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Fully-Equipped Boeing Tanker to Make First Test Flight Friday

Eight months behind schedule and more than $1 billion over budget, Boeing Co. (NYSE: BA) has scheduled the first test flight of a fully-equipped KC-46A tanker for Friday. To say that a lot depends on the flight may be understating matters a little.

The $50 billion program to replace 179 U.S. Air Force refueling tanker now depends on Boeing’s ability to demonstrate that the plane can link up with and refuel five different Air Force, Marine and Navy aircraft. This part of the testing and evaluation of the new plane is due to be completed in four months, after which the Air Force is supposed to make a go/no go decision on the program in April. Under the terms of the contract, Boeing needs to deliver the first 18 planes to the Air Force by August of 2017.

The plane made its maiden flight in December and test flights have continued since then, although Friday’s scheduled test is the first in which the modified 767 commercial jet will be loaded with the equipment necessary to refuel a plane in flight.

The list of problems that the airplane maker has experienced with this plane is formidable. A faulty wiring harness had to be replaced last summer, and that led a pretax charge of $272 million. In the first quarter of this year, the company took a charge of $835 million on the program. Boeing’s contract specifies that program development costs are capped at $4.9 billion. Any costs above that are the company’s lookout.

Friday’s flight had been scheduled to take place last month, but mislabeled chemicals from one of Boeing’s suppliers were added to the plane’s refueling system and caused enough damage to force the postponement. This flight will test the basic flight envelope on the fully-equipped plane, and future flights will test deployment of the tanker’s advanced refueling boom and wing aerial-refueling pods.

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Essentially all the slack in the program schedule has been used up, and Boeing reportedly already has begun low-rate production of the tanker — again on its own dime — anticipating that it will meet refueling requirements and get Air Force approval to proceed. That is probably not a huge risk, given that the Air Force probably does not have a Plan B. It has taken nearly 15 years to get to this point in the development of a new tanker, and the Pentagon is not going to want to start over again.

Still, whatever profit Boeing hoped to make from the plane could be in serious jeopardy if there are further delays.

Boeing’s stock was up about 0.3% late Friday morning, at $130.20 in a 52-week range of $115.14 to $158.83.

By Paul Ausick


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