WASHINGTON — Boeing reported a $245 million charge on the KC-46A Pegasus tanker in the first quarter of 2023, due to a supplier’s quality issues.
The penalty means the KC-46 has now racked up more than $7 billion in charges, and follow a $1.2 billion hit the company took on the Air Force tanker in the third quarter of 2022.
The KC-46′s charge brought Boeing Defense, Space and Security into the red for the quarter, with the unit reporting a loss of $212 million, the company said Wednesday. Boeing said ongoing labor and supply chain disruptions also hindered the company’s results.
However, the outlook for Boeing’s defense unit showed signs of improvement from the first quarter of 2022, when it reported a $929 million loss. Boeing defense also brought in $6.5 billion in revenues in this year’s first quarter, a more than $1 billion increase over 2022′s first quarter.
Boeing also trimmed its overall losses in the quarter by about $1 billion from the same period in 2022, while overall revenues grew to nearly $18 billion in the first three months of this year.
Boeing said the charge was largely driven by a previously disclosed quality issue due to a supplier, but did not offer further details in a call with analysts. The aviation news website the Air Current reported in March a subcontractor had not followed proper painting and priming procedures on the center fuel tanks of some KC-46s and 767s, on which the KC-46 is based, which has held up deliveries. That quality issue could risk contamination of the aircrafts’ fuel systems, Air Current reported.
Brian West, Boeing’s chief financial officer, confirmed the quality issue with the 767 center fuel tanks later that month at a Bank of America conference.
David Calhoun, Boeing’s chief executive, said on Wednesday’s call work is progressing on fixing that problem. But the company warned investors more losses on the KC-46 could come during the remainder of the year.
Calhoun said the company is seeing bright spots in its defense business, with the Air Force possibly buying additional, modified KC-46s as an interim step until it can bring on a next-generation tanker. He also pointed to the up to $1.2 billion contract the Air Force awarded Boeing in February to start building the E-7A battle management aircraft, to replace the aging E-3 Sentry airborne warning and control system, or AWACS, aircraft.
Awards in the first quarter for 15 more KC-46s and 184 Apache helicopters for the Army also reflected strong demand, Calhoun said.
Stephen Losey is the air warfare reporter for Defense News. He previously covered leadership and personnel issues at Air Force Times, and the Pentagon, special operations and air warfare at Military.com. He has traveled to the Middle East to cover U.S. Air Force operations.