- First 18 aerial refueling tankers are due by August 2017
- Boeing, already absorbing costs above a cap, may be penalized
Boeing Co. is likely to miss the first major requirement of its $51 billion tanker program for the U.S. Air Force: delivering the initial 18 aerial refueling planes by August 2017, according to the Pentagon agency that oversees contracts.
The Defense Contract Management Agency said it “has low confidence in Boeing’s ability” to meet the milestone. Instead, the agency now projects the 18 KC-46 aircraft will be delivered by March 2018, or about seven months late, and that schedule may slip further, the agency said in an e-mail.
The Air Force may penalize Boeing if it fails to meet the delivery date, according to internal service documents. That’s on top of the contractor absorbing more costs for the tanker.
Already, the Air Force estimates that developing the KC-46 and building the first four aircraft will cost at least $6.324 billion, forcing the company to swallow $1.5 billion over the contract’s $4.824 billion cap. Boeing projects it will complete the development phase for $5.59 billion, or $766 million over the cap, according to Air Force program office data.
Boeing spokesman Charles Ramey said the Chicago-based company expects to meet the August delivery date. “We are making steady progress in flight test and aircraft production and believe we are taking the right steps to fulfill our commitment to the Air Force,” Ramey said in an e-mail.
The KC-46 will carry 212,229 pounds of fuel and is designed to resupply any U.S. warplane in midair. The wide-body plane, based on Boeing’s 767 jetliner, will be capable of carrying as many as 18 cargo pallets and performing medical evacuations of as many as 58 passengers. It’s intended to replace the Air Force’s aging fleet of KC-135 tankers, also built by Boeing.
Boeing has already absorbed $1.26 billion in pretax accounting losses for wiring issues and damage to a test aircraft’s fueling system, erasing any profit for the initial planes.
The aerospace manufacturer eventually expects to deliver to the Pentagon 179 of the tankers valued at $30 billion to the company, and it forecasts an $80 billion global market for refueling planes. But the Air Force won’t authorize Boeing for initial production until it proves the development concerns have been resolved.
The contract management agency’s current delivery estimate is based on “past performance, current risks,” such as production delays compressing the delivery schedule between the first and 18th aircraft, its assessment of a new joint Air Force-Boeing schedule review and the uncertainties associated with flight testing, the agency said. It may further revise its schedule estimate by June.
Delayed Test Flights
The initial test flight of the first aircraft was six months late, and the second was four months behind schedule. Separately, the Air Force also delayed about eight months a decision -- now due by May -- on approving two contracts, valued at $3 billion, for the first 19 production aircraft, in part because of the problems with wiring and other systems.
The Pentagon’s test office is scheduled to begin the tanker’s combat testing in late April 2017, also raising the potential for delivery delays if deficiencies are uncovered that need to be corrected. Still, Boeing and the Air Force “continually seek opportunities to mitigate” potential delays, the agency said.
The planned delivery rate for the 18 aircraft “will be higher than that of typical mature programs during full rate-production” and could “strain resources for both Boeing and the government,” the Defense Contract Management Agency said. It currently projects that some tankers will be delivered as much as 14 months later than scheduled.
“The Air Force bases its schedule assessments on all available information, including independent DCMA assessments,” service spokeswoman Ann Stefanek said in an e-mail. “Boeing has demonstrated a commitment to apply the necessary resources to achieve” the delivery objective “and we have not seen any change in that commitment.” But “we continue to believe the schedule margin has been exhausted.”
The Air Force, Boeing and the contract management agency are completing a schedule review that will take into account progress to date and remaining work, “in order to assess the confidence level of achieving the August 2017” deliveries, she said.
Boeing could face numerous contract penalties for missing the August 2017 delivery date, according to an internal assessment by the Air Force’s KC-46 program office that was provided last month to defense officials.
“In addition to the significant financial incentives that Boeing has to deliver on time,” the Air Force program office “will use all the tools available to motivate Boeing to meet its schedule commitments and penalize Boeing when it fails to meet schedule commitments,” it said.
These include withholding progress payments and downgrading the company’s “contractor performance assessment report ratings,” which are used in evaluations of past performance when it bids for future Pentagon contracts, the office said.
Bringing the first tankers up to the Air Force’s specifications has become a priority for Boeing as the planes start to roll out of its main factory north of Seattle.
As delays mounted last year, Boeing’s Chairman and Chief Executive Officer Dennis Muilenburg tapped Scott Fancher to resolve snarls with the tanker, which shares an assembly line with its commercial twin. Fancher played a similar role in resolving development troubles with Boeing’s 787 Dreamliner and was recently promoted to a post as senior vice president overseeing all Boeing development programs.