$1.1B to Boeing for KC-135 Tanker Maintenance
While Boeing and EADS duke it out for the USA’s $20-30 billion KC-X order of about 175 aerial tankers with secondary cargo capacity, the existing KC-135 fleet still needs to be maintained. Based on the 707 airliner’s initial designs, the KC-135s first entered service in 1954, and they were delivered until 1965. Despite their age, they remain the mainstay of the USA’s aerial tanker fleet as it helps fighters make long-distance flights, keeps US and foreign combat air patrols on station, refuels transports on their way to remote destinations, and generally makes long-range force projection possible.
Unforeseen mechanical issues and the accompanying fleet groundings would create a crippling bottleneck in this defining array of American airpower capabilities, which is why KC-X was designated as the USAF’s highest procurement priority. Meanwhile, the KC-135s need to be well and carefully maintained in order to avoid that bottleneck. Which is why Boeing received a $1.1 billion, 10-year contract to maintain the USAF’s KC-135 fleet, after breaking with its former partners at Pemco/AAII. That kicked off a series of competitions, appeals, and reversals that reached all the way to American appeals courts:
The new contract will cover programmed depot maintenance (PDM) for more than 200 KC-135 aircraft. Conducted every 5 years, scheduled PDM services include depot-level inspections, repairs, maintenance, modifications, re-painting and supply chain services. Turnaround time for Unscheduled maintenance comprises about half of the work performed on each aircraft.
KC-135 maintenance will continue to alternate between Tinker Air Force Base in Oklahoma near the KC-135 program’s office’s Oklahoma City location, and Boeing’s Support Systems site in San Antonio, Texas. The Systems Support site in San Antonio is a licensed Federal Aviation Administration repair station, and the company’s largest maintenance and modification center. The center can house 23 wide-body aircraft at a time in its 1.6 million-square foot facility and is home to the world’s largest freestanding high-bay aircraft hangar, while boasting an 11,500-foot runway and 3.5 million square feet of aircraft ramp space, run-up areas, parking pads.
Flight-control repairs will continue to be performed by Sabreliner in Missouri, and completed by North American Aviation Services (NAAS) in San Antonio. Sabreliner and NAAS are prime subcontractors for the program.
Since the initial KC-135 PDM contract award in October 1998, Boeing’s team has completed scheduled and unscheduled maintenance on more than 160 aircraft. Along the way, they have reduced the number of days the aircraft are out of service for maintenance by 19%, and cut costs by 15% per aircraft.
Approximately 300 Boeing employees work on the KC-135 PDM program in San Antonio, while 80 Boeing employees in Oklahoma and 75 Boeing employees in Missouri support the program. The company expects to hire about 200 additional employees in San Antonio as more aircraft arrive for maintenance.
There’s more to this contract than meets the eye – and past events appear to have a strong bearing on current activities.
The new USAF contract didn’t follow the advanced “we pay for flying planes” model being implemented for Britain’s 707-based E-3D Sentry AWACS fleet, its VC10 aerial tankers, etc. Even so, this contract’s size, the American fleet’s importance, and the convoluted contract history that led to the first GAO ruling overturning the award, all make attention to its details worthwhile.
In June 2005, Pemco signed a teaming Memorandum of Agreement (“MOA”) with Boeing, extending their existing cooperation on the KC-135 program’s Programmed Depot Maintenance. At the time, the 10-year contract was envisaged as being worth $2 billion. In 2006, however, an amendment to the RFP reduced the number of aircraft involved. Boeing looked at the new terms, then terminated the MOA among Boeing, L3/IS Integrated Systems (“L3”) and Pemco to compete for the FY 2008 KC-135 contract. Boeing stated that it was no longer profitable enough for them to compete as a team.
On June 28/06, however, Pemco announced that the USAF was modifying the RFP’s due dates, in order to allow Pemco et. al. to either compete on their own or acquire new partners. In that release, Pemco’s Chairman of the Board Michael Tennenbaum said that: “The KC-135 work is crucial to the profitable operation of Pemco’s Birmingham, Alabama facility which employs, directly and indirectly, about 1,000 people.” The loss of the KC-135 contract will also affect the firm’s ability to generate positive cash flow from operations in 2007.
