Senators Demand Budget Review for B-3, Warn on KC-46A

A House subcommittee last week raised the issue when Representative Jackie Speier asked James to explain how the Long Range Strike Bomber (LRS-B) 10-year budget estimates rose 76% between fiscal years 2015 and 2016. The Air Force’s answer was that both figures ($33.1 billion in the first estimate and $58.2 billion in the second) were incorrect and that the real number ($41.7 billion) was unchanged. Secretary James said the error was due in part to human error and in part to process error.

The contract for the LRS-B, aka the B-3, has not been awarded yet and is being contested by Northrop Grumman Corp. (NYSE: NOC), which designed and built the current B-2 bomber, and a joint bid from Boeing Co. (NYSE: BA) and Lockheed Martin Corp. (NYSE: LMT). Boeing is currently building a new tanker for the Air Force, the KC-46A, and Lockheed is building the F-35. The B-3 contract appears to be worth $41.7 billion over 10 years, and is considerably less than the total value of either KC-46A (around $100 billion) or the F-35 (about $1 trillion over the estimated 50-year life of the plane).

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Senator McCain also wrote a separate letter expressing his concerns related to the KC-46A tanker program. In particular, McCain is concerned about the concurrent development and initial production of the tanker. According to Breaking Defense he wrote:

While we appreciate that decision [to run development and production simultaneously], a concurrent test and production strategy increases the risk of redesign and retrofit to address potential issues found in testing, and has potential implications for schedule and cost to both the KC-46A program and beyond. … I fully expect that, should such issues arise, the government and taxpayer would not be responsible for these additional costs and would seek appropriate consideration. … All too often under our current defense acquisition system, the Department has started programs that were poorly conceived or inherently unexecutable, with the aim of getting programs into development and production where they can become notoriously difficult to change meaningfully or, if necessary, terminate. The KC-46A program must not become another such failure.

The Pentagon has acknowledged that it received the letters and that it will respond directly and promptly.

Boeing’s stock traded down about 2% in Tuesday’s premarket, at $128.00 in a 52-week range of $115.15 to $158.83.

Shares of Lockheed and Northrop were inactive, having closed at $201.18 (down 1.3%) and $163.74 (down 1.1%), respectively, on Monday.

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