Boeing To Take USD$536 Mln Charge For Tanker Issues

Boeing will take a USD$536 million after-tax charge in its second-quarter results to deal with deficiencies in the fuel system on the KC-46 aerial tanker it is developing for the US Air Force.

Boeing said the charge reflected higher estimated costs to complete development, certification and initial production of the aircraft, while keeping the programme on track for initial deliveries in 2017.

Loren Thompson, an analyst with the Virginia-based Lexington Institute, said Boeing had to take the charge because it bid a "zero-profit margin" in the development phase to win the fixed-price tanker contract. He said Boeing aimed to keep the programme on track for a first flight of the new aircraft before the end of the year.

Dennis Muilenburg, who took over as Boeing chief executive on July 1, said the company remained optimistic about the longer-term outlook for the aircraft, and expected it to turn a profit once the development phase is completed.

"We have a clear understanding of the work to be done, and believe strongly that the long-term financial value of the KC-46 programme will reward our additional investment," he said in a statement.

Boeing said the extra spending was needed to fix the tanker's integrated fuel system, which delivers fuel to the aircraft itself and is also used for refuelling other aircraft in mid-air.

It said testing of non-fuel system components is 90 percent complete, and the company is making progress on its overall ground and flight test programme.

Boeing has forecast a long-term USD$80 billion market for refuelling planes. Earlier this month, Airbus beat Boeing to win a big South Korean tanker competition.