Commercial Application of Military Airlift Aircraft (CAMAA) is a joint initiative between the United States Air Force (USAF), Boeing and academia designed as a means to mitigate Congressionally ordered end-of-Cold-War force reduction through directives such as the Base Realignment and Closure Act (BRAC). In its original form in October 2000, it was found to be inadequate or possessed limitations not necessarily conducive to project success in the estimations of program participants. A second iteration was approved for development as representative of atypical levels of industry and government collaboration. The Heavylift initiative, is an outgrowth of the intent and focus of the CAMAA program utilizing commercial/military Boeing C-17 Globemaster IIIs.
In the mid-1990s as end-of-Cold-War realities settled in with their unique brand of impact on the Military-Industrial-Complex, McDonnell Douglas began to market the C-17 Globemaster III to commercial civilian operators, under the name MD-17. After McDonnell Douglas merged with Boeing, the program was renamed BC-17. Strong impetus was provided to advance this initiative through a collaborative effort between the USAF and Boeing in 2000, designated CAMAA (Commercial Application of Military Airlift Aircraft) as a means to mitigate Congressionally ordered force reduction through directives such as the Base Realignment and Closure Act (BRAC). The intent of this presentation is to provide an in-depth analysis of the CAMAA gestation period as it developed over a decade, and the current status.
The document Final Report: Commercial Application of Military Airlift Aircraft was presented to then-Secretary of the Air Force F. Whitten Peters in October 2000. The program was subsequently inherited by his successor Dr. James G. Roche, who moved the program forward. CAMAA came to the attention of Dr. Sheila R. Ronis and Myron D. Stokes, who were involved with the Air Force and Boeing on other matters, in early 2001. According to Dr. Ronis, the limitations of the program in its original iteration did not become apparent until later that year, but were then conveyed to the Secretary. This led to a request by Dr. Roche that a paper outlining project concerns was crafted.
Three weeks after receipt of the analysis, the Secretary called for a complete review of this C-17-based program, leading to a revised approach incorporating aspects of the Ronis/Stokes paper. The results of those recommendations to the Air Force are outlined in the following compilation of data, which include documents not previously available to the public and few others.
It is the expectation of parties who were core to the crafting of this "exercise in acquisition reform" that it will come to fruition in the coming months. For them, it is inarguable that the C-17 — the most versatile airlifter ever devised as a matter of record — is a critical element of national security in an increasingly dangerous world.
According to a recently released internal document "The Commercial Application of Military Airlift Aircraft (CAMAA) Program: Observations and Recommendations", which was prepared at the direction of former Secretary of The Air Force Dr. James G. Roche in August 2001 by national security strategist and National Defense University (NDU) Foundation board member Dr. Sheila Ronis, Director, MBA/MSM Programs Associate Professor, Management, Walsh College (also a visioning group leader for the Project On National Security Reform) and industry analyst Myron D. Stokes, currently Managing Member of Global HeavyLift Holdings, LLC, (GHH) the initiative was described as "an experiment in acquisition reform." GHH is a Defense Logistics Agency listed entity formed in 2002 to bring together the intellectual resources to craft architecture for global infrastructure of a new US/NATO-controlled Heavy and Outsized subset of the air cargo industry utilizing new and used commercial variants of the C-17 Globemaster III designated BC-17.
Notably, the Ronis/Stokes paper to SECAF Roche pointed out the limitations of the CAMAA program, as originally conceived, and made recommendations to the Secretary to help ensure the program's success. These recommendations and changes were directed by the Secretary to be implemented within a revamped framework co-crafted by Ronis and Stokes in strong collaboration with USAF and Boeing personnel.
Impact of September 11, 2001 Attacks on Program
Just 18 days after delivery of the Roche paper, the 9/11 attacks occurred, bringing with them a sharp change in focus in how C-17s were deployed and whether any could be spared for the CAMAA program (which called for expanding Civil Reserve Air Fleet capacity to include commercial C-17 based Heavy and Outsized capability) in an era of asymmetric warfare requiring new levels of force projection and rapid deployment globally as only the C-17 could accomplish. The authors of the Roche paper had already suggested that the solution for the Congressionally imposed limitations on equipment acquisition strategies, while meeting CAMAA and USAF mission goals, was to have Boeing build more C-17s to capitalize on economies of scale, thus resulting in lower costs.
