014 and  September 2015 to be converted to a KC-46 tanker.

section_title: Program Is Capturing Manufacturing Knowledge
paragraphs: The program office and Boeing have taken several initial steps to help  ensure that the KC-46 will be ready for low rate production in August  2015 and that the aircraft will be reliable. In our prior work, we identified  the activities required to capture manufacturing knowledge. These  activities include (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; and (5) determining whether processes are in  control and capable. Table 3 provides a description of these activities and  progress the program has made for each.

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. Prior to  CDR, the program office and Boeing completed assessments of 12  critical manufacturing processes, such as the assembly of aerial refueling  components. These assessments indicated that key military subsystems  could be manufactured in a production representative environment. The  program office and Boeing plan on conducting another assessment prior  to August 2015 to determine if the program is ready to begin low rate  initial production.

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, but does not expect that goal to be  achieved until the program has logged 50,000 flight hours. Figure 6 below  depicts how the program office expects the aircraft’s reliability to improve  over the program’s initial 5,000 flight hours.

The program expects to be above the idealized reliability growth curve at  the start of testing because initial testing will be on a 767-2C, a derivative  of a commercial aircraft that has been flying since the 1980s. Reliability is  projected to fall below expectations once the military sub-systems are  added to the aircraft. The program then expects the reliability to steadily  improve to the point where the aircraft could fly about 2 hours between  unscheduled maintenance events at the start of initial operational test and  evaluation. As shown in figure 6 above, the program will be on the  idealized reliability growth curve at that point.

Boeing has also initiated a failure modes and effects analysis that covers  41 subsystems. 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. Boeing is also using this information to develop a tool to  detect and log equipment failures. The program office plans to share the  analysis with aircraft maintenance staff.

The program has not yet begun two critical manufacturing and reliability  assessment activities. First, the program is not currently tracking reliability  growth because the 767-2C first flight is not scheduled to take place until  June 2014 and no flight hours have been accrued yet. Second, the  program has not determined whether manufacturing processes are in  control and capable of producing parts consistently with few defects. The  program plans to review and verify that process controls are in place to  ensure the quality of the manufacturing process as part of its next  assessment of critical manufacturing processes prior to the low rate  production decision in August 2015. Program officials said their review  would be focused on whether these process controls are in place rather  than analyzing the data to determine if the processes are actually in  control.

section_title: Status of Key Military Subsystems
paragraphs: Boeing is making progress manufacturing most of the military unique  subsystems, such as the aerial refueling operator station, but the test  refueling boom’s schedule has slipped by almost a year due to parts  delays. Boeing’s original design included parts that proved challenging to  fit within the boom’s space constraints, and other parts were redesigned  to improve the boom’s safety. Boom parts suppliers, however, have  experienced delays in delivering the redesigned parts to Boeing, which  has prompted Boeing to send staff to help one of the suppliers minimize  further schedule slips. Boeing officials told us they decided to build a test  boom as a risk reduction effort and plan to apply lessons learned from  producing the test boom to future boom production. However, program  officials currently estimate that boom parts delays have also led to an  approximately 1-month schedule slip in the first development aircraft’s  boom. Boeing is facing some schedule pressure on this boom because it  is now scheduled to be completed only a few days before the start of  ground vibration testing. Boeing officials said they needed the boom for  this testing and would like to complete ground vibration testing before the  767-2C’s first flight. The second development aircraft’s boom is  scheduled to be built in only 5 months. Based on its current schedule,  Boeing needs to have this boom completed by June 2014 in order to  meet the KC-46’s first flight, scheduled for January 2015.

section_title: Conclusions
paragraphs: The KC-46 program has made good progress to date—acquisition costs  have remained relatively stable, high-level schedule and performance  goals have been met, the critical design review was successfully  completed, and the contractor is building development aircraft. The next  12 months will be challenging as the program must accomplish a  significant amount of work and the margin for error is small. For example,  the program is scheduled to complete software integration and the first  test flights of the 767-2C and KC-46. The remaining software  development and integration work is mostly focused on military software  and systems and is expected to be more difficult relative to the prior work  completed. The program’s test activities continue to be a concern due to  its aggressive test schedule. Detailed test plans must be completed and  the program must maintain an unusually high test pace to meet this  schedule. Perhaps more importantly, agencies will have to coordinate to  concurrently complete multiple air worthiness certifications. While  efficient, this approach presents significant risk to the program. The  program office must also finalize agreements now in progress to ensure  that receiver aircraft are available when and where they are needed to  support flight tests. Any discoveries made in testing that require design  changes may negatively affect program schedule and delivery to the  warfighter. Parts delays on the first development aircraft and a critical  aerial refueling subsystem are also causing increased schedule pressure.

