July 20, 2015, © Leeham Co.: Boeing on Friday took another charges against its USAF aerial refueling tanker program, the KC-46A, this time $536m after taxes ($855m before taxes). This brings the charges to date to more than $800m after taxes ($1.3bn before taxes).
So much for my vacation and skipping Pontifications this week.
The new charge is split between Boeing Commercial Airplanes ($513m pre-tax) and
Boeing Defense, Space & Security ($322m pre-tax). This is because the KC-46A is based on the 767-
200ERF and BCA is principally in charge of the development.
Last week, the USAF–before the Boeing announcement–said it still expects the first production tankers to be delivered on time, in 2017, but Boeing Commercial’s recent track record of developing, producing and delivering airplanes on time and on budget leaves a lot to be desired.
Boeing has this to say in its press release Friday:
The after-tax charge of $536 million ($0.77 per share) reflects higher estimated engineering and manufacturing costs to complete development, certification and initial production of the tanker aircraft, while holding to the program schedule for initial production deliveries in 2017. The KC-46 tanker is being designed, developed and tested under a fixed-price Engineering, Manufacturing and Development (EMD) contract.
“While we are disappointed with this charge, we are investing the necessary resources to keep this vitally important program on schedule for our customer, and meet our commitments for delivering the initial 18 tankers to the U.S. Air Force by August 2017 and building 179 tankers by 2027,” said Boeing President and Chief Executive Officer Dennis Muilenburg. “We have a clear understanding of the work to be done, and believe strongly that the long-term financial value of the KC-46 program will reward our additional investment.”
Increased company investment in the program primarily is being driven by required rework on the airplane’s integrated fuel system that was identified as Boeing prepared for and conducted test and verification of that system during the second quarter. The added investment will support the engineering redesign, manufacturing retrofit and qualification and certification of the fuel system changes, and the conclusion of ground and flight testing on the program.
The KC-46 fuel system is a complex, integrated system that provides fuel to the aircraft’s engines and the capabilities to refuel other aircraft in flight. It is the final major system to be qualified in the KC-46 development program. Non-fuel system-related qualification testing is now more than 90 percent complete, and the overall ground and flight test program continues to progress, with initial airworthiness flight tests successfully completed in the second quarter.
I find the third paragraph a bit puzzling. Recall that Boeing produced eight KC-767 tankers for the Italian and Japanese air forces and that officials claimed to learn lessons from this program’s difficulties that led to write-offs, cost over-runs and delayed deliveries. What is different about this fuel system from the KC-767 International program to cause another set of delays and charges?
According to a report Friday by Dominic Gates of The Seattle Times, the fueling system is new to the KC-46A, different than on the KC-767.
One Wall Street analyst I talked to Friday said this latest event raises questions about Boeing’s ability to execute. The 787, 747-8 and the 737-based Wedgetail military airplane for Turkey and Australia each had serious delays. The 737-based P-8 Poseidon had a few delays, “inconsequential,” this analyst said. Indeed, the success of the P-8 and the “one Boeing” (Commercial+Defense) approach was held up by Boeing officials as a model to be followed the for KC-46A.
What has gone wrong?
During the very bitter competition for the KC-X contract, first against Northrop Grumman and then EADS between the 767-based offering and the KC-330 MRTT Airbus-based airplane, Boeing and its supporters constantly touted Boeing’s experience in building tankers (even though that last Boeing-designed and built tanker, the KC-135, was delivered in 1966), fueling systems and booms.
The winning bid was what’s called the Technically Acceptable, Lowest Price contract. Boeing was the lowest bidder, by 10% under EADS.
Yet the USA and USAF so far are the only customers for the KC-46A. Every other customer has gone Airbus.
One can’t help but wonder, what’s next?
The 737 MAX and 777X derivatives are in development. While Leeham News hasn’t heard anything to suggest current issues aren’t manageable, BCA’s history of developing new and derivative airplanes in what is almost the last decade (!) is hardly reassuring.
You just have to wonder.