Boeing, USAF Discuss “In Kind” Remedies

The Air Force and Boeing are negotiating “in kind” compensation to USAF due to Boeing’s inability to deliver 18 KC-46 tankers by the contract deadline of August 2017, sources reported Monday. That compensation could come in the form of no-cost service life extensions to KC-135 tankers, which will have to serve longer than expected because of the schedule slip, or discounted contractor logistics support, parts, or other accommodations. A Boeing spokesman could not immediately say whether the compensation, still in negotiation, would be limited to tanker-related transactions or could widen to include other Boeing products, such as JDAM bombs or F-15s. Two years ago, Boeing and General Dynamics settled the 23-year-old A-12 attack plane lawsuit by agreeing to provide the Navy free goods and services, including three EA-18G Growler airplanes and credits on the DDG-1002 destroyer, in lieu of cash.

Under the KC-46’s fixed-price contract—which was assumed to be enough of a “stick” to keep Boeing on track—there are “no pre-defined penalties for missing schedule deadlines,” a service spokesman said. However, USAF will “seek consideration commensurate with the impact of the breach.” Boeing has said it has multiple potential fixes ready to go for the air refueling boom, which is the cause of the delay. A former senior Air Force official said the situation illustrates that “fixed-price is not foolproof,” and in a cost-plus contract, incentive fees tied to schedule—as they are on the B-21 bomber—“could be reduced, delayed, or forfeited.” Boeing is already about $1 billion in the red, after taxes, on the KC-46 program, but has said it expects to become whole during the 179-aircraft production phase. It sees another 200-plus potential aircraft order after that, if USAF decides to keep buying KC-46s after the KC-X program concludes in 2028.