Boeing to take charges on KC-46 tanker over quality issue -finance chief

By Valerie Insinna

WASHINGTON (Reuters) -Boeing Co. will take additional charges to the KC-46 tanker program due to a supplier quality issue with the center fuel tank, the company’s finance chief said Wednesday.

Boeing (NYSE:) Chief Financial Officer Brian West did not disclose the precise value of the additional charges, which will be announced as part of the company’s first quarter earnings, but margins at Boeing’s defense business would be negative as a result.

While 767 freighter deliveries “will recover in the second quarter,” tanker deliveries will take longer “but we will recover the year,” West said at the Bank of America (NYSE:) Global Industrials Conference, adding that the issue would not impact Boeing’s annual cash flow target of $3 billion to $5 billion in 2023.

West also acknowledged a slight schedule slip for Boeing’s 737 MAX 10, which will “likely” be certified and delivered next year. Boeing Commercial Airplanes head Stan Deal had predicted in December that MAX 10 certification could occur in late 2023 or early 2024.

MAX 7 certification and delivery is still expected to occur in 2023, and “we are working very, very closely with Southwest to make sure that we can help them with their fleet management,” West said.

Earlier this month, Boeing confirmed that deliveries of the Boeing 767 freighter and KC-46 tanker were delayed as a supplier had not completed processes related to cleaning and paint adhesion on the center fuel tanks. The primer inside the fuel tank must be removed and repainted before Boeing can deliver the aircraft.

“We know how to fix this,” West said. “But now we have to go implement the fix both on production airplanes and some airplanes that are in the fleet.”

On tankers, Boeing is locked into a fixed-price development contract where it is responsible for paying all expenses above the award’s $4.9 billion cost ceiling. The company has taken $6.8 billion in charges since the U.S. Air Force awarded the contract in 2011.

On the commercial side of the business, Boeing remains confident it can meet its delivery guidance for the year, West said.

Deliveries of the company’s bestselling 737 MAX will be higher in March than the 24 aircraft delivered in February, said West, who stood by the company’s target of delivering 400-450 737 MAXs this year.

Boeing executives also “see a path” for the company to recover from a 787 Dreamliner delivery pause and meet twin goals of ramping up production to five 787s a month and delivering at least 70 Dreamliners this year. Boeing delivered its first 787 since late February on March 16.