Boeing Eating KC-46 Overrun

The Air Force won’t bear any costs stemming from a previously undisclosed redesign and necessary rework of KC-46 tanker test models being built by Boeing, the service said Thursday. Company CEO James McNerney, in a telecom with financial reporters, revealed Wednesday the company is taking a $272 million charge against earnings in the second quarter to cover the cost of fixing a problem with wiring harnesses on test and production aircraft. USAF spokesman Ed Gulick said “all costs above the $4.9 billion ceiling” on the fixed-price program “will continue to be Boeing’s responsibility” and government costs “will not go up as a result” of Boeing’s announcement. McNerney said the problem is “well understood” and the fix is being installed to keep the program “on track to the next major milestone,” which he said will be the first flight of the “fully provisioned tanker” near the end of the third quarter. Investors should keep in mind that Boeing sees the KC-46 as a highly profitable “$80 billion … franchise” with potential orders of 400 aircraft and “decades” of likely production and “in-service support” work, McNerney said. The “KC-X” program calls for 179 airplanes to be delivered by about 2027; his forecast likely includes winning both a follow-on “KC-Y” contest as well as export orders. (Boeing earnings link.)