The new KC-46 tanker is expected to be more capable than the KC-135 it  replaces in several respects. Program Is Continuing to Meet Cost, Schedule, and Performance Estimates

KC-46 total program acquisition costs (development, production, and  military construction costs) have remained relatively stable since program  start, changing less than 1 percent since February 2011, and the program  is meeting schedule and performance goals. Boeing set aside $354  million in contract funds to address identified, but unresolved  development risks. As of December 2013, Boeing had about $75 million  remaining to address these risks. However, there are indications that the start of initial operational test and  evaluation, which is scheduled for May 2016, may slip. DOD’s Office of  the Director, Operational Test and Evaluation, which is responsible for  approving operational and live fire test and evaluation within each major  defense acquisition program, recently issued its 2013 annual report and  continued to recommend that the Air Force plan for a 6- to 12-month  delay to the start of initial operational test and evaluation to allow more  time to train aircrew and maintenance personnel and verify maintenance  procedures. Program Stabilized the KC-46 Design and Is Now Focused on Software Development and Testing Challenges

The program office and Boeing held the program’s CDR in July 2013 and  released over 90 percent of the total engineering design drawings, a key  indicator that the design is stable. Overall, software development  is progressing largely according to plan; however, software verification  testing has not yet started and software problem reports are increasing. The  program office is conducting a series of rehearsal test exercises and is  working with Air Force officials to finalize agreements related to receiver  aircraft availability to mitigate these risks. Notably, Boeing must verify the software  code to determine if it works as intended. Boeing  could have difficulty completing all testing if more retests are needed than  expected. Pace of Flight Test Schedule Poses Future Risk

The program’s flight test schedule continues to be a concern due to the  need for extensive coordination among government entities, the need for  timely access to receiver aircraft, and its aggressive pace. Manufacturing Has Begun with Some Delays

The program has made progress in readying the KC-46 for low rate initial  production in 2015. This includes identifying and assessing critical manufacturing  processes to determine if they are capable of producing key military  subsystems in a production representative environment. The program  also established a reliability growth curve and Boeing will begin tracking  its progress towards reaching reliability goals once testing begins. Development Aircraft Manufacturing Has Started

Boeing has started manufacturing all four development aircraft on  schedule, but has experienced some delays with the first aircraft. Boeing officials attributed  the schedule slip to late supplier deliveries. Program Is Capturing Manufacturing Knowledge

The program office and Boeing have taken several initial steps to help  ensure that the KC-46 will be ready for low rate production in August  2015 and that the aircraft will be reliable. Conclusions

The KC-46 program has made good progress to date—acquisition costs  have remained relatively stable, high-level schedule and performance  goals have been met, the critical design review was successfully  completed, and the contractor is building development aircraft. Parts delays on the first development aircraft and a critical  aerial refueling subsystem are also causing increased schedule pressure. Recommendation for Executive Action

Due to existing schedule risks and the fact that the program is entering a  challenging phase of testing, we recommend that the Secretary of  Defense direct the Air Force to study the likelihood and potential effect of  delays on total development costs, and develop mitigation plans, as  needed, related to potential delays. Specifically, we examined (1) progress toward cost,  schedule, and performance goals; (2) development challenges, if any,  and steps to address them; and (3) progress in manufacturing the aircraft.
Why GAO Did This Study

Aerial refueling allows U.S. military aircraft to fly farther, stay airborne longer, and transport more weapons, equipment, and supplies. Yet the mainstay of the U.S. tanker forces—the KC-135 Stratotanker—is over 50 years old. It is increasingly costly to support and its age-related problems could potentially ground the fleet. As a result, the Air Force initiated the $51 billion KC-46 program to replace the aerial refueling fleet. The program plans to produce 18 tankers by 2017 and 179 aircraft in total.
The National Defense Authorization Act for Fiscal Year 2012 mandated GAO to annually review the KC-46 program through 2017. This report addresses (1) progress made in 2013 toward cost, schedule, and performance goals, (2) development challenges, if any, and steps to address them, and (3) progress made in manufacturing the aircraft. To do this, GAO reviewed key program documents and discussed development and production plans and results with officials from the KC-46 program office, other defense offices, and the prime contractor, Boeing.

What GAO Found

The KC-46 program has made good progress over the past year—acquisition costs have remained relatively stable, the critical design review was successfully completed, the program is on track to meet performance parameters, and the contractor started building development aircraft. As shown, total program acquisition costs—which include development, production, and military construction costs—and unit costs have changed less than 1 percent since February 2011.
As of December 2013, Boeing had about $75 million of its management reserves remaining to address identified, but unresolved development risks. There are indications that the start of initial operational test and evaluation, which is scheduled for May 2016, may slip 6 to 12 months. According to the Director of Operational Test and Evaluation, more time may be needed to train aircrew and maintenance personnel and verify maintenance procedures.
The program released over 90 percent of the KC-46 design drawings at the critical design review, indicating that the design is stable. Overall, development of about 15.8 million lines of software code is progressing mostly according to plan. The next 12 months will be challenging as the program must complete software development, verify that the software works as intended, finalize developmental flight test planning, and begin developmental flight tests. Software problem reports are increasing and Boeing could have difficulty completing all testing if more retests are needed than expected. Developmental flight testing activities are also a concern due to the need for extensive coordination among government agencies, the need for timely access to receiver aircraft (aircraft the KC-46 will refuel while in flight), and the aggressive test pace. The program office is conducting test exercises to mitigate risks and working with Navy and United Kingdom officials to finalize agreements to have access to necessary receiver aircraft.
The program has also made progress in ensuring that the KC-46 is ready for low rate initial production in 2015. Boeing has started manufacturing all four development aircraft on schedule. The program office has identified its critical manufacturing processes and verified that the processes are capable of producing key military subsystems in a production representative environment. In addition, the program has established a reliability growth curve and will begin tracking its progress towards reaching reliability goals once testing begins. Boeing is experiencing some manufacturing delays due to late supplier deliveries on the first aircraft and parts delays for a test article of a critical aerial refueling subsystem, but the program has not missed any major milestones.

What GAO Recommends

GAO recommends that the Air Force determine the likelihood and potential effect of delays on total development costs, and develop mitigation plans, as needed, related to potential delays. DOD concurred with the recommendation.