With these risks in its near future, the KC-46 program will continue to bear  watching. While all of the risks currently appear to be recognized, any  slips in software testing, flight testing, and manufacturing as the program  moves forward could cause delays in the program.

section_title: Recommendation for Executive Action
paragraphs: Due to existing schedule risks and the fact that the program is entering a  challenging phase of testing, we recommend that the Secretary of  Defense direct the Air Force to study the likelihood and potential effect of  delays on total development costs, and develop mitigation plans, as  needed, related to potential delays.

section_title: Agency Comments
paragraphs: DOD provided us with written comments on a draft of this report, which  are reprinted in appendix V. DOD concurred with our recommendation.  The KC-46 program office conducts an annual analysis of cost and  schedule risks to quantify the potential effect of delays on program costs  and officials told us they will consider the risks we identified in that  analysis. We also incorporated technical comments from DOD as  appropriate.

We are sending copies of this report to 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 has 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 contributing to this report are  listed in appendix VI.

section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report examines the Air Force’s continued development of the KC-46  tanker program. Specifically, we examined (1) progress toward cost,  schedule, and performance goals; (2) development challenges, if any,  and steps to address them; and (3) progress in manufacturing the aircraft.

To assess progress toward cost, schedule and performance goals in the  calendar year of this review (2013), we reviewed briefings by program  and contractor officials, financial management documents, program  budgets, defense acquisition executive summary reports, selected  acquisition reports, monthly activity reports, technical performance  indicators, risk assessments, and other documentation. To evaluate cost  information, we analyzed earned value management data and the  contractor’s use of management reserves. To assess development  schedule progress, we compared program milestones established at  program start to current estimates and reviewed Defense Contract  Management Agency monthly assessments of KC-46 schedule health  and program office schedule analyses. We also interviewed program  officials to determine the status of Department of Defense (DOD) efforts  to implement our prior recommendations aimed at improving the  program’s integrated master schedule. To measure progress toward  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  discussed results of the initial KC-46 operational assessment with officials  from the Air Force Operational Test and Evaluation Center and the  Director of Operational Test and Evaluation. We also interviewed relevant  officials from the KC-46 program office, Boeing, and the Department of  Defense.

To assess development challenges and steps to address them, we  examined program documentation, such as critical design review  briefings, risk assessments and briefings, software metrics reports,  integrated test team meeting minutes, and updates to key documents  such as the technology maturation, software development, and integrated  test plans. We also analyzed pertinent DOD documents including the  Defense Contract Management Agency’s monthly program assessment  reports, the first operational assessment by the Air Force Operational  Test and Evaluation Center, and annual reports issued by the Deputy  Assistant Secretary of Defense for Developmental Test and Evaluation  and the Director of Operational Test and Evaluation. When possible, we  attended integrated test team and program management meetings to  obtain additional insight on any challenges or mitigation efforts being  discussed by Boeing and program officials. In addition, we examined the  program’s progress in completing design drawings and maturing critical  technologies at the critical design review. Furthermore, we interviewed  officials from Boeing, the program office, the Office of the Secretary of  Defense, and the Department of the Navy to assess development  challenges and the suitability of steps taken to address them.

To assess progress in manufacturing aircraft, we analyzed program office  and Boeing documents, such as the manufacturing program plan;  quarterly manufacturing and quality briefings; and program schedules.  We used these documents to compare Boeing’s initial schedule for  completing aircraft and boom manufacturing to its actual performance and  to identify challenges, if any. We also evaluated whether the program  captured manufacturing knowledge recommended in prior GAO best  practices work. This included reviewing manufacturing readiness  assessments and comparing the results and future plans to DOD  guidance and manufacturing best practices identified in prior GAO work.  Lastly, we interviewed Boeing and program officials to discuss  manufacturing progress and challenges and conducted a site visit of  Boeing’s 767 production line and its temporary and permanent boom  production facility and finishing center.

We conducted this performance audit from May 2013 to April 2014 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.

section_title: Appendix II: Comparison of Current KC-135 Versus Planned KC-46 Performance Capabilities

section_title: Appendix III: Description of Key Performance Parameters
paragraphs: Appendix III: Description of Key Performance  Parameters Description   Aircraft shall be capable of accomplishing air refueling of all Department of Defense current  and programmed (budgeted) receiver aircraft. The aircraft shall be capable of conducting  both boom and drogue air refueling on the same mission.

Aircraft shall be capable of carrying certain amounts of fuel (to use in air refueling) certain  distances.

Operate in Civil and Military Airspace   Aircraft shall be capable of worldwide flight operations in all civil and military airspace.

Aircraft shall be capable of transporting certain amounts of both equipment and personnel.

Aircraft shall be capable of receiving air refueling from any compatible tanker aircraft.

Aircraft shall be able to operate in chemical and biological environments.

Aircraft must be able to have effective information exchanges with many other Department of  Defense systems to fully support execution of all necessary missions and activities.

Aircraft shall be capable of operating in hostile threat environments.

