Analysis: Lockheed-Airbus face lengthening odds in U.S. tanker re-run

US Aerospace

18/06/2023 13:53

By Valerie Insinna and Tim Hepher
       WASHINGTON/PARIS, June 18 (Reuters) - European hopes of
winning at the second attempt a groundbreaking U.S. military
order for refueling planes are fading after the Pentagon scaled
back its potential order, cooling the prospect of a new
transatlantic "Tanker War," industry sources said.
    Aerospace titans Airbus  AIR.PA  and Boeing  BA.N  clashed
in an epic contest more than a decade ago and had shaped up for
a re-run after Airbus partnered with the world's largest arms
producer Lockheed Martin  LMT.N .
    Lockheed and Airbus will tout their LMXT tanker at the Paris
Airshow this week, bringing U.S. reporters onboard the A330
Multi Role Tanker Transport on which the new plane is based.
    But although Lockheed and Airbus insist they are in the
race, proposals by the U.S. Air Force to reduce its next tanker
procurement to 75 from at least 140 have raised questions over
the politics and economics of a bid.
    This week, two congressional committees are set to debate
draft defense policy and spending bills that could shift the
odds for Lockheed-Airbus, but U.S. lawmakers thus far have shown
little opposition to the Air Force's plan. 
    In 2011, Boeing won the first of a three-phase procurement
to replace the Air Force's aging tanker fleet, securing a
contract for 179 KC-46s. The program has since incurred $7
billion in losses. 
    Airbus teamed with Lockheed in 2018 for the second phase,
called KC-Y. 
    The U.S. Air Force expects to decide later this year how
many tankers to buy after the KC-46's initial production run
ends in 2029 and whether it will hold a competition.
    However, officials are keen to speed up development of a
next-generation tanker it hopes to buy in the mid-2030s and
could halve the number of jets purchased in KC-Y.
    The new plan could diminish the Lockheed-Airbus team’s
business case, which people familiar with the matter said was
contingent on production of about 100 LMXTs. 
    
    NO FINAL DECISION
    That would allow Airbus to launch A330 production in the
United States – a detail seen as critical for obtaining support
on Capitol Hill - and hire 1,300 workers across Lockheed and
Airbus plants in Alabama and Georgia. 
    Over the past year, Air Force leaders have repeatedly said a
sole-source contract to Boeing is the likely outcome, although a
final decision has not been made.
    But Larry Gallogly, Lockheed’s director of LMXT business
development, said Lockheed and Airbus "are most definitely still
in this competition." The companies announced a third American
supplier, engine-maker General Electric  GE.N , on June 6.
    Lockheed and Airbus sought a program of at least 120
aircraft, but “the business case can certainly close below
that,” Gallogly said.
    Boeing Defense CEO Ted Colbert said the KC-46 "has proven to
be highly capable" and is ready for the threats of the 2030s. 
    A Boeing win would ensure 767 widebody production extends
into the mid-2030s, while a Lockheed-Airbus victory would hand
Airbus its first aircraft contract with the U.S. Air Force after
attempting to penetrate the U.S. defense market for two decades.
    Both Airbus and Boeing carry battle scars from the previous
competition, which Airbus lost after a decade-long contest that
included a corruption scandal that put a Boeing official in
prison and a legal protest that overturned Airbus’s initial win.
 
    The KC-46 has weathered scrutiny from Congress after
technical flaws pushed the program years off schedule. The House
Armed Services Committee's draft defense bill would cap the
KC-46 purchase at 179 planes, but the service could easily
overcome that limit by providing cost estimates.
    Advocacy for the LMXT could fall to Representative Jerry
Carl, an Alabama Republican and member of the powerful House
Appropriations Committee. The panel is set to debate defense
appropriations on Thursday, but it is unclear whether Carl will
offer an amendment forcing the Air Force to open the contract to
competition, as he did in a failed attempt last year. 
    Carl's office did not respond to a request for comment.

 (Reporting by Valerie Insinna and Tim Hepher
Editing by Mark Potter)
 ((Valerie.Insinna@thomsonreuters.com;))