Boeing Tanker Contract Boosted by $2.9 Billion

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The U.S. Air Force on Monday awarded Boeing Co. (NYSE: BA) a contract valued at a total of $2.9 billion for a fourth production lot of 18 additional KC-46A tankers. The award lifts the number of tanker orders to 52.

Boeing won the first two production lots, for seven and 12 planes, in 2016. A third production lot for 15 tankers was awarded in January 2017.

The KC-46A won Federal Aviation Administration (FAA) certification last week, with final military certification still to come. Boeing is scheduled to deliver the first airplanes late in October.

The company currently has 36 of the new tankers in flight testing, temporary storage, having military equipment installed or in final assembly, according to a report from Leeham News.

Following a contract bidding process that started in 2001 and that was twice restarted following protests from Boeing, which lost the first one, and Airbus, which lost the second one, Boeing won a fixed-price bid in 2011 for a total of 179 new tankers.

The win did not come without its own troubles. So far Boeing has written down some $2 billion in cost overruns, an amount it expects to earn back with long-term maintenance and repair contracts plus future upgrades. The Air Force also is likely to increase the number of planes beyond the initial 179.

The KC-46A is built on the airframe of the commercial 767-200ER and Boeing is expected to raise the production rate on the planes from a current 2.5 per month to 3.0 per month due more to demand for 767-based freighters than for the new tankers.

In addition to 18 more planes, the Air Force contract awarded Monday includes two spare engines, five wing refueling pod kits, initial spares and support equipment. The 18 planes are expected to be completed by January 2022.

Boeing stock closed down less than 1% at $338.82 early Tuesday. The stock’s 52-week trading range is $237.09 to $374.48, and the consensus price target is $411.48.