19 July 2015

What a Surprise

We now have a $1,000,000,000 cost overrun on the new Boeing Tanker:
Boeing is, once again, taking a charge on its books to keep the U.S. Air Force’s KC-46 aerial refueler program on track.

The after-tax charge is $536 million; that is $835 million before taxes. The lion’s share - $513 million – comes from Boeing Commercial Airplanes, which is providing the 767 baseline platform, while Boeing Military Aircraft, a division of Boeing Defense Space and Security, is paying $322 million. More detail is expected in an earnings call for the second quarter scheduled for July 22.

The past two years of Boeing KC-46 charges amount to a pre-tax burden of $1.26 billion for the program.

This most recent overrun is a result of technical problems with the tanker’s complex integrated fuel system, which provides fuel to fly the KC-46 as well as to receivers taking on fuel from a centerline boom or wing-mounted pods. The fuel system is the heart and soul of an aerial tanker, and Boeing’s extensive experience building tankers was a major selling point in its bid against Airbus for the KC-X competition. The problems arose as the company “prepared for and conducted test and verification of that system during the second quarter,” the company’s July 17 announcement says. Multiple Boeing spokesmen declined to say when the test problems came to light beyond pointing to the second quarter, or April – June.

On May 26, however, Boeing CEO Jim McNerney told Aviation Week the program appeared on track. “If there were any cost overruns [anticipated] we would tell you. Could things go wrong? A test [anomaly] that would cause a delay or an extra charge? It’s a possibility. But it’s not what we see today. We have a high degree of confidence,” he said.

This raises the question of when the design failures came to light and when they were briefed up the company’s chain of command. The spokesmen declined to provide input on this point, citing the forthcoming earnings call.

“[Boeing is] working through the qualification process of the complete KC-46 weapon system, and not surprisingly the integrated fuel system is a large part of that effort,” said Brig. Gen. Duke Richardson, program executive officer of tankers for the Air Force. “With EMD-1 exiting fuel dock and preparing to return to flight and the entry of EMD-2 into fuel dock, Boeing continues to make solid progress. While we have more heavy lifting coming up, we believe it is achievable and do not see any technical showstoppers.”

Boeing took a $272 million after tax charge - or $425 million pre-tax – last summer due to an inadequate design for wiring bundles on the aircraft. The Air Force requires redundancies and “safe separation” between some wiring components in the militarized 767, and the design fell short, prompting an extensive redesign and months-long delay to the first flight of the tanker.


Following last year’s charge, Pentagon procurement chief Frank Kendall predicted more overruns, to the chagrin of the company. “Boeing has taken a pretty large loss that they recently booked against the tanker. We expected that. There’s potential for additional loss that Boeing would have to absorb. But there’s a lot of business for Boeing at the end of this, and that’s one of the reasons we did it this way. They have a business case to finish the program and deliver the tanker,” he told Aviation Week in November.
How the f%$# does Boeing, which pretty much invented the airborne tanker, manage to f%$# up making a tanker out of a design that has its origins from about 40 years ago, when Israel has already deployed and sold 767 tanker conversions to foreign customers, and the Airbus A330 tanker is currently flying with 4 nations.

How the hell do you have a 22% cost overrun on crap like this?

This is happening because Boeing knows that the Washington State Congressional delegation has its back, so they delivered an unrealistic bid, and executed it poorly, because it is a heads Boeing wins tails the taxpayers lose.


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