WASHINGTON — Boeing took a $827 million hit as cost overruns continue for the KC-46 tanker program, the company announced Wednesday.
About $551 million of the pre-tax charge was caused by new expenses associated with designing and integrating a new Remote Vision System for the tanker as part of an April agreement with the Air Force.
The remainder of the charge reflected “productivity inefficiencies and COVID-19 related factory disruption,” according to a news release. KC-46 production stopped for about three weeks over the past month due to a temporary shutdown at Boeing facilities in the Seattle area — including the factory in Everett, Wash., where the tanker is produced.
With the new charge, Boeing has now racked up about $4.6 billion in cost overruns over the life of the KC-46 program. Those expenses must be completely paid by Boeing under the terms of the $4.9 billion fixed-price firm contract it agreed to in 2011.
The bill comes as Boeing contends with the continued grounding of the 737 MAX and instability to the air travel market posed by COVID-19, which has led to lost orders and disruptions throughout the company’s production lines.
But the RVS deal struck in April could potentially mark a new chapter for the tanker program, which has been mired in disputes between Boeing and the Air Force for years.
The RVS — integrated by Boeing with cameras and sensors from Collins Aerospace — feeds live video and other data to the boom operator, who is able to use those cues to pump gas into another aircraft. But the Air Force has complained that the system does not work properly in all lighting conditions, leading to an increased risk of the KC-46 accidentally scraping the aircraft receiving fuel.
Under the terms of the new deal, Boeing will make incremental hardware and software improvements to the existing system, but it will also design a new “RVS 2.0” with high-definition color cameras, better displays and improved computing systems not on the market when the first RVS was developed.
During an earnings call with investors on Wednesday, Boeing CEO Dave Calhoun said the defense market continues to be healthy with solid demand.
Overall, first quarter revenue for Boeing’s defense sector decreased to $6 billion, down from about $6.6 billion in 2019. Most of that reduction was due to the KC-46 charge, according to the company, but a number of other defense programs were also impacted by the coronavirus pandemic, leading to reduced margin.
This story is developing. Check back with Defense News for more details.
Valerie Insinna was Defense News' air warfare reporter. Beforehand, she worked the Navy and 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.