	Background

In February 2011, Boeing won the competition to develop the Air Force’s  next generation aerial refueling tanker aircraft, the KC-46. It  features two key delivery dates, requiring Boeing to first deliver four  development aircraft between April and May 2016, and second, if the Air  Force exercises the first two production options, deliver a total of 18  operational aircraft by August 2017. It also specifies that Boeing must  correct any deficiencies and bring development and production aircraft to  the final configuration at no additional cost to the government.In  addition, all required aircrew and maintainer training must be complete  and the required support equipment and sustainment support must be in  place by August 2017. Barring any changes,  the development contract specifies a target price of $4.4 billion and a  ceiling price of $4.9 billion, at which point Boeing assumes responsibility  for all additional costs. Estimated Program Costs Are Decreasing and Performance Goals Are Expected to Be Met

For the third consecutive year, the program office has reduced its  acquisition cost estimate and it continues to estimate that Boeing will  meet performance goals. The total KC-46 program acquisition cost  estimate (development, procurement, and military construction costs) has  decreased $3.5 billion or about 7 percent—from $51.7 billion to $48.2  billion—since the program started in February 2011. The decrease is due  primarily to stable requirements, fewer than expected engineering  changes, and changes in military construction plans. Program Has Revised Testing and Delivery Schedules Due to Problems Early in Development

The KC-46 program originally planned to hold its low-rate initial  production decision in August 2015, but had to delay the decision 9  months, to May 2016, because Boeing experienced problems developing  the aircraft. As Boeing implements the new schedule, challenges to  flight test completion could affect its ability to deliver aircraft on time. Boeing Plans to Deliver Aircraft in a Compressed Timeframe

As a result of the development problems, Boeing has used all of its  schedule reserve and had to revise its testing schedule. Originally, Boeing  contracted to complete developmental flight testing and deliver the four  development aircraft by April and May 2016. Boeing also planned to bring the four development aircraft  to operational configuration and deliver those aircraft, along with 14  additional production aircraft, to the Air Force over 14 months, prior to  August 2017. It plans to bring two  development aircraft to operational configuration and deliver those  aircraft, along with 16 additional production aircraft (2 more than it  originally planned to deliver in this timeframe), to the Air Force over the 6  months leading up to August 2017. While this risks late  discoveries of aircraft deficiencies, Boeing must correct them at its own  cost. Figure 2 illustrates the original and current schedules for test and  delivery. This included a demonstration of the aircraft’s aerial  refueling capability with an F-16 aircraft using the boom, which is needed  to support the low-rate initial production decision. DOD  developmental test officials believe that the schedule for completing the  remaining test activities is risky because Boeing has not completed test  activities at the rate it planned and upcoming tests will be more complex. To mitigate these risks, Boeing test officials told us that they are working  to improve test efficiency. Obtain FAA approval of key components: FAA and program officials  report that while most of the KC-46 components have been deemed  ready for certification by the FAA, two key aerial refueling systems have  not. The  Air Force and Boeing have agreed in principle to contract changes that  reflect the delay. We provided a  draft of this report to the KC-46 program office for review and comment. The program office provided technical comments, which we incorporated  into this report as appropriate. Probability an aircraft will be ready for operational use when  required.
Why GAO Did This Study

Aerial refueling—when aircraft refuel while airborne—allows the U.S. military to fly farther, stay airborne longer, and transport more weapons, equipment, and supplies. The Air Force initiated the KC-46 program to replace its aging KC-135 aerial refueling fleet. Boeing was awarded a fixed price incentive contract with a ceiling price of $4.9 billion to develop the first four aircraft, which will be used for testing. Boeing is contractually required to deliver the four development aircraft between April and May 2016. Boeing is also required to deliver a total of 18 aircraft by August 2017, which could include some of the development aircraft if they are brought to operational configuration. The program plans to eventually field 179 aircraft in total.
The National Defense Authorization Act for Fiscal Year 2012 included a provision for GAO to review the KC-46 program annually through 2017. This report addresses progress made in 2015 toward (1) meeting cost and performance goals and (2) delivering the aircraft on schedule. GAO analyzed key cost, schedule, development, test, and manufacturing documents and discussed results with officials from the KC-46 program office, other defense offices, the FAA, and Boeing, the prime contractor.

What GAO Found

KC-46 tanker aircraft acquisition cost estimates have decreased for a third consecutive year and the prime contractor, Boeing, is expected to achieve all the performance goals, such as those for air refueling and airlift capability. As the table below shows, the total acquisition cost estimate has decreased from $51.7 billion in February 2011 to $48.2 billion in December 2015, about 7 percent, due primarily to stable requirements that led to fewer than expected engineering changes. The fixed price development contract also protects the government from paying for any development costs above the contract ceiling price.
Source: GAO presentation of Air Force data. | GAO-16-346
Regarding the schedule, the program office delayed the low-rate initial production decision 9 months because Boeing had problems developing the first four aircraft. Boeing has largely addressed the problems, but proposed a new schedule to reflect the delays. (See figure below.) Boeing still plans to deliver 18 operational aircraft to the Air Force by August 2017—assuming the Air Force approves production. Operational testing will be completed later, in October 2017. While aircraft deficiencies could be discovered late, the plan presents little cost risk to the government because Boeing must correct deficiencies using its own resources. Boeing plans to deliver the aircraft over 6 months, instead of 14.
Note: The original schedule included delivery of four development aircraft in operational configuration by May 2016. Under the current schedule the last of these aircraft will be delivered by November 2017.
Boeing has a challenging road ahead to complete testing and deliver aircraft. Test officials believe Boeing's test schedule is optimistic and it may not have all aircraft available when needed to complete planned testing. Boeing also has not gotten several key aerial refueling parts qualified by the Federal Aviation Administration (FAA) and cannot get final FAA certification of KC-46 aircraft until this occurs. Program officials estimate there are 4 months of schedule risk to delivering 18 aircraft by August 2017 due to testing and parts qualification issues. Boeing is working on ways to mitigate the schedule risks.

What GAO Recommends

GAO is not making recommendations at this time. DOD's technical comments on a draft are incorporated as appropriate in the final report.