Delay for Boeing's New Aerial Tanker -- Update
May 27 2016 - 6:15PM
Dow Jones News
By Doug Cameron And Jon Ostrower
Boeing Co. will miss a deadline to deliver new refueling jets to
the U.S. Air Force and might have to add to the $1.5 billion in
charges already taken on its largest military program.
The five-month delay announced Friday after a review of the
KC-46 tanker by the Air Force follows certification and design
problems with the systems to refuel jets in midair, even though
Boeing executives had in recent weeks said the program remained on
track.
Boeing will now deliver the first of the jets in August 2017
rather than March, the latest blow to efforts to rebuild its
reputation with airlines and defense customers following years of
delays and billions of dollars in cost overruns on its newest
products.
Chief Executive Dennis Muilenburg said at the company's investor
day on May 11 that Boeing was "clearly on target" to meet its
commitment of delivering 18 of the jets to the Air Force by August
next year, a schedule that has now slipped to the following
January.
The Air Force said it completed a schedule assessment with
Boeing. This didn't match the company's earlier public assurances.
The Air Force said Friday that it had pushed back its final
decision on moving ahead with buying the first batch of tankers
until August, having originally planned to green light the move in
April before revising the schedule to June.
Boeing already expected to make little, if any, money on the
initial contract, a fixed-price deal that left it responsible for
cost-overruns following delays in the first flight of the heavily
modified 767 jets because of design and technical problems.
The Air Force said the latest delay won't cost taxpayers, but
Boeing didn't rule out taking an additional charge.
A Boeing spokesman said it would assess the "potential financial
impact on the program...and take into account remaining management
reserves, along with our ongoing cost mitigation efforts."
Boeing in April took a $243 million pretax charge on the tanker
program against first-quarter earnings, adding to the $1.26 billion
in overruns associated with the tanker's development.
The company said incorporating fixes found during flight tests
and securing Federal Aviation Administration certifications were
the primary drivers for the new delay.
When handed over to the Air Force, each jet will feature a
telescoping tail boom and an associated hose and drogue system to
refuel planes. Wing-mounted pods to refuel jets won't be fully
ready until October 2018, while Boeing completes certification
leaving only one aircraft able to refuel at a time.
The company expects to make a profit from follow-on deals to
build an initial 179 of the jets for the Air Force, and hopes it
can sell about 400 world-wide
Write to Doug Cameron at doug.cameron@wsj.com and Jon Ostrower
at jon.ostrower@wsj.com
(END) Dow Jones Newswires
May 27, 2016 18:00 ET (22:00 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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