Boeing’s KC-46 tanker took a $312 million hit to its bottom line last quarter, bringing total charges over the course of the recapitalisation programme to more than $2 billion.
Boeing Commercial absorbed a $243 million pre-tax charge on the KC-46 Tanker programme, while its defense sector took a $69 million pre-tax charge as well. It marks the fifth cost overrun for the programme, following a $354 million and $219 million charge to Boeing commercial and defense last July associated with a refueling boom issue. In the previous quarter that year, the tanker programme cost Boeing commercial $162 million and its defense sector $91 million.
Boeing's tanker programme suffered its first blow in 2014, with a $238 million and $137 million dent in its commercial and defense sectors respectively. In 2015, Boeing commercial and defense lost $513 million and $322 million.
The USAF awarded Boeing a fixed-price development contract with a $4.9 billion ceiling, meaning that the $2.3 billion overrun has come off Boeing's balance sheet.
In its 25 January fourth quarter earnings call, Boeing said the charge was related to wiring changes identified last year. The company is now implementing those changes in initial production aircraft and expects the modification will allow more efficient aircraft production in the future, says Boeing CEO Dennis Muilenburg. Boeing is not discovering new technical risks on the aircraft, he adds.
“We’re disappointed with the tanker charge in the fourth quarter,” he says. “It’s important to understand that while the development programme has been challenging, this is a great franchise programme that will go on for decades.”
Muilenburg noted the nature of risk on a platform as a programme moves from the development to production phase. When Boeing first pitched its tanker to the US Air Force though, the company argued that adapting a commercial aircraft would help bypass a complicated development phase.
As the tanker moves ahead, Muilenburg says Boeing is closing out risks in the programme, including an earlier issue with the aircraft’s refueling boom. Testing last January revealted higher than expected axial loads on the tanker’s boom. Boeing implemented a hardware-based solution for the refueling issue, which involved inserting two bypass valves in the fly-by-wire-controlled boom to relieve the aerodynamic pressure.
Five aircraft are undergoing flight tests and Boeing continues to knock out test points on the tanker, Muilenburg says.
“It’s clear that risk is closing out and we’ll start delivering tankers this year and move into the full production programme,” he says.
Meanwhile, prospects look sunnier for Boeing Defense in the international market, with a big boost abroad for its Super Hornets. In December, the US State Department approved the sale of 48 CH-47 Chinooks to Saudi Arabia and 28 AH-64E remanufactured Apache Attack Helicopters to the UAE. Boeing also cleared State Department approval for 72 F-15QA Strike Eagles to Qatar and F/A-18Fs Super Hornets to Kuwait, with options for an additional 12.
International customers represent 37% of Boeing Defense’s $57 billion backlog, according to fourth quarter reports.