KC-46 vision system problems lead to $402 million charge for Boeing

WASHINGTON — Boeing reported a nearly 14% drop in its defense business sales in the most recent quarter, driven partly by a $402 million charge on the KC-46A Pegasus tanker program.

In earnings released Wednesday, Boeing reported nearly $5.9 billion in defense sales in the last quarter of 2021, a drop from $6.8 billion in the fourth quarter of 2020. Boeing’s operating margins also slipped into negative territory at -4.4% in the quarter.

The company attributed the sales decline primarily to “lower volume and less favorable performance across the portfolio,” including the KC-46 charge.

Boeing Chief Financial Officer Brian West said in a conference call with investors the pre-tax charge of $402 million was largely driven by “evolving customer requirements” for the tanker’s Remote Vision System, as well as factory and supply chain disruptions, including problems stemming from the COVID-19 pandemic.

The Pegasus’ vision system, a network of cameras and sensors boom operators use to guide the refueling boom into other aircraft, has continued to be a serious issue for the aircraft. Users of the original vision system had problems seeing the image or with distorted images in certain lighting conditions.

The Air Force and Boeing in 2020 decided to replace it with a redesigned version. But the Air Force said earlier this month it has not yet accepted the completed design of RVS 2.0, months after the design review was originally expected to be closed.

Boeing President Dave Calhoun said Wednesday the Air Force remains enthusiastic about the KC-46′s performance.

“We don’t feel great about [the charge] by any respect,” Calhoun said. “But the tanker today is an incredible asset for our customer, and now serves 70% of the missions that were intended in the development of the tanker. And our job is to continue to deliver the tanker and to do it more expeditiously as we move forward.”

Air Mobility Command said in early January the overall development of RVS 2.0 remains on schedule. But AMC decided to keep the review open until it can figure out how to move forward on fixing technical risks with the panoramic visual system.

Asked to describe evolving customer requirements, Boeing spokeswoman Deborah VanNierop said it was “continued RVS 2.0 development to include the panoramic display issue.”

Boeing, which is on a fixed-price contract for the tanker program, has repeatedly had to pay charges on it since 2014. By the end of 2020, Boeing had paid more in cost overruns — topping $5 billion — than the $4.9 billion initial value of the contract. The latest charges bring that total to more than $5.4 billion.

The last KC-46 charge came in the fourth quarter of 2020. The company a year ago attributed that $275 million charge primarily to program inefficiencies, in part caused by the COVID-19 pandemic.

However, strong performance throughout the rest of the year helped the company weather the last quarter’s decline. Boeing logged $26.5 billion in defense sales in all of 2021, a 1% increase over its 2020 revenues.

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