Ol' Bubba is going to be rather more out of pocket than that!
From Bloomberg:
Boeing Co. (BA) may be required to absorb more than $700 million and the Air Force another $600 million in overruns if projections of cost increases on the KC-46 tanker program materialize, according to newly released U.S. Air Force figures.
Boeing’s $700 million cost is a combination of a previously reported $300 million and another $432 million the Air Force disclosed today (12 July), putting Boeing’s profit from the tanker contract in jeopardy if the contract exceeds its $4.9 billion ceiling.
The Air Force and Boeing split 60/40 any dollar increase between a target cost of $3.9 billion to the contract ceiling -- a $600 million share for the service and $400 million for Boeing.
“It’s a part of the contract,” Air Force acquisition head David Van Buren said in an interview today. “That’s the geometry of the contract.”
“If they come in” over $3.9 billion, the Air Force pays its share until the $4.9 billion ceiling is reached, Air Force KC-46 program manager Major General-select Christopher Bogdon said. “If they get to $4.9 billion, they get zero profit,” Bogdon said.
“We made an aggressive yet responsible bid to win the contract. This is a win for the Air Force and a win for the taxpayer in that they will receive the best tanker at the best price,” said Conrad Chun, a Boeing spokesman.
Boeing Shares
Chicago-based Boeing declined $1.72, or 2.3 percent, to $73.35 at 4:15 p.m. in New York Stock Exchange Composite trading (on 12 July).
“Based on the present estimate to complete that Boeing has given to us, they will spend up to the ceiling price, so yes, we would share the difference between target cost and up to the ceiling. But anything over $4.9 billion is completely the responsibility of Boeing,” Pentagon director of pricing Shay Assad said in an interview.
“That wasn’t a surprise to us because we evaluated the contracts and we have properly budgeted for it,” Assad said.
The Pentagon evaluated the Boeing bid with the understanding it was “possible” the ceiling would be breached, Assad said.
Now, Boeing has told the Pentagon it expects to exceed the ceiling, Assad said.
“We will have to see how they actually perform but that’s what they’ve informed us of.”
But hey, oo-rah, it's a 'murrkan product for the 'murrkan 'warfighter' - so that's OK then....
