When Boeing took on the KC-46A they probably did not anticipate the problems that would be coming with it as they put it into development. However, the KC-46A has proven to be a nightmare for Boeing. The company has said repeatedly that it isn’t any more than they can handle, but it has raised some serious questions about the financial prudence of this particular project.
Boeing said on Friday that they would be taking an $835 million charge for the project, and that its projections for gains this year would be cut down as result. The reduction of overall full-year profits is something that investors didn’t want to see, in the expense laden air industry. However, this appears to be something that was entirely unavoidable. Boeing did point out that they were able to reduce the overall cost to $536 million, which is an upgrade – but still a serious expense.
The problem with this particular tanker is the fuel system, and for an airplane that is by its own definition a refueling station of the sorts – this is not something that can be overlooked. Especially when this technology and this particular craft is being developed for the U.S. military. Boeing said that testing on this system, and some of the other crucial systems to ensure that things will function fully for the operators sits at 90% complete.
Dennis Muilenburg, who is Boeing’s new chief executive pointed out that the company is, “investing the necessary resources to … meet our commitments for delivering the initial 18 tankers to the U.S. Air Force by August 2017 and building 179 tankers by 2027.” He went on to add that “everyone has a “a clear understanding of the work to be done.” Everyone from the engineers to the secretaries loading paperwork are on the same page over at Boeing.
For this reason, despite the really grim financial outlook – things look good for the company in terms of their ability to get this done. This project will not be something that kills the company, or pushes them into a place where they cannot afford to continue on with the project. Despite the fact that it will now be costing Boeing half a billion dollars this year – things still look good for the company, which has made a big name for itself in the aerospace industry.
The other big factor here is that analysts are pointing out how challenging it is for private companies to take on these types of projects because there is a seriously limited amount of funds available at the beginning of them. For example, this particular segment of the contract Boeing has with the U.S. government limits the amount of money that can be spent to under $5 billion.
That might seem like a lot, but the contract as a whole will be worth $50 billion over the course of the next several years. However, the early phases are costlier for Boeing than they are for the U.S. government. Defense projects are an important part of modern economics for aerospace companies, but it isn’t the only part, and it definitely shouldn’t cripple a company – as it would appear has happened with Boeing.