Unsurprisingly, Pemco filed a formal protest of the contract award to Congress’ Government Accountability Office. Surprisingly, the dispute would eventually escalate into a full fledged legal case.
In October 2008, AAI won its U.S. Court of Federal Claims case, and the Court granted an injunction against the USAF that suspended the contract with Boeing. The USAF responded with bridge contracts to Boeing, and in November 2009, the USAF award was reinstated when an appeals court overturned the lower court’s decision.
Contracts and Key Events
Dec 3/10: Boeing Aerospace Operations in Oklahoma City, OK receives a $20 million contract for C/KC-135 fleet engineering sustainment support. Money will be committed as required by the OC-ALC/GKCK at Tinker Air Force Base, OK (FA8105-11-D-0002).
This contract isn’t the same as programmed depot maintenance, but it is closely related.
Sept 29/10: Boeing Aerospace Operations, Inc. in San Antonio, TX receives a $94.5 million contract modification for programmed depot maintenance, unprogrammed depot level maintenance, and modification installations on C/KC-135 series aircraft. This award is just an umbrella contract and funding limit from the OC-ALC/GKCK at Tinker Air Force Base, OK (FA8105-07-D-0002; PO 0016).
April 2/10: Boeing Aerospace Operations of San Antonio, TX receives a $59.7 million contract for programmed depot maintenance, unprogrammed depot level maintenance, and modification installations on C/KC-135 aircraft. At this time no money has been obligated. This award is just an umbrella contract and funding limit from the 827th Aircraft Sustainment Group/Contracting at Tinker Air Force Base, OK (FA8105-07-D-0002; PO 0006).
Jan 27/10: In its year-end earnings release [PDF], Boeing says:
“Global Services & Support (GS&S) revenue increased 19 percent on higher volume across its broad portfolio of services and logistics products. During the quarter, GS&S operating margins were 13.8 percent driven by strong operating performance. In this segment, the KC-135 Programmed Depot Maintenance contract award was reinstated, and the company was awarded several Department of Energy Smart Grid grants.”
Nov 17/10: A 3-judge panel on the U.S. Court of Appeals for the Federal Circuit overturns the lower court’s rulings, and reinstates the contract. A excerpt goes to the core of their disagreement:
“The [lower] court’s attempt to write the [request for proposals] to account for the impact of aging aircraft in the manner the court preferred went beyond the scope of the court’s review and amounted to an impermissible substitution of the court’s judgment for the agency’s…”
See: Wall Street Journal.
Dec 18/08: The Air Force is modifying a firm fixed price contract to Boeing Global Services and Support of San Antonio, TX for $154.9 million. This umbrella contract will provide for KC-135 Programmed Depot Maintenance, but no money has been committed yet. A Boeing representative confirmed that this award is the 2009 “bridge funding” until the USAF sorts out this contract. The 827 ACSG/PK at Tinker Air Force Base, OK issued this contract (FA8105-05-D-0004, P00024).
Oct 2/08: AAII’s decision to keep fighting is vindicated in court. Alabama Aircraft Industries, Inc. announces that it has won its U.S. Court of Federal Claims case, as the Court sets aside the Solicitation and grants an injunction against the USAF that suspends the contract with Boeing. From the decision:
“The Air Force must resolicit the procurement and take the necessary steps in a new solicitation to address explicitly the role of an ever-aging KC-135 fleet on the PDM to be performed.”
AAII laid off hundreds of workers after its previous reversals in this competition, which made up a significant portion of the company’s business. On the bright (?) side, the company has managed to leverage its new status as a small business qualifier with large-firm existing facilities. It recently won contracts for Air Traffic Console (ATC) assemblies used in carriers and LHA/LHD ships, a BAE C-130 depaint contract, and the manufacture of certain C-130 structural components, and recently recalled 120 workers. AAII release re: decision [PDF] | Reuters | Birmingham News | Aviation Week | AAII release re: new business.
June 26/08: Alabama Aircraft Industries, Inc. subsidiary AAII – Birmingham files a case in the U.S. Court of Federal Claims against the United States Air Force and The Boeing Company, challenging the Air Force’s selection of Boeing for a $1.1 billion contract to perform PDM services on KC-135 aircraft.
