As the U.S. Air Force evaluates the two competing bids for the KC-X tanker contract, it must calculate the real cost of operating each tanker fleet of 179 aircraft over its expected 40-year service life, including the cost of fuel each fleet will burn in performing its designated military missions. Even applying conservative estimates, fuel costs will easily outweigh the "sticker price" of the tanker aircraft.

How will the Air Force calculate the cost of fuel and the Fuel Burn Adjustment?

According to the draft Request for Proposal, the Air Force will lower the Total Proposed Price of the tanker bid that meets all requirements and consumes the least amount of fuel when performing a designated set of military missions. The Air Force is employing a Fuel Burn Adjustment model that includes the estimated price of JP-8 jet fuel through 2079. Fuel burn for each aircraft is calculated based on 489 flight hours per year (per aircraft) for a fleet of 179 aircraft. The estimated fuel burn savings is converted to what is known as "Net Present Value" and applied as a discount to the Total Proposed Price for the most fuel efficient tanker.

Each offeror is responsible for estimating its own fuel burn rate. If the tanker does not live up to promises of fuel efficiency upon delivery to the Air Force, financial penalties can be applied.

The foundation of the Air Force's fuel burn calculation is the estimated cost of fuel between now and 2079. The Air Force estimates that fuel will increase by approximately 2.5 percent over the next 70 years. The model increases fuel prices for the first three years beginning in 2010 (11 percent; 7 percent; 4.5 percent), and then applies an inflation/escalation factor of approximately 2.5 percent from 2013 to 2060. For some reason, the model flattens fuel price inflation/escalation to zero percent from 2061 to 2079.

The Air Force assessment falls far below independent estimates by expert economists from PIRA Energy Group, DoE Energy Information Administration, and the International Energy Agency. For instance, according to Department of Energy trend data over the last 40 years, jet fuel prices have increased an average of approximately 7.8 percent per year. In fact, 2.5 percent is barely above the general economic inflation rate in the U.S. of about 2.3 percent. Air Force instructions and manuals state that it may be necessary to use special inflation rates for energy costs like fuel because it is one of the most volatile sectors of the economy that does not behave like the general economy. Therefore, it is curious that no special inflation rates were applied in the draft RFP.

Common sense suggests that fuel price inflation and escalation for a fossil fuel in limited global supply will only become worse over the next 40-plus years, not better. What is the likelihood that fuel prices will only rise by 2.5 percent for the next 50 years and then not rise at all?

A 7.8 percent increase in fuel prices over the next 40 years would put the real fuel cost (to the service and the American taxpayer) tens of billions of dollars higher than what is currently estimated in the Fuel Burn Adjustment model.

Boeing is only asking for a fair, transparent competition with a level playing field where fuel costs and fuel burned are accurately portrayed and measured in the Fuel Burn Adjustment model in the final Request for Proposal.