In 1963, the USAF asked for proposals for an Airborne Warning and Control System (AWACS) to replace its EC-121 Warning Stars, which had served in the airborne early warning role for over a decade. The new aircraft would take advantage of improvements in radar technology which allowed airborne radars to "look down" and detect low-flying aircraft (see Look-down/shoot-down), even over land, which was previously impractical due to ground clutter Contracts were issued to Boeing, Douglas and Lockheed, the latter being eliminated in July 1966. In 1967, a parallel program was put into place to develop the radar, with Westinghouse Electric and the Hughes Aircraft being asked to compete in producing the radar system. In 1968 it was referred to as Overland Radar Technology (ORT) during development tests on the modified EC-121Q. The Westinghouse's radar antenna was going to be used by whichever company won the radar competition, since Westinghouse had pioneered in the design of high-power RF phase-shifters.
Boeing initially proposed a purpose-built aircraft, but tests indicated that it would not outperform the already-operational 707, so the latter was chosen instead. To increase endurance, this design was to be powered by eight General Electric TF34s, or carrying its radar in a rotating dome mounted at the top of a forward-swept tail, above the fuselage. Boeing was selected ahead of McDonnell Douglas's DC-8-based proposal in July 1970. Initial orders were placed for two aircraft, designated EC-137D as test beds to evaluate the two competing radars. As the test-beds did not need the same 14-hour endurance demanded of the production aircraft, the EC-137s retained the Pratt & Whitney JT3D commercial engines, and a later reduction in endurance requirement led to retaining the normal engines in production.
The first EC-137 made its maiden flight on 9 February 1972, with the fly-off between the two radars taking place during March–July that year. Favorable test results saw the selection of Westinghouse's radar for the production aircraft. Hughes's radar was initially thought to be a certain winner, simply because much of its design was also going into the new F-15 Eagle's radar program. The Westinghouse radar used a pipelined Fast Fourier Transform (FFT) to digitally resolve 128 Doppler frequencies, while Hughes's radars used analog filters based on the design for the F-15 fighter. Westinghouse's engineering team won this competition by using a programmable 18-bit computer whose software could be modified before each mission. This computer was the AN/AYK-8 design from the B-57G program, and designated AYK-8-EP1 for its much expanded memory. This radar also multiplexed a Beyond The Horizon (BTH) pulse mode that could complement the pulse-Doppler radar mode. This proved to be beneficial especially when the BTH mode is used to detect ships at sea when the radar beam is directed below the horizon.
Approval was given on 26 January 1973 for full-scale development of the AWACS system. To allow further development of the aircraft's systems, orders were placed for three pre-production aircraft, the first of which performed its maiden flight in February 1975. To save costs, the endurance requirements were relaxed allowing the new aircraft to retain the four JT3D (US Military designation TF33) engines. IBM and Hazeltine were selected to develop the mission computer and display system. The IBM computer receiving the designation 4PI, and the software is written in JOVIAL. A Semi-Automatic Ground Environment (SAGE) or Back-Up Interceptor Control (BUIC) operator would immediately be at home with the track displays and tabular displays, but differences in symbology would create compatibility problems in tactical ground radar systems in Iceland, Europe and Korea over Link-11 (TADIL-A).
Modifications to the Boeing 707 for the E-3 Sentry included a rotating radar dome, single-point ground refueling, air refueling, and a bail-out chute. The original design called for two bail-out chutes (one forward, and one aft) but the aft bail-out chute was deleted as a way to cut mounting costs. Engineering, test and evaluation began on the first E-3 Sentry in October 1975. During 1977–1992, a total of 68 E-3s were built.
Because the Boeing 707 is no longer in production, the E-3 mission package has been fitted into the Boeing E-767 for the Japan Air Self Defense Forces. The E-10 MC2A was intended to replace USAF E-3s—along with the RC-135 and the E-8—but the E-10 program was canceled by the Department of Defense. The USAF is now performing a series of incremental improvements, mainly to avionics, to bring the E-3 up to current standards of performance. Boeing is flight testing its Block 40/45 E-3s. This modified E-3 contains upgrades of the mission crew and air battle management sections, as well as significantly upgraded electronic equipment.
Another program that the Air Force is considering is the "Avionics Modernization Program" (AMP). AMP would equip the E-3s with glass cockpits. The Air Force also wants modified E-3s with jet engines that are more reliable than the original ones, and also with at least 19% higher fuel efficiencies. New turbofan engines would give these E-3s longer ranges, longer time-on-station, and a shorter critical runway length. If the modification is carried out, the E-3s could take off with full fuel loads using runways only 10,000 feet (3,000 m) long, and also at higher ambient temperatures and lower barometric pressures, such as from bases in mountainous areas. Now that the E-8 Joint STARS are being fitted with the new Pratt & Whitney JT8D-219 turbofans, which are stated as having one-half the cost of the competing engine, the CFM56, the Air Force is again studying the possibility of replacing the E-3's original turbofan engines with more-efficient ones.
Upgrading NATO's E-3 fleet is complicated by the heterogeneity of the fleet's equipment. Each NATO member's E-3 aircraft are configured differently, and NATO has not finalized upgrade or replacement plans. The airplanes themselves can be flown to 2050 with appropriate maintenance, but as the world-wide fleet of 707 aircraft dwindles, supporting the E-3 becomes more difficult.
The E-3 Sentry's airframe is a modified Boeing 707-320B Advanced model. USAF and NATO E-3s have an unrefueled range of some 4,000 mi (6,400 km) or eight hours of flying. The newer E-3 versions bought by France, Saudi Arabia and the UK are equipped with newer CFM56-2 turbofan engines, and these can fly for about 11 hours or about 5,000 mi (8,000 km). The Sentry's range and on-station time can be increased through air-to-air refueling and the crews can work in shifts by the use of an on-board crew rest and meals area.
When deployed, the E-3 monitors an assigned area of the battlefield and provides information for commanders of air operations to gain and maintain control of the battle; whilst as an air defense asset, E-3s can detect, identify and track airborne enemy forces far from the boundaries of the U.S. or NATO countries and can direct fighter-interceptor aircraft to these targets. In support of air-to-ground operations, the E-3 can provide direct information needed for interdiction, reconnaissance, airlift and close-air support for friendly ground forces.