After long delays that have cost Boeing Co. (NYSE: BA) more than $3 billion, the company announced Thursday that the U.S. Air Force has accepted delivery of the first of Boeing’s new KC-46 refueling tankers. The plane will be delivered to McConnell Air Force Base in Kansas in the next few weeks, according to the company’s announcement.
Boeing was all set to deliver the first new tanker to the Air Force by the end of 2018, as it had promised to do earlier in the year. Then-Secretary of Defense Jim Mattis, who was supposed to sign the order accepting delivery, first retired and then was fired by the president.
First delivery of the new tankers originally had been scheduled for August 2017, but a number of kinks remained to be worked out before the planes could be certified and accepted by the Air Force. The most nagging issues were related to the refueling boom and fuel delivery system.
According to a report Thursday in Defense News, “major technical problems” will take “several years” to solve and, until they are, Boeing will not be paid the full amount due on each plane it delivers. An Air Force official told Defense News:
Despite all the flaws, there is operational utility of the system. KC-46 has a lot of systems that our legacy tankers don’t that in a contested fight you might want. It has improved situational awareness and battle management and protection.
Boeing’s fixed-price contract with the Air Force allows the service to withhold payment of up to $28 million per plane upon delivery, and the same official said that the Air Force plans to do just that “until it sees a good faith effort by Boeing to fix deficiencies. The total hit to Boeing would amount to nearly $1.5 billion on the 52 planes the Air Force has already ordered. The total order calls for delivery of 179 KC-46 tankers over a period of several years at a contract price of $49 billion.
Undersecretary of Defense Ellen Lord signed the acceptance order authorizing delivery of the new tanker. Acting Secretary of Defense, Patrick Shanahan, who took office on January 1, had a 30-year career at Boeing before being named Deputy Secretary of Defense in March 2017 and confirmed by the U.S. Senate in July. Shanahan must recuse himself from any decision involving Boeing.
Boeing stock traded up about 1.7% in the noon hour Thursday, at $349.81 in a 52-week range of $292.47 to $394.28. The stock’s consensus 12-month price target is $417.60. The company announced earlier this week that it delivered 806 new commercial jets in 2018 and that it will report earnings for the fourth quarter and the full 2018 fiscal year on January 30.