Air Force's Future Tanker Sees Rising Cost Overruns


Boeing's KC-46 refueling tanker program for the Air Force added a $312 million charge last quarter, bringing the total program cost overrun to $2.3 billion, according to the company's 2016 final-quarter earnings report.

The Chicago-based aerospace giant's defense unit took a $69 million pre-tax charge for the quarter, while the commercial side retained a $243 million pre-tax charge, the report said.  After deducting the costs in taxes, the additional penalty totals $201 million, Defense News reported.  

"We are disappointed with the tanker charge we took in the fourth quarter, but it's well understood and defined," CEO Dennis Muilenburg told reporters during a conference call Wednesday.

"I will say that the nature of the risk on the program is clearly changing as expected, and we moved now from the development program into the initial production program," he said.

The Air Force awarded the Boeing a fixed-price $4.9 billion contract in 2011. Boeing is responsible for any cost overruns.

The cost stemmed from problems with initial production, Muilenburg said.  

"The charge we took in the fourth quarter was around the previously defined configuration changes, the wiring changes that you'll recall from last year, now implementing those at the detail level in the initial production aircraft," he said.

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"We have some job categories that are just taking longer than planned in terms of hours per job, and that's what you see in the charge in the quarter. This is not new work," Muilenburg said.  

The program has suffered a handful of setbacks beginning in 2014. Known as the Pegasus, the aircraft experienced wiring issues, developmental and system problems, including a design flaw in the modified 767-based tanker's refueling boom that came to light in 2016, causing the program to miss a major contract deadline with the Air Force.

Still, Muilenburg said he remains hopeful for the program's future.

"We've completed all of the boom envelope testing as part of the development program, and we've closed out that risk. We've got five aircraft in flight test. We've completed more than 1,500 hours of flight testing, and we are steadily knocking out test points every day. So while we still have flight testing to go, it's very clear now that we are not discovering new technical risks. It's now about getting the first 18 aircrafts delivered," he said.

The Air Force last year awarded a $2.8 billion contract for the first 19 KC-46A. The service announced earlier this month it hopes to move 24 KC-46A tankers to Joint Base McGuire-Dix-Lakehurst, New Jersey, and Travis Air Force Base, California, to replace current tanker fleets.

Yet without a solid timeline for when the first KC-46 may be delivered, the Pegasus won't even begin to join the Air Force's fleet until at least 2019.

Boeing plans to build 179 tankers for the service.

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