A new supplier issue related to the center fuel tank of the Air Force KC-46A aerial refueling aircraft and 767 commercial plane will cause Boeing [BA] to take a charge on the program when it reports first quarter results in April, the company’s chief financial officer (CFO) said on Wednesday.
Specifically, it’s a “supplier quality issue” that will lead to negative margins at Boeing’s Defense, Space and Security segment in the quarter, Brian West said at the Bank of America Global Industrials Conference.
The charge will be less than $500 million, West said. Excluding the pending charge, Boeing has taken around $6.9 billion over the life of the KC-46A tanker program, which is in production.
West said the charge won’t affect Boeing’s cash flow projection of between $3 billion and $5 billion this year.
The supplier issue will briefly crimp aircraft deliveries in the near-term, with 767 aircraft deliveries recovering in the second quarter and KC-46 in the second half of 2023, he said. The tanker is based on the 767 plane.
Boeing is not naming the supplier.
“Through Boeing’s standard process, a quality issue was identified on some 767/KC-46 Tanker components,” Boeing said in a statement following West’s disclosure. “We are continuing to work through our process with our supplier, regulator and customers to resolve the issue. We will deliver airplanes as we complete rework and we are not changing our overall delivery plans for the year. Our engineering analysis-to-date shows that the issue is not an immediate safety of flight concern.”
Boeing last reported charges on the KC-46 in October 2022 when it reported third quarter results for that year. Those charges were due to supply chain constraints, labor instability, and a delay in fielding the Remote Vision System 2.0 for the aircraft.
West said that between the charges taken last fall and the charge about to be incurred the company was “tracking very well” to managing risk in the KC-46 and other programs, both in terms of “timeline and expectations. We actually did a little better and then this hits us.”
“Most important thing about the tanker is that the product is outperforming its mission,” he said. “Good customer feedback. We’ve got to keep our eye on the ball of getting predictable and work our way through it.”