It is worth noting that a scheduled meeting between Dr. Ronis, a co-crafter of the Hart-Rudman report, and DoD officials that was to have taken place at the Pentagon was instead shifted to her Birmingham, Michigan office, and these representatives were arriving at Detroit Metropolitan Airport as attackers struck the World Trade Center Towers and the Pentagon on September 11. Concerns by the Roche paper authors relative to the inability of FDNY first responders to extract WTC victims trapped above the aircraft impact points before structure collapse, led to the immediate development of a revised first response strategy using off-the-shelf- fire fighting and rescue technology, coupled with improved process. Termed as IN-S.E.R.T (Skyscraper Emergency Response Team) the paper outlined a strategy for creating a globally implementable template for first responders using commercial/military C-17s carrying a full contingent of elite first response personnel and highly specialized equipment.
The concept was presented to 18 Argonne National Lab scientists and two FEMA personnel just 37 days after the WTC/Pentagon strikes.
CAMAA modification strategies recommended to Secretary Roche led to the development of 17 case studies of actual let projects – conducted by the Air Force and Boeing with some of the world’s largest corporations including Exxon-Mobil, Dupont, Conoco-Philips and Halliburton – to demonstrate the ability of the BC-17 to significantly reduce costs associated with global exploration, extraction and exploiting of oil, gas, gold and diamond resources. A 25 year business plan proving the viability of the heavylift initiative was also produced. The value of projects around the world involved in the development of these studies, exceeded US$ 400 billion, according to the Air Force and Boeing document BC-17X Risk Reduction Study, MDC 04K1712, 19 December 2004 and Risk Reduction Report on the Short Austere Market, Council for Logistics Research, Inc, 8 September 2003.
The Roche paper authors also recommended in 2004 that used C-17s –- acquired directly from the Air Force – be considered as a means to reduce costs, create earlier profitability and compress the program implementation timeframe. The strategy was encapsulated in a process known as Transformational Recapitalization.
The Report to the Congressional Defense Committees on Expanding the Civil Reserve Air Fleet with Outsize Cargo Capacity states specific concerns about business case viability which have been raised since program inception, are addressed through the answering of model questions presented in the report as follows:
US Gov: The largest risk is loss of access to the capacity if the commercial operator declares bankruptcy after aircraft have been placed in commercial service. To reduce the risk, Air Mobility Commands' (AMC) position requires the organic fleet to be at least 180 C-17s. There is also the possibility that the government might be unable to the sell the aircraft at the expected fair and quitable price (as outlined in the Transformational Recapitalization Strategy) subsequent to ordering new C-17s, thus resulting in a funding deficit for the purchase of new aircraft.
Commercial Carrier: The owner takes the most risk, as is normal in commercial ventures. That risk is quantified in the business case and is reflected in interest rates and bond ratings. the used aircraft option reduces the capital risk and eliminates the need for government investments or buy-backs.
C-17 Manufacturer: Assuming the operator can fly for revenue while any outstanding certification issues are addressed, then the Boeing Company has almost no financial risk.
A custom 25-year operator business case model was developed for this aircraft. Careful consideration was given to the services BC-17 would provide to the project market and the heavy and outsize market (air transport of goods to large or outsize fit in any door of any 747 or similar size freighter). The project market report (Council on Logistics Research study previously noted) demonstrated a premium revenue yield for the short field capability of the aircraft and when combined with a competitive heavy and outsized market revenue rate at a 60%/40% market split, it was demonstrated that the aircraft had the ability to generate revenue of $50M per aircraft per year. Careful analysis was done on the cost of operating the aircraft, the corporate and overhead structure the business would best operate under and a reasonable financing structure acceptable to Wall Street firms. These assumptions were placed into the operator business case model, which generates income and cash flow streams over the 25 year period, and demonstrated a 15% Internal Rate of Return (IRR) with a $120m aircraft notional price. The model also demonstrated an excellent 35% operating profit and an NPV of $790M (11% discount rate.) The $120M aircraft price results in $30M being available for FAA certification and modification cost to yield the USAF's expected $90M stated in the previous discussion. At the time of this writing, the FAA appears open to a minimum change configuration. If approved, the costs would be considerably less than the $30M increasing the potential return for the USAF for the used C-17.
