The FINANCIAL — The Boeing Company announced on July 17 it will recognize a charge on the KC-46 aerial refueling tanker program when it announces second-quarter 2015 results on July 22.
The after-tax charge of $536 million ($0.77 per share) reflects higher estimated engineering and manufacturing costs to complete development, certification and initial production of the tanker aircraft, while holding to the program schedule for initial production deliveries in 2017. The KC-46 tanker is being designed, developed and tested under a fixed-price Engineering, Manufacturing and Development (EMD) contract, according to Boeing.
“While we are disappointed with this charge, we are investing the necessary resources to keep this vitally important program on schedule for our customer, and meet our commitments for delivering the initial 18 tankers to the U.S. Air Force by August 2017 and building 179 tankers by 2027,” said Boeing President and Chief Executive Officer Dennis Muilenburg. “We have a clear understanding of the work to be done, and believe strongly that the long-term financial value of the KC-46 program will reward our additional investment.”
Increased company investment in the program primarily is being driven by required rework on the airplane’s integrated fuel system that was identified as Boeing prepared for and conducted test and verification of that system during the second quarter. The added investment will support the engineering redesign, manufacturing retrofit and qualification and certification of the fuel system changes, and the conclusion of ground and flight testing on the program.
The KC-46 fuel system is a complex, integrated system that provides fuel to the aircraft’s engines and the capabilities to refuel other aircraft in flight. It is the final major system to be qualified in the KC-46 development program. Non-fuel system-related qualification testing is now more than 90 percent complete, and the overall ground and flight test program continues to progress, with initial airworthiness flight tests successfully completed in the second quarter.
Boeing continues to forecast an $80 billion global market for refueling tankers and anticipates that KC-46 program profitability will be achieved during the production phase.
On a pre-tax basis at the segment level, Boeing Commercial Airplanes will report a charge of $513 million and the Boeing Military Aircraft segment of Boeing Defense, Space & Security will report a charge of $322 million.
The company will update guidance on Wednesday, July 22 and expects an adjustment to 2015 EPS guidance that will reflect the impact of the Tanker charge. However, the company expects that revenue and cash flow guidance for the year will remain unchanged.
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