It seems like Boeing Corp. (BA) just can’t catch a break these days. While the 737 MAX scandal may be the heaviest burden weighing on the U.S.-based aerospace giant, it is far from the only one.
On March 3, yet another problem was piled on top of the ailing company. The Air Force has publicly questioned the functionality of its KC-46 tanker aircraft, Boeing’s most valuable military contract.
Vital contract runs into trouble
The KC-46 is the Air Force’s next-generation fuel tanker aircraft, designed to replace a rapidly aging aerial tanker fleet. Boeing has been contracted to produce 179 KC-46 tankers. Valued at $32 billion, this is Boeing’s single largest military program.
The Air Force is already buying about a dozen KC-46 per year, with deliveries expected to continue for the rest of the decade. Unfortunately, the program has run into a serious problem. The tanker’s remote vision system (RVS) has proven to be deficient. Air Force Magazine has explained the scale of the problem:
“RVS is supposed to let Airmen see where the plane’s refueling boom is in relation to an aircraft it is trying to gas up. But at around 10 feet from the receiver aircraft, the RVS doesn’t focus well enough to connect, sometimes causing the operator to hit the nearby plane...Without an RVS fix in place, Airmen would not only deal with blurry vision but also issues like a blinding glare off of the receiver airplane on clear, sunny days.”
Pushing ahead in spite of vision problems
Despite the obvious problems facing the KC-46, the Air Force opted to move ahead with its procurement plan.
In Jan. 2019, Boeing delivered the first batch of KC-46 aircraft to the Air Force, two years behind schedule. At the time, the Air Force lauded the KC-46 deliveries as a “major milestone for our next generation tanker.” The service claimed that the continued design issues, including the deficient RVS, would “not prevent the tanker from carrying out its primary mission.” Indeed, the Air Force was quite insistent that Boeing would solve the issues expeditiously:
“We have identified, and Boeing has agreed to fix at its expense, deficiencies discovered in developmental testing of the remote vision system. The Air Force has mechanisms in place to ensure Boeing meets its contractual obligations while we continue with initial operational testing and evaluation.”
Until Boeing resolves the RVS issues, the Air Force has withheld about 20% of the value of each plane delivered.
Grounded by the top brass
The KC-46 is supposed to be ready for operations in 2023 or 2024, but the top military brass is not yet prepared to clear it for regular service. The Air Force certainly sounds less confident than it did back in January of last year.
On March 3, Air Force Chief of Staff General David Goldfein told a Senate committee that, until all technical issues are resolved, the KC-46 would only fly in the event of a serious geopolitical conflict:
“If we go to a high-end contingency, we will put every KC-46 we have into the fight. We won’t use it for day-to-day operations, but it will be made available for a contingency.”
This revelation led one leading Boeing bear, known as @PlugInFUD on Twitter, to pose this rather pointed question:
“Is it good that the Air Force feels so uncomfortable with the KC-46 that [it] doesn’t really even care to use the plane (which represents Boeing's biggest military contract) unless absolutely necessary?”
A worrying lack of confidence
No matter how one looks at it, the visible lack of confidence in the KC-46, in its current form, is alarming. Both long and short investors should pay close attention to this story as it develops.
Disclosure: Author is short Boeing.
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