June 13/08: The GAO denies Pemco/AAII’s protest of the USAF’s reaffirmed award. While Alabama Aircraft Industries, Inc. says they intend to press their case, options for doing so are narrowing sharply.
March 5/08: The Seattle Post-Intelligencer says that the USAF has reaffirmed its choice of Boeing for this contract. Barring another protest, Boeing is expected to hire about 200 more people to work on this contract. Seattle P-I report.
Feb 1/08: Reuters reports that the GAO has denied a request from the USAF to reconsider its Dec 27/07 ruling. The Air Force had asked for a reversal on the grounds that the GAO made a mistake in its decision.
Dec 27/07: Pemco is now known as Alabama Aircraft Industries, Inc. (AAII) – but a GAO protest by any other name can still be sustained [GAO decision, PDF | POGO coverage]. The USAF must now perform and document proper realism and risk analysis checks within the next 60 days re: the changes Boeing introduced in its final proposals. The GAO decision denies AAII’s other protest allegations… but does it in a very interesting way:
“Pemco’s protest submissions included allegations of bias with regard to Charles Riechers, the source selection authority for this procurement. In mid October, Mr. Riechers was found dead, an apparent suicide. The Air Force subsequently advised our Office that both local law enforcement and federal government investigative authorities are conducting an ongoing investigation into “the root cause” of Mr. Riecher’s death; it is our understanding that this investigation will encompass matters that may have a bearing on Pemco’s allegation of bias.
In light of the ongoing investigation, and consistent with this Office’s past practice, our decision does not express any opinion regarding Pemco’s bias allegations.”
That’s a very unusual statement, and the implication that the “root cause” of someone’s death is still unclear is not one that any agency will make lightly. Alabama Aircraft Industries President & CEO Ron Aramini was quoted in his firm’s release as saying that:
“This is the second time the GAO has upheld a protest by AAII of an award to Boeing in connection with this Program… We continue to believe the other issues we raised in the protest have merit and could be sustained in civil litigation.”
Hang on to your hats, folks – this one could be interesting. [DID March 2008 update: we can find no updates regarding the investigations into Riechers’ death, either ruling it firmly as a suicide or declaring the circumstances to be questionable.]
Oct 15/07: Lt. Col. Charles D. Riechers (ret.), the principal deputy assistant secretary of the Air Force for acquisition and management, is found dead in his home by friends. Initial reports publicize the death as a suicide involving carbon monoxide poisoning.
Riechers was also involved in questions surrounding checks he received from the nonprofit firm Commonwealth Research Institute in Johnstown, PA, while waiting for his confirmation. Riechers actually worked for assistant Air Force secretary for acquisition during this time, and the USAF has publicly said that it arranged the deal that made Riechers a CRI “senior technical advisor” for 2 months at $13,400 per month. Washington Post| NY Times | Gannett’s Air Force Times.
Sept 21/07: Pemco announces a GAO protest [PDF] over the award to Boeing.
Sept 11/07: Pemco announces the loss of the KC-135 contract [PDF].
- USAF – KC-135 Fact Sheet
- St. Louis Business Journal (Sept 21/07) – Pemco protests KC-135 contract award
- Boeing (Sept 11/07) – Boeing Wins $1.1 Billion KC-135 Tanker Maintenance Contract
- Pemco Aviation Group (Sept 11/07) – Pemco Aviation Group Announces Loss of KC-135 Contract: 9/11/2007 [PDF]
- Aviation Week (July 11/07) – USAF Picks Boeing Over Pemco For KC-135 PDM
- Pemco Aviation Group (June 28/06) – USAF Decision Gives Pemco An Opportunity To Bid On New KC-135 Contract [PDF]
- Pemco Aviation Group, via FindArticles.com (June 9/06) – Boeing Cancels KC-135 Teaming Agreement Following Amended RFP Release.
- Pemco Aviation Group, via FindArticles.com (June 13/05) – Pemco to Team with Boeing for KC-135 PDM Re-Competition. At the time, the contract was envisaged as being worth $2 billion.