Underrunning the Overrun

Boeing’s lowball winning bid on the KC-46 tanker may take a smaller bite out of the company’s hide than expected, Pentagon Director of Defense Pricing Shay Assad told defense reporters in Washington, D.C., Wednesday. Press reports have pegged Boeing’s actual cost during the program’s development phase at about $5.2 billion, versus the $4.9 billion contract ceiling, above which Boeing must pay all costs. Assad, asked about the $300 million figure, said the company’s latest estimate “is a little bit less than that now.” The Pentagon, he added, has “no reason to believe that Boeing’s estimate is inaccurate.” Because the potential profit margin is slim, and going over would cost extra money, Boeing is well motivated “to execute below ceiling,” he said. Assad predicted that the company “will actually make money” on the KC-46, assuming it manages the program carefully. Assad declined to divulge what profit margin the government expected to pay on the project.