One of the interesting questions to emerge from reporters covering the Farnborough Air Show in mid July was some confusion over whether Boeing has actually built and delivered a modern air tanker. That’s right. There were many questions from the media at several briefings that suggested all we had was a paper airplane.

Well, let’s set the record straight. We have delivered two KC-767s to Japan earlier this year. The two planes, currently in final operational training and evaluation with the Japanese government, represent the world’s most advanced aerial-refueling aircraft. They are the most recent addition to our unique tanker legacy, which includes delivering nearly 2,000 operational tanker aircraft.

And the KC-767 that we’ll build for the U.S. Air Force will be even more advanced than the ones delivered to Japan and slated for delivery soon to Italy. We’ll be upgrading the advanced technologies - most notably offering a new, more advanced refueling boom.

But let’s remember that the new boom for the U.S. Air Force will represent the sixth generation of boom technology. We just want to remind folks that even though the Air Force will receive an upgraded boom designed specifically for their requirements, it will be derived directly from the five generations of tanker booms that have been already designed, built, tested and delivered to air forces around the world. Our friends at Northrop and Airbus have yet to deploy or operate a single boom from an A330 aircraft - let alone compile the kind of track record we have since the Eisenhower era. We know booms. We know risks. The design upgrades we are offering the Air Force are low risk.

If we’re anything, we are about reducing risk. When it comes to tankers, we do it better simply because we’ve built so many. A less risky solution is central to what we are offering our customer. Take the production system, for example. We offer an already proven, ready-made production line that is capable of delivering hundreds of new advanced Tankers. Talk about low risk!

Other features that simplify operations, thereby reducing risks: our tanker’s smaller footprint allows more tankers in fewer bases, and puts more booms in the sky allowing fighter jets to meet demanding targeting requirements. Our tanker sips fuel rather than guzzles it, which helps to cushion spikes in fuel costs.

In fact, the KC-767 burns an estimated 24% less fuel than its competitor. Such efficiency saves about $30 billion in fuel costs over the life span of a 179 aircraft. Throw in the combination of maintenance, manpower and military construction costs and the savings climbs to nearly $50 billion in life-cycle savings compared to our competitors. Savings like those alleviate enormous financial risk. As we say: we’re ready today to fuel the fight anytime, anywhere. Can our competitors say the same thing?

As the U.S. military expresses concern over escalating fuel costs stressing defense budgets, Boeing reports that the U.S. Air Force could pay as much as $44 billion more in fuel bills over 40 years to operate a fleet of 179 Airbus A330-200 aerial refueling tankers, compared with a similar number of tankers based on the Boeing 767-200ER.

This assessment is based on a Conklin & de Decker Aviation Information study, funded by Boeing, that calculated the Air Force’s cost with oil at $130 per barrel, $150 per barrel and $200 per barrel.1 Oil prices hit a record high last week above $147 a barrel, and many analysts expect prices to continue climbing. Escalating fuel costs are a critical military concern. As the largest consumer of fuel in the Department of Defense (DOD), the Air Force, for example, spends an additional $600 million annually for each $10 increase in the price of a barrel of oil, spending approximately $6.6 billion on aviation fuel costs in 2006 alone.

Boeing today released the following statement in response to the U.S. Defense Department’s decision to reopen the KC-X aerial refueling tanker competition following the company’s successful protest of the original $35 billion contract award:

“We welcome the decision by Defense Secretary Robert Gates not to proceed with the contract award to Northrop Grumman/EADS and to reopen the KC-X tanker competition. However, we remain concerned that a renewed Request for Proposals (RFP) may include changes that significantly alter the selection criteria as set forth in the original solicitation. As the Government Accountability Office reported in upholding our protest, we submitted the only proposal that fully met the mandatory criteria of the original RFP.

“We look forward to working with the new acquisition team as it reopens the competition, but we will also take time to understand the updated solicitation to determine the right path forward for the company.

“It’s encouraging that the Defense Department intends to take steps to ensure a fair and open competition that, among other things, fully accounts for life-cycle costs, such as fuel, to provide the most capable tanker at the best value for the American taxpayer.”

ST. LOUIS, June 18, 2008 – Boeing [NYSE: BA] was informed today that the Government Accountability Office (GAO) found in Boeing’s favor on a number of issues related to its protest of the U.S. Air Force’s award of a $35 billion contract to supply the service with its next-generation aerial refueling aircraft – or KC-X tankers – to begin replacing the current fleet of KC-135 tankers.

In response to the ruling, Boeing released the following statement from Mark McGraw, vice president, Tanker Programs:

“We welcome and support today’s ruling by the GAO fully sustaining the grounds of our protest.

“We appreciate the professionalism and diligence the GAO showed in its review of the KC-X acquisition process. We look forward to working with the Air Force on next steps in this critical procurement for our warfighters.”

Boeing’s contention that its KC-767AT tanker costs less to operate over its life time than the EADS/Northrop Airbus A330 tanker appears to be supported by revelations in several redacted documents from Boeing’s protest with the Government Accounting Office (GAO) over the Air Force’s award of the KC-X contract.

Hundreds of pages of redacted documents related to Boeing’s protest were released this week and revelations about the strength of the company’s case have come to life. Excerpts from the redacted response, or comments, by Boeing on the Air Force’s Agency Report, which was filed in response to Boeing as part of the protest process, reveal the Air Force acknowledged that Boeing’s KC-767 has the lowest Most Probable Life Cycle Cost (MLPCC).

A revelation that Boeing says, contradicts initial statements that the Northrop/EADS aircraft “offered great advantage to the Government in cost price.”

Because the Boeing KC-767AT was in fact the lower-cost offering, the Source Selection Authority, should have conducted a tradeoff analysis of Northrop’s discriminators to ensure they were worth the additional costs. Because of the miscalculation of Northrop’s MPLCC, no such evaluation has been conducted.

Other issues raised in the documents include the fact that by excessively exceeding the fuel offload and airlift objective requirements should not be the basis for awarding the Airbus based tanker a “compelling discriminator.”

In addition it appears as though the inherent and significant risks associated with moving final assembly from Europe to Alabama and changing modification approaches during low-rate initial production weren’t appropriately assessed.