The WasteWatcher: The Staff Blog of Citizens Against Government Waste

Boeing on the Hook for Failures of New Air Force Tanker

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


Pegasus, the mythological white winged horse that sprang forth from the neck of Medusa, never had any problem taking off; however, the same is not true for the horse’s namesake aircraft, the KC-46 tanker.

According to a May 27, 2016, Defense News article, Boeing, the prime contractor for the Pegasus tanker program, will miss its August 2017 deadline, when it was to deliver 18 planes to the Air Force.  A May 27, 2016, Defense One article noted that the delay follows a string of technical problems over the past four years.  Boeing has claimed that the 18 aircraft will now arrive by January 2018.

Intended to replace the KC-135 tanker, the KC-46 is a modified version of the 767 jetliner.  Unfortunately, to date it has been unable to perform its primary function, which is refueling planes.  Problems have cropped up with its boom, the pipe that extends from the aircraft to trailing planes in order to transmit fuel.

This bad news comes at a critical time for the KC-46.  The Air Force intended to decide in April 2016 whether to purchase any additional planes beyond the 18 that were to be initially delivered after originally planning to purchase 179 tankers.  The service will now make this determination in August 2016.

Fortunately for taxpayers, the KC-46 Pegasus contract was negotiated as a fixed price deal, so Boeing is on the hook for any cost increases, which have ballooned to $1.3 billion thus far.

This fixed price contract has established an interesting contrast with cost-plus deals negotiated by the Air Force on other acquisition programs, particularly the F-35 Joint Strike Fighter (JSF), which is currently four years behind schedule and approximately $170 billion over budget.  An April 2015 Government Accountability Office report noted that the lifetime operation and maintenance costs of the F-35, which is the most expensive weapon system in history, will total approximately $1 trillion. 

Many of the problems with the JSF program can be traced back to the decision to operate program development and procurement simultaneously.  This meant that whenever problems were identified, contractors needed to go back and make changes to aircraft that were already in production.  Given the nature of the contract, all cost increases due to essential alterations caused by initial design flaws were paid not by the contractor, but by taxpayers. 

Unfortunately, fixed cost contracts are not a panacea.  Many reports, most notably a September 2015 RAND Corporation study, have noted that cost growth is consistent in both fixed price and cost-plus deals.  Price increases in cost-plus contracts typically result in significant financial burdens on contractors and lengthy legal battles. 

Moreover, taxpayers typically do not escape paying for underperforming fixed price contacts.  According to RAND, “Sooner or later, through one mechanism or another, the government has ended up paying for much of the cost growth originally absorbed by the contractor, often during the production phase (or the program was cancelled or significantly cut back).”

Time will tell if the fixed price contract negotiated by the Air Force for the KC-46 acquisition program will ultimately result in significant cost savings for taxpayers.  In the near term, taxpayers are off the hook for the $1.3 billion in overruns to date.

Issues/Topics: 

Sign Up for Email Updates!Click Here!

View Archives

Posts by Author

Posts by Tag

Big Government (151) Waste (72) Obamacare (68) Budget (66) Healthcare (65) Congress (59) Uncategorized (56) Telecommunications (49) Debt (43) Technology (42) Deficit (42) Internet (41)