Pentagon May Seek Compensation From Boeing for Delays
July 11 2016 - 8:30AM
Dow Jones News
LONDON—The Pentagon may seek compensation from Boeing Co. for
delays to the U.S. Air Force KC-46A refueling plane, potentially
deepening the financial hole the company has to recover from to
make money on its biggest military project.
The Air Force, which oversees the multibillion-dollar
development program, "is in discussion with Boeing about getting
consideration for the schedule delays," Frank Kendall, the
Pentagon's weapons acquisition czar, said on the eve of the
Farnborough Air Show. "There are a number of options for how to do
that."
The Air Force in May announced a five-month delay on the KC-46A
program. Boeing has said it may have to take more than the $1.5
billion in extra charges racked up on the program that modifies 767
airliners and turns them into airborne fuel stations for other
planes.
Boeing has said it expects 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.
Mr. Kendall said that even though there are no penalty clauses
in the current contract for schedule delays, "the government is
losing some of the value we had contracted for, so we are entitled
to some consideration for that." He wouldn't detail what demands
the government may put on Boeing.
Gen. David L. Goldfein, the new Air Force Chief of Staff, on
Friday said he was " concerned and disappointed" by the latest
delays Boeing has suffered in developing the refueling plane.
Boeing's latest schedule setback on the project came after
problems with the refueling system used to pass fuel from the
KC-46A to other planes in-flight. Boeing tried to deal with flaws
in operating the telescoping tail boom through software, but it
abandoned that approach for a hardware fix.
Leanne Caret, president of Boeing Defense, Space & Security,
on Sunday said she was "confident" in the latest fix, which is now
in flight testing.
Mr. Kendall said he was "cautiously optimistic" about the
current fix, though he said more work was needed. He said the
financial hit Boeing has already taken on the program leaves it
"highly motivated" to overcome the latest problems.
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 of the aircraft world-wide.
Mr. Kendall also said he had concerns about another major U.S.
Air Force program, a Raytheon Co. effort to modernize the
ground-segment of the Global Positioning System satellites.
The program has run at least 25% over cost and fallen behind
schedule, the Air Force has said.
Mr. Kendall, who has begun quarterly reviews of the so-called
Operational Control System, said Raytheon's recent performance has
been "a mixed bag. I'm seeing some evidence of progress, but I'm
still seeing some problems."
Even so, he said pulling the plug on the program would be "very
disruptive." Lawmakers are threatening to strip money for the
program and put in place other restrictions. Mr. Kendall said those
actions were a concern and threatened to undermine efforts to
rectify shortcomings.
He remained hopeful Raytheon would still be able to deliver the
system.
Write to Robert Wall at robert.wall@wsj.com
(END) Dow Jones Newswires
July 11, 2016 08:15 ET (12:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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