Aircraft shall be capable of conducting drogue refueling on multiple aircraft on the same  mission.

section_title: Appendix IV: KC-46 Critical Technology Elements
paragraphs: Appendix IV: KC-46 Critical Technology  Elements Description   The display screens at boom operator stations inside the aircraft  provide the visual cues needed for the operator to monitor the  aircraft being refueled before and after contact with the refueling  boom or drogue. The images of the aircraft on the screens are  captured by a pair of cameras outside the aircraft that are meant  to replicate the binocular aspect of human vision by supplying an  image from two separate points of view, replicating how humans  see two points of view, one for each eye. The resulting image  separation provides the boom operator with greater fidelity and a  more realistic impression of depth, or a 3rd dimension.

Testing to date   Similar technology has been used  on two foreign-operated refueling  aircraft and a representative model  in tests with other Boeing tankers.

The route generation engine is a component of the reactive threat  avoidance sub-system. This sub-system monitors for ground and  surface threats based on the aircraft’s location and the active  flight route. It identifies threats that impact the current route,  provides a safer alternative route, and alerts the pilot that a new  route is available for review and acceptance.

A recent version of the route  generation engine was flown and  demonstrated on a Navy aircraft, but  improvements have been made that  have not been flight tested.

section_title: Appendix V: Comments from the Department of Defense

section_title: Appendix VI: GAO Contact and Acknowledgments
subsections: section_title: GAO Contact

section_title: Acknowledgments
paragraphs: In addition to the contact name above, the following staff members made  key contributions to this report: Cheryl Andrew, Assistant Director; Jeff  Hartnett; Katheryn Hubbell; John Krump; LeAnna Parkey; and Robert  Swierczek.


Question-summary annotations: questions: question: What was the status of Boeing's management reserves as of 2013?
answer: As of December 2013, Boeing had about $75 million of its management reserves remaining to address identified, but unresolved development risks.
child_questions: question: To what extent is the operational test and evaluation on track?
answer: There are indications that the start of initial operational test and evaluation, which is scheduled for May 2016, may slip 6 to 12 months.

question: Why might the evaluation be delayed?
answer: According to the Director of Operational Test and Evaluation, more time may be needed to train aircrew and maintenance personnel and verify maintenance procedures.

questions: question: How did the program demonstrate the design's stability?
answer: The program released over 90 percent of the KC-46 design drawings at the critical design review, indicating that the design is stable.

question: What must be done to finalize the program over the next 12 months?
answer: The next 12 months will be challenging as the program must complete software development, verify that the software works as intended, finalize developmental flight test planning, and begin developmental flight tests.
child_questions: question: Why might the program be delayed?
answer: Software problem reports are increasing and Boeing could have difficulty completing all testing if more retests are needed than expected. Developmental flight testing activities are also a concern due to the need for extensive coordination among government agencies, the need for timely access to receiver aircraft (aircraft the KC-46 will refuel while in flight), and the aggressive test pace.

question: How are program officials attempting to mitigate these risks?
answer: The program office is conducting test exercises to mitigate risks and working with Navy and United Kingdom officials to finalize agreements to have access to necessary receiver aircraft.

questions: question: How will the KC-46 initially be produced?
answer: The program has also made progress in ensuring that the KC-46 is ready for low rate initial production in 2015.

question: To what extent is the manufacturing  of the development aircraft on schedule?
answer: Boeing has started manufacturing all four development aircraft on schedule.
child_questions: question: How has the program office reviewed the manufacturing process?
answer: The program office has identified its critical manufacturing processes and verified that the processes are capable of producing key military subsystems in a production representative environment.

question: Why have there been minor manufacturing delays?
answer: Boeing is experiencing some manufacturing delays due to late supplier deliveries on the first aircraft and parts delays for a test article of a critical aerial refueling subsystem, but the program has not missed any major milestones.

questions: question: How does aerial refueling affect U.S. military aircraft capabilities?
answer: Aerial refueling allows U.S. military aircraft to fly farther, stay airborne longer, and transport more weapons, equipment, and supplies.

question: How modern are the U.S. tanker forces?
answer: Yet the mainstay of the U.S. tanker forces—the KC-135 Stratotanker—is over 50 years old.
child_questions: question: Why is the tanker fleet's age a cause for concern?
answer: It is increasingly costly to support and its age-related problems could potentially ground the fleet.

question: How is the Air Force approaching this age issue?
answer: As a result, the Air Force initiated the $51 billion KC-46 program to replace the aerial refueling fleet. The program plans to produce 18 tankers by 2017 and 179 aircraft in total.

questions: question: Why does GAO annually review the KC-46 program?
answer: The National Defense Authorization Act for Fiscal Year 2012 mandated GAO to annually review the KC-46 program through 2017.

question: What does this report address?
answer: This report addresses (1) progress made in 2013 toward cost, schedule, and performance goals, (2) development challenges, if any, and steps to address them, and (3) progress made in manufacturing the aircraft.
child_questions: question: How did GAO source their data for this report?
answer: To do this, GAO reviewed 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, Boeing.