Boeing Faces Eight-Month Delay on $3 Billion Tanker Contracts

Boeing Co. may have to wait an extra eight months for $3 billion in contracts on its KC-46 tanker because of delays caused by flaws in the refueling plane’s wiring and parts for its fuel system, according to the U.S. Air Force.

“Low-rate production” contracts to build the first 19 of the tankers may be delayed from August to as late as April 2016 in the latest of several schedule revisions agreed on by the Air Force and Boeing. In addition, the planned first flight of a fully equipped KC-46 is being delayed to as late of September of this year after missing an April goal.

Difficulties with the tanker based on Boeing’s 767 jetliner are affecting the performance of the Chicago-based company. Boeing said on July 17 that it will revise its full-year profit forecast because of a $536 million after-tax charge due to higher costs associated with developing the plane. It’s the second such charge in the past year.

Boeing discovered the need for wiring changes while working on the second of four development aircraft as well as encountering delays in “qualifying some of the fuel system parts,” Charles Gulick, an Air Force spokesman, said in an e-mail.

“Boeing is working through typical challenges associated with first-of-model aircraft design,” Gulick said. “Even with these slips, Boeing projects they that can achieve” the program’s most important contractual goal: delivery of 18 tankers by August 2017, he said.

Midair Refueling

The KC-46 will carry 212,229 pounds of fuel and is designed to resupply any U.S. warplane in midair. It’s intended to replace the Air Force’s aging fleet of KC-135 tankers. It also will be capable of carrying as many as 18 cargo pallets and performing aeromedical evacuations of as many as 58 passengers.

Boeing said last week that it will offer a revised projection for this year’s per-share earnings with the release of its second-quarter results on Wednesday.

“We have a clear understanding of the work to be done, and believe strongly that the long-term financial value of the KC-46 program will reward our additional investment,” Chief Executive Officer Dennis Muilenburg said in a statement.

The company anticipates building 179 of the planes by 2027 and forecasts an $80 billion global market for refueling aircraft.

The Air Force projected in a revised estimate this year that Boeing will have to absorb $1.5 billion just for exceeding the $4.8 billion fixed-price ceiling cap to develop the first four aircraft.

“Either Boeing underbid the contract, though I doubt a firm purposefully has performance issues,” or “it just didn’t appreciate the challenges of developing a tanker, even with a mature airframe” like the 767 to use, Byron Callan, managing partner for defense issues with Capital Alpha Partners LCC, said in an e-mail.

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