Ash Carter, the Defense Department’s acquisition chief, is apparently losing no sleep over charges that Boeing Corporation low-balled its winning bid to produce the Air Force’s next tanker aircraft.
In answer to media questions at a Brookings Institution symposium last week, Carter said a Boeing decision to possibly lose money during the developmental phase of the KC-X tanker program is not the Pentagon’s problem.
“The fact that Boeing decided it would lose money in the developmental phase in the hopes of making money in the production phase is a decision they made,” Carter is quoted in a transcript of the Brookings proceedings. “And that’s not a problem from the department’s point of view and not particularly surprising.”
EADS North American, the losing contractor in the tanker decision, charged in March that Boeing made a “low-ball offer” to win the lucrative contract. Then late last month, an Air Force spokesman confirmed that Boeing’s $4.9 billion fixed price bid for the first 18 KC-46As could be $300 million less than the company’s actual cost. The Air Force plans to buy 179 tankers at a projected cost of more than $30 billion replacing its 40- and 50-year-old KC-135 tankers.
For their part, Boeing has not denied the allegations saying only that the company was prepared to absorb any overage.
Boeing spokesman Bill Barksdale told the Air Force Association that the anticipated cost to produce the first 18 aircraft was only a projection.
“We’re not there yet,” he noted. Barksdale said Boeing is “proceeding on cost and on schedule. He called the company’s bid, “aggressive but responsible.”
Carter said the fixed price arrangement limits taxpayer jeopardy in the agreement and pressures Boeing to deliver as promised.
“This means that Boeing will have every incentive,” he said. “Remember, (the Boeing quote) is just an estimate of what it’s going to cost. They’re really just getting started and they have every incentive to control cost … Otherwise, they are going to lose money.”