The charge comes from development issues with the integrated fuel system on the plane, which is planned to be the backbone of US air refueling efforts for several decades.

Making his first quarterly report since ascending to the company's top spot, Boeing President and CEO Dennis Muilenburg insisted the company remains bullish on the tanker despite the issue.

"We do have a lot more work to do as we progress through the remaining ground and flight test phases, but we are on the right path," Muilenburg said, according to a transcript of the second quarter earning call. "We also remain confident in the long-term financial value of the tanker program for our company."

There is reason for his optimism. The Air Force is locked in for 179 tanker aircraft under its KC-X recapitalization program, and could decide to purchase further KC-46 models under its future KC-Y and KC-Z programs.

Boeing sees a potential market of up to 400 aircraft, worth around $80 billion, Muilenburg added. The KC-46A has yet to win a competition outside the US, most recently losing a $1.33 billion competition in South Korea to the Airbus A330 MRRT design.

And from a pure financial viewpoint, the charge did not have a major impact on Boeing's second quarter profits. The aerospace giant's defense arm had Q2 revenue of $7.5 billion, with an operating margin of 7.2 percent, according to its most recent earnings report.

But this is now the second major charge the company has taken on the tanker program. Last June, the company disclosed a $272 million charge for a wiring issue.

It has also faced timeline issues, struggling to get the first flight of the tanker off the ground. While the first engineering, manufacturing, development configuration flew in late December 2014, the first all-up KC-46A has yet to make its first flight.

In April, the Government Accountability Office issued a report on the challenges facing the aircraft, with inspectors writing that Boeing managed to complete only 3.5 hours, out of a planned 400 hours, of flight testing on a test version of the tanker.

The challenge has not gone unnoticed by the Air Force. In a March interview with Defense News, service Secretary Deborah Lee James said she hoped first flight of the aircraft would take place over the summer.

For his part, Muilenburg believes "no new technology is needed to resolve [the fuel system issues] which are well-defined and understood."

But in a note to investors, Roman Schweizer of Guggenheim Securities notes that "time is running out" to meet the goal of delivering 18 aircraft by August of 2017, and added that additional problems discovered at this point will need to be retrofitted into production models.

"There could be additional costs to fix problems that are discovered in the test program while aircraft are being built and must be back fit onto aircraft either in or already through production," Schweizer wrote. "Muilenburg did say that some of the current charge was to pay for these kinds of refits for aircraft already in production."

Email: amehta@defensenews.com

Twitter: @AaronMehta

About Aaron Mehta

Aaron Mehta was deputy editor and senior Pentagon correspondent for Defense News, covering policy, strategy and acquisition at the highest levels of the Defense Department and its international partners.

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