Boeing plans to modify the 767 aircraft in two phases to produce a  militarized aerial refueling tanker. The Air Force is responsible for certifying the KC- 46 and its military systems. Program Cost Estimates Have Decreased and It is on Track to Meet Performance Goals

KC-46 total program acquisition cost estimates (development,  procurement, and military construction costs) have declined from $51.7  billion to $48.9 billion—$2.8 billion or about 5.4 percent—since the  program started in February 2011. Most of the estimated decline in costs  is due to fewer than expected engineering changes, savings from a  competitively awarded aircrew training system contract, and changes in  military construction assumptions. Ultimately, these performance goals will be  validated primarily through ground and flight testing. As  the KC-46 low-rate production decisiona result of the wiring problems, Boeing only completed 3.5 hours of flight  testing in 2014, compared to nearly 400 flight test hours it planned to  conduct. With the program office’s approval, Boeing revised its nearly 2,400  development flight test hour plan to account for wiring-related delays and  to focus on demonstrating key KC-46 aerial refueling capabilities that are  required for the production decision. In addition, only 3 test months will be on a KC-46 prior to the  decision compared to the original plan of 13 months. These  challenges could result in additional schedule delays. This would have enabled Boeing to complete about  66 percent of the nearly 2,400 development flight test hours, including  aerial refueling demonstration flights that are entrance criteria for that  decision, as well as some of the activities necessary to support the start  of initial operational test and evaluation.Boeing plans to complete a little more than 8 months of flight testing prior  to the low-rate production decision, or about 22 percent of development  flight test hours. The intent of developmental testing is to demonstrate the maturity of a  design and to discover and fix design and performance problems before a  system enters production. Program is Continuing to Gather Manufacturing Knowledge to Support the Production Decision

The program office and Boeing continue to collect most of the necessary  manufacturing knowledge to make informed decisions as the program  approaches its low-rate production decision in October 2015. While this increases  the risk of discovering costly problems late in development, when the  more complex software and advanced capabilities are tested, contract  provisions specify that Boeing must correct any required deficiencies and  bring development and production aircraft to the final configuration at no  additional cost to the government. Based on our  analysis, Boeing is at risk of not meeting the entrance criteria needed to  support the projected October 2015 low-rate production decision, and will  have less knowledge about the reliability of the aircraft than originally  planned. No flight testing has been conducted on a KC-46 tanker. Recommendation for Executive Action

Given that the KC-46 program has encountered significant delays to the  start of development test and the schedule moving forward remains risky,  we recommend that the Secretary of Defense direct the Air Force to  ensure that key aerial refueling capabilities are demonstrated prior to the  low-rate production decision. The Air Force concurred with our  recommendation. The KC-46 program office plans to collect all required  data prior to the low-rate production decision, including the demonstration  of key aerial refueling capabilities.
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. 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 $49 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 included provisions for GAO to annually review the KC-46 program through 2017. This report addresses progress made in 2014 towards (1) achieving cost and performance goals, (2) meeting schedule targets, and (3) gathering manufacturing knowledge prior to the low-rate production decision. GAO analyzed 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.

What GAO Found

The KC-46 acquisition cost estimate has declined by about 5.4 percent from $51.7 billion to $48.9 billion since February 2011 and the program is on track to meet performance goals. Most of the estimated cost decline is due to fewer than expected engineering changes and changes in military construction plans.
The Air Force delayed the production decision two months, to October 2015, due to wiring problems that Boeing experienced that delayed aircraft delivery and testing. For example, Boeing completed 3.5 hours of flight testing during a single flight of the 767-2C (a precursor to the KC-46 tanker) in 2014, compared to nearly 400 flight test hours it planned to conduct. With program office approval, Boeing restructured its nearly 2,400 development flight test hour plan to focus on demonstrating key KC-46 aerial refueling capabilities required for the production decision. Significantly less testing will now be conducted prior to the decision and only three test months will be on a KC-46, compared to the original plan of 13 months. This testing is intended to demonstrate design maturity and fix design and performance problems before a system enters production. Boeing remains at risk of not being able to demonstrate the aerial refueling capabilities in time to meet the new production decision date due to late parts deliveries, software defects, and flight test cycle assumptions, which could result in additional delays.
Program officials are gathering manufacturing knowledge to support a production decision, such as determining if suppliers can produce military subsystems in a production environment. However, the program office will have less knowledge about the reliability and performance of the KC-46 than planned because of reduced testing prior to the decision. While this increases the risk of discovering costly problems late in development, contract provisions specify that Boeing must correct these at no cost to the government.

What GAO Recommends

GAO recommends that the Air Force ensure that key aerial refueling capabilities are demonstrated prior to holding the production decision. The Air Force concurred with the recommendation.