Delay for Boeing's New Aerial Tanker -- Update

By Doug Cameron And Jon Ostrower 

Boeing Co. will miss a deadline to deliver new refueling jets to the U.S. Air Force and might have to add to the $1.5 billion in charges already taken on its largest military program.

The five-month delay announced Friday after a review of the KC-46 tanker by the Air Force follows certification and design problems with the systems to refuel jets in midair, even though Boeing executives had in recent weeks said the program remained on track.

Boeing will now deliver the first of the jets in August 2017 rather than March, the latest blow to efforts to rebuild its reputation with airlines and defense customers following years of delays and billions of dollars in cost overruns on its newest products.

Chief Executive Dennis Muilenburg said at the company's investor day on May 11 that Boeing was "clearly on target" to meet its commitment of delivering 18 of the jets to the Air Force by August next year, a schedule that has now slipped to the following January.

The Air Force said it completed a schedule assessment with Boeing. This didn't match the company's earlier public assurances. The Air Force said Friday that it had pushed back its final decision on moving ahead with buying the first batch of tankers until August, having originally planned to green light the move in April before revising the schedule to June.

Boeing already expected to make little, if any, money on the initial contract, a fixed-price deal that left it responsible for cost-overruns following delays in the first flight of the heavily modified 767 jets because of design and technical problems.

The Air Force said the latest delay won't cost taxpayers, but Boeing didn't rule out taking an additional charge.

A Boeing spokesman said it would assess the "potential financial impact on the program...and take into account remaining management reserves, along with our ongoing cost mitigation efforts."

Boeing in April took a $243 million pretax charge on the tanker program against first-quarter earnings, adding to the $1.26 billion in overruns associated with the tanker's development.

The company said incorporating fixes found during flight tests and securing Federal Aviation Administration certifications were the primary drivers for the new delay.

When handed over to the Air Force, each jet will feature a telescoping tail boom and an associated hose and drogue system to refuel planes. Wing-mounted pods to refuel jets won't be fully ready until October 2018, while Boeing completes certification leaving only one aircraft able to refuel at a time.

The company expects to make a profit from follow-on deals to build an initial 179 of the jets for the Air Force, and hopes it can sell about 400 world-wide

Write to Doug Cameron at [e-mail] and Jon Ostrower at [e-mail]

(END) Dow Jones Newswires

May 27, 2016 18:00 ET (22:00 GMT)

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