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BOEING COMPANY (THE)

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Boeing : U.S. Rebukes Boeing Over Tanker

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03/14/2019 | 04:01pm EDT

By Ben Kesling in Washington and Doug Cameron in Chicago

The U.S. Air Force has lost confidence Boeing Co.'s ability to maintain quality control over a new aerial refueling tanker it is building, with a senior Pentagon official saying Thursday that it could take at least a year to rebuild trust in the program.

The tanker problems predate this week's crash of a Boeing 737 MAX airliner being flown by Ethiopian Airlines, resulting in a global grounding of the passenger jet following an earlier crash of the same aircraft model last year.

Boeing delivered the first of the KC-46A Pegasus tankers in January, more than a year late, after a series of production and design problems left the aerospace company nursing $3.5 billion in losses on the initial $4.9 billion contract.

The Air Force then suspended deliveries in February after finding tools and other debris left in some jets, prompting a sharp rebuke from defense chiefs.

"Well, we are not happy with this at all," Will Roper, the Air Force's assistant secretary for Acquisition, Technology and Logistics told reporters after a congressional hearing. "We do not want to be accepting tankers this way. Having teams sweep an aircraft five times is simply unacceptable."

Deliveries of the tankers resumed this week, after Boeing instituted fresh measures to check the aircraft, and the company now has handed over seven planes out of the existing 52-jet contract. Boeing expects to sell an initial 179 tankers to the Pentagon, and executives said follow-on sales and exports could eventually boost that total above 400.

Lockheed Martin Corp. and Airbus SE -- which lost out to Boeing for the current tanker deal -- have announced plans to offer a rival jet to the Air Force.

Boeing meantime faces tougher scrutiny as it continues work to meet Air Force specifications.

"I think it's going to take more than a year of measuring and tracking Boeing's performance until we're confident that they follow their procedures, and maybe longer than that before we believe the culture of quality has come back," Mr. Roper said. "This is a lapse in culture, and they simply have to be able to build it back."

A Boeing spokesman said it was focused on safety and quality and had agreed on a plan with the Air Force to remedy the debris and quality issues.

Mr. Roper flew on the latest delivery flight and said he has confidence in the aircraft, a version of the 767 jetliner used for passenger and cargo service.

He said future tanker-delivery schedules likely won't be affected as Boeing adds overtime and adjusts schedules to fulfil the additional inspections. Mr. Roper said the company has agreed to more Air Force spot checks in the tanker line as well as the Boeing 767 line, the base airframe for the tanker.

Mr. Roper said this week's scramble to search for the cause of the Boeing 737 MAX crashes had no impact on military contracts.

"The government is a fair broker," he said. "We're dealing with this issue as it is."

Write to Ben Kesling at benjamin.kesling@wsj.com and Doug Cameron at doug.cameron@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
BOEING COMPANY (THE) 10.91% 366 Delayed Quote.14.12%
BOEING COMPANY (THE) -2.83% 362.17 Delayed Quote.15.57%
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Financials ($)
Sales 2019 111 B
EBIT 2019 14 655 M
Net income 2019 12 495 M
Debt 2019 6 106 M
Yield 2019 2,23%
P/E ratio 2019 16,38
P/E ratio 2020 14,38
EV / Sales 2019 1,89x
EV / Sales 2020 1,76x
Capitalization 204 B
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Mean consensus OUTPERFORM
Number of Analysts 25
Average target price 437 $
Spread / Average Target 21%
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Managers
NameTitle
Dennis A. Muilenburg Chairman, President & Chief Executive Officer
Jenette E. Ramos Senior Vice President-Supply Chain & Operations
Gregory D. Smith CFO, EVP-Corporate Development & Strategy
Theodore Colbert Chief Information Officer & SVP-Data Analytics
Gregory L. Hyslop CTO, Senior VP-Engineering, Test & Technology
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