Sept. 10, 2018, © Leeham News: While Boeing Commercial Aircraft grapples with more than four dozen unfinished 737s clogging the space at Renton Airport and Boeing Field, Boeing Defense had some good news last week:
The KC-46A received certification from the US Federal Aviation Administration and the first delivery is due for late October.
Final military certification is still to come and the wing-pod drogues need certifying, but at long last, Boeing can move forward.
After years of delay and more than $2bn in cost overruns and write-offs, Boeing can see the light at the end of the tunnel.
Boeing currently has some three dozen KC-46A either in flight testing, produced and in temporary storage at Everett’s Paine Field, in the Everett Modification Center having military systems installed or in final assembly at the Everett plant.
Even though the airplane is late, though a combination of human errors (improperly charging the fueling system), design difficulties (the refueling boom, for example) and other reasons (military programs always seem to run late), officials expect that once the program shifts from the low rate initial production (“LRIP”) to full production, things will smooth out.
The KC-46A is based on the 767-200ER. It’s assembled on the same line as the civilian 767-300ERF. The production rate is already 2.5/mo, going to 3/mo. Boeing asked the supply chain to do a Rate Readiness Assessment of 4/mo, a rate that could be in the cards for around 2022. The demand for 767 freighters is growing as the in-service 767 and Boeing 757 fleets age.
For Boeing, winning the contract was a brutal fight with Airbus, which offered the A330-200-based KC-30. Boeing initially won a lease deal for 100 airplanes, but this was canceled following a procurement scandal. The team of Northrop Grumman and EADS (as Airbus’ parent was then known) won the next procurement round. This was overturned by the General Accounting Office’s determination that the USAF had been unfair to Boeing in this competition.
Boeing won the third round with a fixed bid price about 10% below Airbus, which this time bid under its own name when Northrop decided not to participate.
The low, fixed bid price turned into the $2bn in program write-offs so far.
The US Air Force contract calls for delivering 15-18 KC-46s per year. This translates to 1.25-1.5 airplanes a month. The KC-X contract under which this project was awarded calls for 179 aircraft. A follow-on order is likely.
Nevertheless, Boeing believes that over the life of the program, it will be profitable. A good part of this hope is winning the aftermarket maintenance, repair and overhaul contract—and work for any upgrades.
Upgrade work can go on for decades. Look at the Boeing B-52.
The B-52 entered service with the USAF in 1955. The last one was delivered in 1962—56 years ago. There are still 76 B-52s in service (out of 744 produced).
Throughout the service life of the airplane, Boeing has won MRO and upgrade work.
The Air Force decided to make nearly $12bn in upgrades to the B-52s to extend the service life to the 2030s. This includes an $8bn re-engining program. Boeing will be the systems integrator for much of this work, though its portion of the dollar value of the work has not been revealed.
For the airplane, “This is a valuable program in terms of its operational benefits and cost saving to the U.S. Air Force,” a BDS spokesperson write LNC in an email. “New engines will result in significant fuel savings that will increase the loiter time and range of the aircraft. Reduced sustainment and fuel costs of replacement engines mean this program will pay for itself over the B-52 lifetime.”
Boeing has cartoon videos making the case for re-engining the airplanes. In them, Boeing says the fuel costs can be reduced by as much as 40%. There are also environmental improvements, something that was hardly top-of-mind in the 1950s and early 1960s.
Pratt & Whitney provided the engines and is offering replacements of about the same size. GE and Rolls-Royce also have shown interest. According to press reports, the B-52’s eight engines will be replaced with the same number of new ones. Putting four larger engines of equivalent or greater thrust would require too many modifications and wing/pylon work, boosting the cost.
The work will be done at Boeing’s Oklahoma facilities.
This serves as a good example how Boeing thinks it can make money over the life of the KC-46A program despite the $2bn in write offs so far and a price going forward that may make it difficult to realize a profit just on aircraft sales.