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Boeing Defense grows revenue despite another KC-46A delay and higher costs

Boeing Defense, Space & Security’s third quarter revenue grew 13.5% to $5.7 billion year-over-year, despite its KC-46A Pegasus tanker programme struggling with another delay and highest costs.

Boeing had anticipated delivering its first KC-46A aerial refueling tanker to the US Air Force on 27 October, but now says five unresolved category-1 deficiencies, including two related to sunlight glare on the camera that guides the aircraft’s refueling boom, mean it will not be delivered until sometime in November or December. The Chicago-based aerospace manufacturer was contracted to deliver the first batch of 18 KC-46s by August 2017, but missed that deadline after production issues.

Growing revenue in the defence division was primarily driven by increased sales of government satellites, KC-46A tankers and F/A-18 fighters, as well as unnamed weapons products, Boeing says. In September, the USAF awarded Boeing a $2.9 billion contract for 18 additional KC-46A tanker aircraft, bringing the total number of tankers ordered to 52.

Despite generating higher revenue, the company’s defence division lost $245 million in the quarter. Losses were caused by $691 million in charges related to planned investments in the USAF’s T-X jet trainer and US Navy’s MQ-25A Stingray carrier-based unmanned refueling aircraft programmes – two new production contracts recently won by the company – and $64 million related to cost growth on the KC-46 tanker programme, the company said on 23 October.

Boeing Defense anticipates upfront investments in its T-X and MQ-25A production lines will be offset by future sales opportunities.

“We anticipate the T-X to be a franchise programme for much of this century,” says chief executive Dennis Muilenburg on an earnings call. “Beyond the current US Air Force contract, [there are] potential global market opportunities for both trainer and light attack platforms of up to 2,600 aircraft plus ground-based trainers and advanced simulation technologies, representing a $40 billion multi-decade platform and services opportunity.”

The company anticipates the MQ-25A representing a market opportunity of greater than $20 billion, for more than 200 production and derivative aircraft, he adds.

The order backlog at Boeing Defense was $58 billion, of which 31% represented orders from customers outside the USA, the company says. The division raised its annual revenue guidance by 2.3% to $22.5 billion and $23 billion.

The KC-46A programme is still working through Phase II of a USAF receiver certification, which encompasses successfully refueling eight different types of military aircraft. On 26 October, the programme announced that it had just completed testing with the Boeing B-52 and Boeing F/A-18 and only had to test refueling the Boeing F-15 to complete the phase.

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