Amy Butler Washington

The use of fixed-price contracts—such as the Air Force's high-profile KC-46 development—is helping the government limit its financial exposure in projects. But the service still has work to do in allocating what will likely be more limited funding as the federal government struggles to address an unacceptably high federal debt.

Air Force officials are seeking to stem rising support costs and reduce contractors' abilities to sharply boost profits—to as much as 30%—in production lots toward the end of a manufacturing run. These measures are aimed at keeping down costs as the threat of sequestration, which could kick in as early as March, has created a “wasteful churn” of what-if spending drills, says Air Force Secretary Michael Donley.

In the near term, the Air Force is taking measures such as delaying the purchase of information technology and office furniture and limiting military flights to only mission-essential ones. This means fighters will be a no-show at sporting and other special events.

There will be an impact on flying-hour accounts, but the service is doing what it can to safeguard readiness-related funding. “We're trying to protect maintenance for aircraft and weapons systems sustainability as long as we can into the fiscal year,” Donley says. “We will have to look at what the third- and fourth-quarter execution will look like [and assess the number] of aircraft that we take into our depots and what the expected output is, and what has the most or least impact on readiness.” At units across the globe, commanders are also prioritizing what skills are most critical for airmen to stay current, and leaving other skills unaddressed.

An inevitable result of sequestration or other cuts is a further pinch on the accounts the service uses to develop and buy new technology and platforms. Air Force leadership remains committed to funding upgrades to the F-22 and developing and buying the F-35, both Lockheed Martin products, as well as working on the KC-46, a next-generation aerial refueler being developed by Boeing. It also plans to continue developing the next-generation bomber over the “long term,” Donley says without adding any clarification on timing. “We are going to try to keep programs like that on track,” he says.

As leaders grapple with making painful trades among programs and accounts, the Air Force acquisition corps is preparing to spend strategically what money it may have in the future. After a decade of some very high-profile procurement missteps—including a handful of successful challenges to source selections—this could be an opportunity for the Air Force to prove it has turned around. That would be especially welcome after a decade of bloated cost-plus contracts where companies seemingly got a blank check for overrunning contracts.

Whether or not the sequestration cuts occur, the Air Force plans to protect the integrity of its fixed-price, incentive-fee contract with Boeing to develop the KC-46, says Air Force Lt. Gen. C.R. Davis, military deputy for acquisition. “If [sequestration] had started at the beginning of the year and had been as high as [a] 12% [cut], there would have been challenges with the tanker program,” Davis tells Aviation Week. “We are not going to reopen and renegotiate the contract by any stretch of the imagination.”