Boeing Over Budget on Air Force Tanker: Reuters

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The KC-46A aerial tanker contract that Boeing Co. (NYSE: BA) won in 2011 just suffered another budget increase. The program’s development costs have risen by nearly $1.1 billion, according to an exclusive report by Reuters.

The costs will be eaten by Boeing, according to a U.S. Air Force spokesman cited by Reuters:

Despite this estimated increase, the government liability remains capped at the contract ceiling price of $4.9 billion, and Boeing continues to meet all contractual milestones, including the development and delivery of the four EMD [engineering and manufacturing development] aircraft.

Assembly of the fourth of the test aircraft was started in January, and the company expects to begin ground and flight testing later this year. Boeing is scheduled to deliver the first 18 tankers to the Air Force by August 2017. The total number of planes Boeing plans to build under the contract is 179, and the total value of the contract has been placed at $52 billion.

The company expects to meet its $5.1 billion estimate for developing the new tanker, which will replace about a third of the Air Force’s current tanker fleet, which includes XX KC-135s that average 50 years of service. A Boeing official told Reuters that the EMD estimate for the KC-46A is “consistent with our estimate at the time we developed our bid.” The full EMD cost of the program now stands at $5.85 billion, according to the latest estimate from the Air Force.

Including maintenance, spare parts and replacing even more of the ancient KC-135 fleet, the value of the contract to Boeing could exceed $100 billion.

The first flight test is currently scheduled for next January, and the first delivery of a production plane to the Air Force is set for early 2016.

Boeing’s share price was up about 0.4% in early afternoon trading on Monday, at $123.11 in a 52-week range of $83.80 to $144.57.