Boeing’s cost overruns on KC-46 now exceed initial
contract with US Air Force
Capt. Wade Gallup, 7th
Airlift Squadron pilot, approaches a KC-46 Pegasus during refueling training
over central Washington state on Jan. 30, 2019. (Airman 1st Class Sara
Hoerichs/U.S. Air Force)
Edited on
1/27/21 at 1:44 p.m. to provide more details on the cost overrun.
WASHINGTON —
With the Jan. 27 announcement of a new $275
million charge on the KC-46, Boeing has now paid as much in
cost overruns for the troubled
program as the U.S. Air Force invested in the tanker’s development.
The new
charge, which the company reported as part of fourth-quarter 2020 earnings,
means Boeing has now paid more than $5.0 billion out of pocket to pay for the
myriad technical problems and production issues that have cropped up since the
company won the program in 2011. Under the firm, fixed-price contract signed
then, Boeing is responsible for paying for any costs in excess of the
contract’s $4.9 billion ceiling.
The latest
KC-46 overrun occurred “primarily due to production inefficiencies including
impacts of COVID-19 disruption,” the company said.
Steve Trimble
of Aviation Week put together a list of KC-46 charges by year, finding that the
program documented its largest overrun in 2020 despite seeing charges decrease
to only $148 million in 2019.
The company
previously attributed $494 million in charges to the ongoing pandemic during
the first, second and third quarters of 2020.
The KC-46 is a
commercial-derivative plane based on the Boeing 767 airliner. Because it is
manufactured on the 767 production line in Everett, Washington, before
undergoing military-specific upgrades, any slowdown in
commercial plane volume also makes it more expensive to produce the
KC-46.
Boeing
President and CEO Dave Calhoun said in
October he believed the KC-46 had moved past the technical
problems that plagued the program over the past few years, and the tanker
would prove to be an asset for the company after the pandemic had run its
course.
“The tanker
has been a drag on us for three or four years in every way you can think of
with respect to investors,” he said at the time. “But we are continuing to
clear the hurdle with our customers with respect to its performance in their
fleet and their need for that tanker.
“That whole
relationship, I believe, will begin to transition next year, and opposed to
being a drag on our franchise — which it’s been — I believe it will become a
strength in our franchise.”
In an message
to Boeing employees on Wednesday, Calhoun pointed to some key wins in the
defense and space sector, including the first flight of the MQ-25 tanker drone
with an aerial refueling store, and the demonstration of the F/A-18 Super
Hornet’s ski jump launch capability for the Indian Navy.
Over the past
month, Boeing has inked contracts with the U.S. Air Force for the sixth and seventh
lots of KC-46 production, raking in $3.8 billion for an additional 27 tankers.
However,
during the earnings call, Calhoun noted that analysts should not count on
Boeing’s defense business to generate a massive amount of near-term growth in
the wake of the pandemic.
“We continue
to believe that we’re going to have stable growth, admittedly at the lower end
of the single digits. That’s the best guidance that we can talk about because
we do believe there is pressure that will ultimately come down as a result of
all of the COVID spending here in the United States,” he said.
“But a large
part of our business now is international market, and the order activity in
those international markets is pushed to the right somewhat — and almost
entirely because of COVID-related stuff,” he said. “We still like our position
because we have a lot of ongoing programs that the military and of course our
defense [spending] bills have been kind to.”
The Air Force plans to buy
179 KC-46 aircraft over the program of record. The
first KC-46 was delivered to the
service in 2019.
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