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Boeing Plows Through KC-46 Reserve Funding; Sequestration Would Be ‘Near Catastrophic’

Posted by Colin Clark on

UPDATED: Boeing statement added
NATIONAL HARBOR: Boeing has been plowing through its KC-46 management reserve for much of the last six months, according to a senior Air Force official.

“The burn rate of their management reserve rate has gone up significantly over the last six months or so,” the official told reporters today. While this technically does not qualify as a cost overrun since this is a fixed price contract, it does raise questions about the program. The Air Force official was not willing to share either the percentage of the reserve nor the dollar amount.
“We have brought forward the allocation of management reserve largely to expedite risk mitigation opportunities in the program, including the system integration laboratories. However, the overall management reserve plan for the program remains unchanged,” Boeing spokesman Jerry Drelling said in an email.
Breaking Defense readers will remember that Boeing had already wracked up roughly $300 million in what we would otherwise call a cost overrun by July last year. Most close observers of Boeing’s successful bid believe the company is more than willing to take a “loss” on the first phase of the deal and make it back once it moves beyond the development phase.

At the same, program manager Maj. Gen. John “JT” Thompson said here at the Air Force Association’s annual conference that “cost, schedule, performance; everything is stable.” If, that is, sequestration does not occur.

Should that happen, Thompson made very clear the effect would be “near catastrophic.

“Depending on how sequestration is implemented, I might have to break my fixed price contract that I got a really good deal on,” he said. “If I have to break my fixed prices contract then I stand the potential to lose out on some of the great things we put in this vehicle up front. Bottom line I don’t want to break my contract and I’m fearful sequestration may break it.”

In other news, Thompson said that Singapore had expressed interest in the KC-46, submitting a request for information. Singapore had already expressed interest in buying a tanker. Now they’ve taken the first formal step toward buying the KC-46.

What do you think?