Project Title: Financing for the Future: B-52 Re-Engining
The Air Force has multiple legacy aircraft that would benefit from capital improvements to improve mission capability and reduce lifecycle costs. However, it is difficult to budget for all capital improvements when such projects commonly only realize savings over multiple decades. It is particularly challenging to budget for capital improvements in times of government austerity, such as that imposed by the current sequester. Financing of capital improvements is generally not favored in DoD acquisitions, because it is perceived as a financial risk and financing usually costs more than an outright purchase of equipment and services. So, even in circumstances where financing will result in a net savings to the Air Force over time, it is difficult to meet all regulatory requirements for financing in favor of direct procurement. The result is a general inability to secure funds to execute numerous cost-saving measures.
The B-52 provides a typical example of the challenges of financing capital improvements for a major weapon system. For nearly 20 years, numerous organizations have studied the cost-effectiveness of replacing the B-52’s engines. The current engines have been in use since the 1960’s, whereas modern commercially-available engines would result in a $100+ million reduction in sustainment costs and a 25+% improvement in fuel efficiency – not to mention providing significant improvements to mission capabilities. However, the cost savings would only achieve a financial payback in ~20 years. So, it is difficult to justify the upfront expense relative to other immediate priorities. If this and other similar long-term investments are to be realized, a means of financing the investments must be identified.
Using the B-52 re-engining effort as a model for other potential future efforts, the Air Force Office of Transformational Innovation is collaborating with Air Force Global Strike Command (AFGSC), the Air Force Program Executive Office for Fighter/Bomber (PEO-F/B), the Office of the Assistant Secretary of the Air Force (Installations, Environment & Energy), and others to assess financing options to replace engines on the B-52 fleet. Part of this effort includes navigating more than a dozen studies over the last 20 years that offer conflicting assumptions and results to establish a consensus business case analysis that will form the basis for future acquisition decisions. In parallel, current acquisition authorities and regulatory restrictions are being explored to identify permissible business arrangements that could lead to an affirmative decision to finance B-52 re-engining. Of particular interest are the use of operating leases and Energy Savings Performance Contracts (ESPCs) as general constructs to reach a financing solution, though it is understood that additional authorities may be necessary to practically implement either such construct. Other acquisition strategies are also under consideration to include all activities that must occur to integrate new engines on the B-52 airframe.