Boeing Reports Second Charge Related to KC-46 Program

Boeing will take an after-tax charge of $536 million against its books for the KC-46 tanker when it announces second-quarter results next week. It will be the second charge the manufacturer has reported for the U.S. Air Force program.

The charge “reflects higher estimated engineering and manufacturing costs” to develop, certify and deliver the first 18 production tankers by 2017 as the Air Force requires, Boeing announced on July 17. The manufacturer is working under a $4.4 billion engineering and manufacturing development contract the service awarded in February 2011. Last July, Boeing accepted an after-tax charge  of $272 million after encountering wiring problems.

The latest cost increase is driven by “required rework” of the KC-46’s integrated fuel system, which provides fuel to the aircraft’s engines and the capability to refuel other aircraft in flight. Boeing said it identified the need when it conducted test and verification of the system during the second quarter.

The KC-46 will have a fly-by-wire refueling boom based on the system the Air Force uses on the KC-10 Extender tanker, plus a centerline drogue system and wing aerial refueling pods. Boeing flew a prototype tanker based on the 767 airliner for the first time with aerial refueling equipment installed on June 2.

On a before tax basis, Boeing Commercial Airplanes is responsible for $513 million of the charge; the military aircraft segment is responsible for $322 million, Boeing said. The manufacturer will announce second-quarter results on July 22.

“While we are disappointed with this charge, we are investing the necessary resources to keep this vitally important program on schedule for our customer, and meet our commitments for delivering the initial 18 tankers to the U.S. Air Force by August 2017 and building 179 tankers by 2027,” said Dennis Muilenburg, Boeing president and CEO. “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.”