Air Force: KC-46 Cost Expected To Surpass Ceiling By $1.4B |

By Courtney Albon

The Air Force expects the development price tag for the KC-46 tanker will outpace the contract’s ceiling by more than $1.4 billion — an increase of about $441 million over last year’s projections.

This year’s annual KC-46 program office risk assessment, completed in November, pegs the expected cost for the program’s development contract at $6.3 billion — about $1.4 billion over the program’s $4.8 billion fixed-price incentive firm development contract, according to the Air Force’s Program Executive Officer for Tankers Brig. Gen. Duke Richardson.

The service in 2011 awarded Boeing a $3.6 billion engineering and manufacturing development contract to develop four KC-46A tanker prototypes. The contract set a $4.3 billion target price and included a provision stating that the service would pay 60 percent of any cost overruns up to a ceiling price of $4.8 billion, leaving Boeing to pay the rest. Under these terms and based on the updated cost estimate, Boeing could be left to absorb more than $1.4 billion in cost overruns.

Richardson told reporters during a December 15 interview that the cost increase is linked to flight-test delays caused by engineering challenges prime contractor Boeing faced in the first development aircraft as well as forecasted risks in the flight testing phase.

“Some of the risks we look at are: Can we execute the flight tests at the rate we’ve had it planned for? So that would be a factor,” he said. “The program team that does this, the program control shop, does a pretty good scrub of all the work that’s in the future. There’s nothing there that’s personally alarming for me.”

Last year’s analysis predicted costs would surpass the ceiling by about $1 billion, and a separate Government Accountability Office report published in April found that if Boeing continues to spend its management reserves at its current pace, the $354 million fund will be depleted long before development has concluded.

Richardson, who has been in his role as Tanker PEO for about three months, characterized this year’s estimates as “conservative.”

“I would consider it a conservative estimate,” he said. “I would expect that Boeing would probably say it’s very conservative.”

Air Force: KC-46 Cost Expected To Surpass Ceiling By $1.4B |