WASHINGTON — Boeing will take a $393 million hit on the KC-46 tanker program, in part due to an issue with the refueling boom that caused the delay of a major program milestone, the company said Thursday.
The charge was expected but bad news for a company that has already racked up $1.5 billion in cost overruns. The $393 million after-tax-charge, which will be formally announced July 27 during an earnings call, will bring the total value of penalties to almost $1.9 billion.
Under the current fixed-price contract, Boeing is responsible for eating any expenses above the $4.9 billion allotted by the Air Force to develop the aircraft.
According to the company, the charge reflects higher costs associated with the program's current schedule and technical challenges, which include "implementation of the hardware solution to resolve the refueling boom axial load issue identified during flight testing, delays in the certification process and concurrency between late-stage development testing and initial production."
The boom issue, in particular, has been a source of angst for the program. Operators experienced difficulties using the boom to refuel aircraft such as the C-17, delaying the test program and causing a snowball effect to other program milestones.
Boeing acknowledged in May that it would miss a contractual deadline to deliver 18 certified KC-46 aircraft to the Air Force by August 2017. Instead, the earliest the company could deliver the tankers is January 2018, it said.
The boom has since been outfitted with new hardware that appears to have solved the problem. The Air Force announced earlier this week that it had completed all flight tests needed to obtain the go-ahead for low rate initial production. Those tests included successful refueling of the C-17, F-16 and A-10, which all use a boom to take in fuel.
Boeing Chief Executive Officer Dennis Muilenburg struck an optimistic tone, stating that he believed the KC-46A program would ultimately be profitable for shareholders.
"This additional investment in the KC-46 supports the delivery timeline for the initial production aircraft and our transition to full-rate production," he said in a news release. "With the aircraft recently refueling an F-16, A-10 and C-17, we have now completed all necessary Milestone C testing to receive customer approval to enter production — a major step forward for this multi-decade production and support program. We remain confident in the long-term value of the KC-46 for our customers and our shareholders."
Valerie Insinna is Defense News' air warfare reporter. She previously worked the Navy/congressional beats for Defense Daily, which followed almost three years as a staff writer for National Defense Magazine. Prior to that, she worked as an editorial assistant for the Tokyo Shimbun’s Washington bureau.