WASHINGTON — The U.S. Air Force will release $882 million to Boeing that it had retained due to ongoing technical problems involving the KC-46 tanker, the service announced Thursday. The move is meant to help the company make ends meet during the novel coronavirus pandemic.

“This agreement provides Boeing $882M of withheld payments for previous non-compliance in 33 KC-46 deliveries,” the service said in a statement. “This withhold release is in line with Department of the Air Force and Department of Defense policies to maximize cash flow, where prudent, to combat coronavirus impacts on the industry base."

When the U.S. Air Force agreed to take delivery of the first KC-46 tanker in January 2019, it made clear to Boeing that it still maintained a significant piece of financial leverage. The service could withhold a maximum of $28 million every time a new KC-46 was delivered — about 20 percent of the total sum due to Boeing.

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Air Force officials said they would hold back those funds until they saw measurable progress in fixing technical deficiencies, particularly the tanker’s troubled Remote Vision System. By January, when Boeing had delivered 30 planes, the service had withheld about $800 million, according to Defense One.

The Air Force and Boeing on Thursday announced a final agreement to fix the RVS, the imaging system used by boom operators to see the position of the receiver aircraft and the movements of the boom itself. According to the deal, Boeing will pay for both incremental fixes to current RVS software and hardware, as well as a complete redesign of the system with new cameras, processors and computers.

Speaking with reporters about the decision on Thursday, Air Force acquisition executive Will Roper stressed that the service will be able to re-enact the cost penalties if Boeing’s performance begins to slip. However, the service wanted to ensure that Boeing has the funding it needs to begin the RVS redesign, which it is calling RVS 2.0.

“Have we given up our leverage? No, I think we’ve used it well," he said. “Part of what we committed to Boeing is to do an expedited review over the next 120 days for the 159 outstanding noncompliances. Boeing asserts that they have addressed those noncompliances, and we are going to review those quickly. We will not instate withholds over the 120 period, but if we put that some of the corrections that have been put in place don’t make our requirement, then we will start withholds again.”

As the largest maker of commercial planes in the United States, Boeing has been hit particularly hard by the COVID-19 pandemic, which has spurred travel restrictions and called into question commercial airlines’ ability to pay for Boeing aircraft already on order.

Meanwhile, Boeing announced last week that it would shutter operations for two weeks at its facilities in the Seattle, Washington, area due to the high number of COVID-19 cases in the state. Those production operations include the manufacturing of the KC-46 at Everett and the P-8 submarine-hunting plane in Renton.

The Air Force intends to buy 179 tankers over the KC-46 program of record.

About Valerie Insinna

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.

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