USAF, Boeing Reach Agreement On E-7A Prototype Costs

RAF FAIRFORD, England—The U.S. Air Force and Boeing have agreed cost terms on production of E-7A Wedgetail prototypes after disagreement over price spikes prompted the service to raise the issue publicly.

Air Force Secretary Frank Kendall said July 20 that the two sides reached closure on defining the contract, which will both raise the service’s spending and decrease Boeing’s margin. Details were not provided as the agreement was announced here at the Royal International Air Tattoo. Full terms should be agreed upon in August, Kendall said.

“I think we’ve got a reasonable price point now moving forward,” he added.

To reach this point, the Air Force brought in a specialist to negotiate directly with Boeing. Kendall directed that task to Shay Assad, who worked with him previously in the Pentagon as the director of pricing when Kendall was the under secretary for acquisition, technology and logistics. At the time, Assad was known for pressing hard to cut companies' profit margins to reach better terms for the Defense Department.

When the service first announced the negotiation difficulties in March, the non-recurring engineering costs had come in around twice as high as had been expected. Andrew Hunter, the Air Force’s assistant secretary for acquisition, told reporters at RIAT that the agreement will provide an affordable basis for the service’s rapid prototyping program. Boeing had “buckled down” with its suppliers to find ways to bring down the cost of the rapid prototypes.

“That’s what we asked, and that’s what they did. So that’s a good news story,” Hunter said.

Boeing is looking at a growing international market for the E-7A. The UK Royal Air Force is in the early stages of production and NATO is potentially interested in buying the aircraft to replace the existing E-3 fleet. Hunter said that interest had shown Boeing that there is a business case “to lean forward and get over the hump, if you will, because there’s some critical design updates that are going to be part of our rapid prototyping program.”

Dan Gillian, Boeing’s vice president and general manager for Mobility, Surveillance and Bombers, said the company and the Air Force revised the requirements for the aircraft during the negotiations.

“We worked together with the Air Force to get the requirements dialed in to the right capability with the right support around it in order to support the Air Force’s rapid prototyping program, mindful that production and the full stand up of the fleet will come,” Gillian said.

Despite the negotiations, Boeing continued work on existing contracts to keep the program on schedule. The company appears likely to take a profit hit on the initial prototypes to keep the market for the E-7 growing, with additional funding to come from the full USAF program of record of 26 aircraft plus additional customers.