The USAF may spend $230M to purchase a new C-17 and should get $90M in credit for each C-17 it sells without giving up access to the capability when CRAF (Civil Reserve Air Fleet) is activated. To date, there has been extensive analysis to determine the fair and reasonable value of the used C-17. Independent (Office of The Secretary of Defense) assessment of the analysis should be complete by late 2005. (Assessment was completed). The USAF will avoid $11M in modifications and $10M per year in operations and maintenance cost for each C-17 it sell without giving up access to the capability during war. If a sale takes place in FY07, fewer C-17s would be delayed approximately 6 months to the end of FY08. In addition, this provides a basis for a recapitalization plan that helps with aging aircraft (refer to Transformational Recapitalization document) by replacing 10-15 year old C-17s, provides industrial base support, and enables Fly America. Although CRAF BC-17s would experience operating limitations when compared with military aircraft and crews, the CRAF portion of the airlift system would be more capable. Also, due to the expense of operating BC-17s, annual payments to CRAF carriers could increase."
Testimony has been given to the Congressionally mandated United States China Security Commission by Dr. Sheila Ronis and Myron D. Stokes relative to the critical role that C-17 and BC-17 production and operation have played and will play in matters of national security. Such testimony is indicative of the continuous relationship maintained with policy makers by individuals associated with this project since inception.
In FY06, FY07, FY08, FY09 and FY10 Defense budgets, language was submitted and will be submitted again through Senate Armed Services Committee (SASC) staffers directing the Secretary of Defense to authorize the USAF to sell first generation C-17s (there is precedent for military equipment resale activity in FY98 and FY00) to the private sector for the purpose of expanding the Civil Reserve Air Fleet to include Heavy and Outsize capacity – thus removing current dependence on Russian/Ukrainian AN-124 aircraft (operating in the US on daily FAA waivers) to fulfill US military airlift shortfalls for Iraq and Afghanistan operations. Furthermore, the FAA is instructed through this mechanism to consider exemption to FAA 14 CFR 21.27, which requires that aircraft declared "military surplus" be go through recertification; a time consuming and costly undertaking as noted previously. The rationale, according to USAF documents, is "The language also allows the FAA Administrator to use an existing FAR to certify the aircraft. Under 14 CFR 21.27 the FAA Administrator can grant a Part 25 type certification in the transport category using military experience to demonstrate air worthiness. However, 14 CFR 21.27 applies to surplus aircraft, therefore, a legislative exemption is required because these aircraft fulfill part of the military airlift requirement and are not surplus. Since this exception does not change the intent of 14 CFR 21.27, the FAA has coordinated on the use of this language."
"The language also clearly maintains State Department oversight of the commercial operation through the International Traffic in Arms Regulations (ITAR), 22 CFR Part 121, US Munitions List. An advisory opinion from the DoS has been obtained for this operation, and commercial industry has reluctantly accepted the methodology."
Elements of the HeavyLift initiative strategy teams began working directly with the offices of then SASC Chairman Senator John Warner R-VA; then ranking member now Chairman Carl Levin D-MI; and Senator Joseph Lieberman, I-CT, in 2005 to accomplish resale and exemption language requirements through inclusion in the National Defense Budget.
Additionally, the team had direct interaction with the Secretary of the Air Force Michael W. Wynne, and J. David Patterson, former Principal Under Secretary of Defense and Comptroller for the Department of Defense during this time.
Threat To C-17 Production Line Continuance
Recognizing the absolute importance of C-17 production line continuance (which has been, and continues to be, under threat) to BC-17, the HeavyLift team, while maintaining close relationships with USAF and Boeing project personnel, crafted a concomitant, systemic, strategy addressing platform survival along with resale and exemption policy modification issues. One of the most direct threats came in the form of the PA&E (Pentagon Office of Program Analysis and Evaluation) developed Mobility Capabilities Study (MCS) ordered with the intent to identify near, mid and long-term force mobility on land, sea and in air. Regarding the latter category, strategic airlift, MCS concluded that 180 C-17s was enough, when combined with 112 Lockheed-Martin C5A and C5B Galaxys. The bulk of the Galaxys, incidentally, had been ordered retrofitted with new engines and avionics under the RERP and AMP Modernization programs (owing to a dismal reliability record and a maximum age of 35 years at time of a USAF-protested 2004 Congressional mandate to retain C-5 fleet strength at existing levels until 2008) and designated as C-5M Super Galaxy.
The MCS study, completed in the fall of 2005 months behind schedule but never publicly available – although a summary of its conclusions was – by order of Secretary of Defense Donald H. Rumsfeld, came under immediate fire by the GAO and later by Congress itself, as being based on flawed analytics and unsupportable conclusions. The fact that the study recommended killing C-17, a relatively new weapons systems based on an operational date of 1993 and whose performance has met and exceeded expectation, while supporting the spending of billions in retrofitting C-5s, which had become operational in 1970 (and to date has only achieved, according to AF records, a 56 percent mission completion rate) seemed at best questionable.
