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Boeing Takes $272 Million KC-46 Hit

Jul. 25, 2014 - 03:45AM   |  
By AARON MEHTA   |   Comments
The first KC-46A test aircraft in development at a Boeing facility near Seattle.
The first KC-46A test aircraft in development at a Boeing facility near Seattle. (Aaron Mehta/Staff)
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WASHINGTON — Boeing is taking a $272 million hit to its KC-46A tanker contract after discovering a wiring issue that will require fixing on a test aircraft.

The news of the “after-tax charge” was shared by company Chairman and CEO James McNerney during an earnings call this week.

“The charge is driven by higher spending to complete systems installation on the tanker test aircraft and maintain the schedule for delivering this vital capability to the war fighter,” Boeing spokesman Jerry Drelling said in a statement. “The increased spending is primarily related to additional engineering and systems installation rework needed to meet contract specs, mainly in the area of wiring.”

Drelling indicated the problem was well in hand, despite the extra cost for the company.

“While it in no way mitigates our disappointment in taking a charge, the issues here are well-defined and understood — there’s no new technology involved, just additional work that has to be accomplished,” he said.

The KC-46A, dubbed the “Pegasus,” is one of three major Air Force recapitalization programs. Based on Boeing’s 767 commercial aircraft, the tanker replacement program is slated to enter low-rate production in 2015, with delivery of 18 planes completed by 2017.

It’s a major program for Boeing going forward, and could potentially expand in the mid-2020s when the service begins to make decisions on the KC-Y and KC-Z programs.

The KC-46 EMD contract has been held up as a model for the Pentagon due to built in risk mitigation — namely, that Boeing is responsible for any costs over the $4.9 billion ceiling set by the Air Force.

The program has largely stayed on track, with only minor hiccups so far. The plane missed what Boeing termed an internal June target date for first flight of its EMD platform, but officials say the program is still on track to complete that before the end of the summer.

“We’re still focused very much on the next customer milestone, which is KC-46 first flight in first quarter of next year,” Chris Chadwick, the head of Boeing’s defense arm, told reporters at the Farnborough International Airshow. “We’re continuing to be in the middle of the system integration aspect of the build process. There’s always challenges in there, so we’ll see how that plays out.”

“The cost is fine right now,” Chadwick said when asked about Boeing’s budget. “We’re meeting all our targets. As we go forward and as we look at the challenges, we’ll go into that with eyes wide open.”

“It’s a fixed contract, so the cost is what the cost is to the customer,” he added. “It’s right on and it always will be.”

Boeing is competing for the right to produce four tankers for South Korea and is eyeing a future need for three tankers from Japan; Chadwick said those sales could be worth up to $1.5 billion.■


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