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Tanker Costs Don't Add Up For Air Force

Boeing confirms to CNBC that the Air Force has admitted it got its math wrong on how much Boeing's tanker would cost over the long haul. Boeing says this validates what it's been saying for months in challenging the $35 billion contract award to Northrop Grumman and the European parent of Airbus. Reuters reports the Air Force now admits it was wrong in originally saying the Boeing tanker would cost $34 million more over its lifecycle than the Northrop/EADS entry. Instead, Boeing's plane will cost slightly less.

Talk about timing. We've got a week before the Government Accountability Office rules on whether Boeing's challenge is legit or not. Boeing hopes the math errors call into question the Air Force's entire credibility in awarding the contract. Maybe the Air Force just needs a new calculator.

Northrop Grumman sent me a statement CONFIRMING the Air Force made five math errors but dismissing them:

"The 25 year most probable life cycle cost (MPLCC) was a dead heat: $108.010B for the KC-45 versus $108.44B for the KC-767, a difference of $34m or 3/100 of a percent. The lower development and acquisition costs of the KC-45 were balanced out by the slightly lower operating costs of the less capable KC-767. Perfection, while an admirable goal, is rarely achieved in human affairs and particularly not in something as complex as the KC-X evaluation."

Even after correcting the math, Northrop says the two tankers are now basically the same price, adding that the Air Force chose the KC-45 for other reasons: better capabilities and combat performance (Boeing strongly disagrees).

Northrop says the bottom line is this: "Despite any minor inaccuracies in the process, the tanker providing the most capability at the best overall value is still the Northrop Grumman KC-45."

Fasten your seatbelts. It's going to be a bumpy week.

UPDATE: Well, looks like there's a math error in the Reuters story and Northrop release! If you subtract $108.01 billion from $108.44 billion, you get a difference of $430 million, NOT $34 million per airplane. Boeing says it was briefed by the Air Force earlier that $108.44b should actually be $108.044 billion, which would give you the correct $34 million difference. Maybe we all need new calculators.

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  • Based in Los Angeles, Jane Wells is a CNBC business news reporter and also writes the Funny Business blog for CNBC.com.

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