U.S. Army General Barry R. McCaffrey,(Ret.) an Adjunct Professor of International Affairs, United States Military Academy, stated in his October, 2007, after-action report subsequent to a visit to Nellis AFB, that owing to excessive over-utilization of C-17s operating in two war theaters and engaged in humanitarian/disaster relief missions, 600+ of these aircraft are ultimately required.
The Roche paper authors, among others, having become aware early of the conclusions being reached by the MCS study in advance of its release, (with a particularly disturbing conclusion that the shutdown down of the Boeing Long Beach C-17 production line and the "warm storing" of the tooling for future possible use, would have no appreciable negative impact on the industrio-economic base) recommended to USAF and Department of Commerce colleagues, through Dr. Ronis, that a countering, comprehensive study be prepared immediately.
In November 2005 the study National Security Assessment of the C-17 Globemaster Cargo Aircraft’s Economic & Industrial Base Impacts. U.S. DEPARTMENT OF COMMERCE was completed (contributors included Dr. Ronis), but for reasons not clear, wasn't released to the public despite being announced on the DOC website (an executive summary was provided). Additionally, the courtesy copies usually supplied to appropriate parties in Congress were only provided if requested; at least initially. Early in 2006, conclusions reached in the Mobility Capabilities Study relative to airlift – echoed by the Quadrennial Defense Review of 2005 (issued February 2006) – were released without access provided to the actual document. And, because of the recommendations being made that 180 C-17s (AF leadership inclusive of Gen. John W. Handy (USAF Ret.) had stated 222 C-17s were needed to meet organic airlift requirements) were enough while storing the tooling at an undisclosed location, Boeing was preparing to shut down Long Beach and discussing retirement/severance packages with its employees.
Seeking to draw attention to the still unreleased Department of Commerce Impact Study, Stokes (who had met with SASC Chairman Senator John Warner by coincidence in a Senate Building restaurant in early December 2005 during 2006 Defense Budget deliberations; strongly encouraging him, Sens. Levin and Lieberman to provide for more C-17s as a means to maintain the momentum of the HeavyLift initiative issued a press release in early February 2006 alluding to the document as quite critical to the life of C-17. It is of relevance, perhaps, that the following April, and through still unidentified pathways, the study was released to the public via an InsideDefense.com analysis written by John T. Bennett.
Very quickly, it came to be viewed by Congressional and industry leaders as a significant boost to C-17 preservation efforts, as it spelled out in exact terms, the profoundly negative impact on the economy of 702 Boeing C-17 suppliers in 42 states shutting down. In so doing, it sharply disagreed with the conclusions (minimally negative industrio-economic impact deriving from line closure) reached by the Mobility Capabilities Study and subsequently by the Quadrennial Defense Review 2005 document.
An immediate result of the study’s more general availability – in addition to the General Accounting Office (GAO) expressing concerns in a September 2005 letter to then Secretary of Defense Rumsfeld that the study methodology was flawed and could cause incorrect assessment of strategic airlift needs by House and Senate Appropriations/Authorization committees – was Department of Defense officials, inclusive of Secretary of The Air Force Michael Wynne and Chief of Staff Michael Moseley, being called before Congressional representatives to comment on the apparent discrepancies.
On May 19, 2006, it was reported in InsideDefense.com that the Senate Armed Services Committee had rejected the USAF’s proposal, based in large part on the questionable MCS and QDR analyses, to discontinue the C-17 line. Moreover, the pathways were created via a Senate Bill authorizing up to $657.7 million for two more C-17s and advanced procurement. In all likelihood, C-17 line closure was staved off near term.
The negative response by Congress to MCS 2005 continues to 2009 as statements within House Report H.R. 110-652 DUNCAN HUNTER NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2009 indicate.
Global HeavyLift Holdings, LLC, personnel provided aerospace and financial sector attendees, which included Lockheed-Martin, Boeing, Northrop-Grumman, Jeffries Quarterdeck and GE Capital, a detailed strategy for implementing a US/NATO-controlled Heavy and Outsized air cargo industry operating from four main bases designated as "epicenters" in the US. Europe, Middle-East and Asia.
