Boeing under mounting pressure to deliver new tanker.

• Author: Insinna, Valerie
• Position: Cover story

After a decade-long battle against Airbus that included protests and allegations of corruption, Boeing in 2011 won the highly-coveted contract to build a new aerial refueling aircraft for the Air Force. The fixed-price contract award came with strings attached: Boeing would be responsible for any development costs over a $4.9 billion cap.

Because of a 2014 wiring issue that delayed flight testing and added unforeseen expenses to the program, the pressure is mounting on Boeing. Failure to deliver an initial 18 combat-ready KC-46A tankers by August 2017 could cut into the company's profits.

"What's happened is we've now used up all the slack that we had built into the schedule," Air Force Gen. Paul Selva, head of U.S. Transportation Command, said in December. "It was aggressive to start with ... but with the delay in actually bringing the first airplane out and agreeing on this new testing profile, we've consumed the slack that existed."

As of January, Boeing and the Air Force were still engaged in discussions about a new development schedule for the aircraft that will shift testing but allow the company to deliver the planes on time, Boeing spokesman Chick Ramey said in an email. The changes have not been announced at press time, but the company is adamant that it will be able to meet its deadline.

"Any adjustments made to the internal work schedule keep us on track to meet our commitments to the Air Force," he said.

The KC-46A is slated to replace some of the Air Force's KC-135 aerial refueling aircraft fleet. The service plans to acquire 179 planes, which are derived from Boeing's 767-200ER. The tankers will be able to employ both boom and probe-and-drogue refueling methods.

Wayne Plucker, an aerospace and defense analyst with Frost & Sullivan, said Boeing could feasibly deliver its first 18 aircraft on time.

"They'll be tight. They could certainly fall short of that, but given the fact that they're coming off of a commercial variant, there shouldn't be a lot of surprise," he said. "They just need to mind their Ps and Qs and keep a close eye on the program because otherwise it's going to hurt them financially."

Last July, Boeing announced that it would have to pick up a $272 million after-tax charge for having to rewire test planes after problems were found.

An internal audit found that about five percent of the plane's 98,000 wire segments were located too close to their redundant counterparts to be considered safe under military and Federal Aviation Administration standards, Maj. Gen. John F. Thompson, then the Air Force's program executive officer for tankers, said in September.

The Air Force has projected that Boeing will have to pay $1 billion out of pocket for exceeding cost caps.

There have been no significant charges to Boeing since the wiring problem was disclosed, Ramey said. "That said, we continue to aggressively work...