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Saturday, March 5, 2011

Boeing KC-X Price Was 10 Percent Under EADS

The decision by EADS North America not to protest its loss in the $35 billion U.S. Air Force KC-135 replacement refueling tanker contract competition is largely being based on its adjusted price, which came in a full 10% above that of rival Boeing, according to senior company officials.
EADS North America Chairman Ralph Crosby says the loss is a “dissatisfying outcome,” to a long competitive process. But ultimately the Air Force ran the KC-X competition “in accordance with all of the ground rules” and was “scrupulous” in detailing the factors leading to the decision.
The company spent roughly $45 million competing for this last round of the KC-X duel. EADS had won the contract in 2008 with then-prime contractor Northrop Grumman, but that source selection was scrapped after government auditors turned up procurement irregularities following a Boeing protest.
The Pentagon announced Boeing’s KC-46A won the most recent long-running duel on Feb. 24. EADS received debriefings Feb. 28-March 1. The company had until March 7 to protest its loss to the Government Accountability Office.
Boeing bid $20.6 billion versus the EADS price of $22.6 billion, according to data provided by the Air Force in those debriefings, says Crosby. These are the prices for developing and building 179 KC-135 replacements, including adjustments made by the Air Force in accordance with source-selection rules. The remainder of the $35 billion total contract value includes operational and maintenance expenses over the anticipated 40-year life expectancy of the tankers.
According to Crosby, EADS has derived some estimates of the Boeing offer, which have not yet been confirmed by the Air Force or Boeing. They include a $500 million adjustment in favor of Boeing for the fuel-usage advantage of the 767-based design. The Air Force also calculated a $300 million advantage to Boeing for military construction costs, Crosby says.
The service estimated an advantage for EADS worth $800 million for the A330-based tanker’s performance in various warfighting scenarios included in the Integrated Fleet Aerial Refueling Assessment modeling tool.
Though willing to congratulate Boeing on its win, Crosby questions Boeing’s ability to deliver on its promises under the terms of the fixed-price contract.
Jean Chamberlain, a senior tanker official for Boeing, last week acknowledged “concurrency” in its development program and production. First flight for the KC-46A is slated for 2015 with 18 aircraft delivered by 2017.

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