WTO Issues Raised By AIRBUS-EADS Relative to BC-17 Subsidization
AIRBUS-EADS, supported by the European Union, claims that the United States government inappropriately provides subsidization to Boeing for commercial/military C-17 (BC-17) development. This activity can be seen as part of the framework of their strategy to make further incursions into the Boeing dominated Tanker and Strategic Airlift U.S. Department of Defense sales arena. It is not known with surety whether Boeing considers this as a viable stance.
Contrary to some assertions that the BC-17 initiative was not necessarily viable, the facts belie the assertion: In a May 2007 Flight Global Article "Boeing Close to Launching BC-17", Boeing acknowledged significant interest in the BC-17 with Program Manager and Vice-President Dave Bowman stating: "We have several customers with money that have given us requests for proposals. I've never received RFPs before." Notably, Global HeavyLift Holdings, LLC submitted an RFP (Request For Pricing) for 30 new aircraft, acknowledged by Boeing, and then through its lead bank representing a consortium of financial entities late last year, presented senior leadership with a strategy for accomplishing a quadruple and simultaneous capital raise of USD18.4 billion in four geographic locales. This strategy allows access to multiple funding resources globally, rendering it less vulnerable to the expected financial sector meltdown.
Responding to comments by noted aviation writer Stephen Trimble of Flight Global alluding to a final demise of the BC-17, Global HeavyLift Holdings, LLC management maintained that the program was far from dead and well past the "idea" stage.
Although the FAA has powerful influence in aviation regulatory and certification matters, they will not initiate a special certification or 14 CFR 21.27 exemption process, but will follow strong recommendations or directive from the Department of Defense, USAF or State Department. Nevertheless, they are not adverse to the program moving forward; FAA personnel have been cooperative in ways not typical of agency response to overtures of this type. In pursuit of an appropriate mechanism to create the desired exemption for C-17/BC-17, Senate Armed Services Committee staffers worked closely with FAA, Boeing, USAF and Global HeavyLift representatives to craft language for inclusion in the mark-up for the 2009 National Defense Authorization Act (NDAA). And although it didn't survive the review process ultimately, the language developed, expressed as a "Sense of Congress" is representative of critical thinking with an aim to shape the desired outcome:
"Sense of Congress on sale of new outsize cargo, strategic lift aircraft for civilian use (sec. 1040) The committee recommends a provision that would express the sense of Congress that the Secretary of Defense should:
(1) review the benefits and feasibility of pursuing a commercial-military cargo initiative for the C-17 aircraft and determine whether such an initiative is in the national interest; and
"(2) if the Secretary determines that such an initiative is in the national interest, take appropriate actions to coordinate with the Federal Aviation Administration (FAA) to achieve the type certification for such aircraft required by section 21.27 of title 14, Code 12 of Federal Regulations.
"The FAA has informed the committee that no fewer than six commercial operators have expressed interest in procuring a commercial variant of the C-17 aircraft. According to officials within the FAA, the FAA cannot initiate a type certification review that would be required to allow C-17 commercial operations on its own initiative. Some other government entity, such as the Department of Defense, the Department of Homeland Security, the Congress, etc., would have to decide that it would be in the national interest and so inform the FAA before it could begin such a review. This provision would encourage the Secretary of Defense to decide whether it would be in the national interest."
A similar effort is being repeated for the 2010 NDAA, with Global HeavyLift recently announcing that it will pursue an FAA exemption to 14 CFR 21.27 separate from Boeing.
According to industry sources, Global HeavyLift management has stated in 2006 that it envisions the global heavy and outsize fleet as incorporating a mix of BC-17, An-124 and A400M airlifters in a relationship that will play to the strengths of each aircraft in pursuit of the HOM (Heavy and Outsize Market) and SAM (Short Austere Market) opportunities. To this end, it has already issued an RFP for 30 BC-17s and will submit RFPs for up to 20 commercially configured A400Ms and 4 An-124-200s with western engines and avionics first quarter 2009.
The real issues with BC-17 therefore appear to be far less financial, and more political, as the intense Capitol Hill debates about the future of this aircraft have indicated. Since the proposed level of demilitarization is modest so as to allow BC-17 to fulfill its dual commercial/military role in accordance with CRAF (Civil Reserve Air Fleet) mandates, the futures of C-17 and BC-17 are inextricably linked.
As a result of this prevailing reality and by design, the final arbiter of success or failure of the BC-17 initiative is neither Boeing or the USAF – although both have substantive input – but Congress. And even that cannot be construed as an absolute in view of an overarching importance, if not criticality, of C-17 to national and economic security.