Mattis Firing Delays Delivery of Boeing Tanker to US Air Force

After long delays that have cost Boeing Co. (NYSE: BA | BA Price Prediction) more than $3 billion, the company was all set to deliver the first new KC-46 tanker to the U.S. Air Force by the end of 2018. Then, Secretary of Defense Jim Mattis, who was supposed to sign the order accepting delivery, first retired and then was fired by the U.S. president.

Acting Secretary of Defense, Patrick Shanahan, took office on January 1. He had a 30-year career at Boeing before being named Deputy Secretary of Defense in March 2017 and confirmed by the U.S. Senate in July. That means no further confirmation hearings will be required, even if Shanahan’s appointment is made permanent.

Shanahan’s appointment also means that he must recuse himself from any decision involving Boeing. How that will affect Air Force acceptance of the KC-46 is unclear. Defense News suggests that Air Force Secretary Heather Wilson or the undersecretary of defense, Ellen Lord, may authorize the delivery.

First delivery of the new tankers originally had been scheduled for August 2017, but a number of kinks had to be worked out before the planes could be certified and accepted by the Air Force. The most nagging issues were related to the refueling boom and delivery system. Boeing completed the certification process in September.

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Boeing’s $49 billion contract with the Air Force calls for 179 of the tankers to be delivered over several years at the rate of around three per month. To date, Boeing has contracted to deliver a total of 52 tankers.

The company also hopes to snag some international orders for the tanker. Japan has ordered two of the new tankers, and Boeing has said it is talking to additional prospective buyers.

The Air Force has also announced a program to add even more tankers to its fleet, but not necessarily Boeing tankers. Lockheed Martin and Airbus have agreed to team up to offer the Airbus A330 MRTT to “address any identified capacity shortfall and to meet requirements for the next generation of tankers.” The MRTT lost a protracted bidding war with Boeing for the current KC-46.

Boeing stock traded down about 2% in Monday’s premarket session, at $316.00 in a 52-week range of $292.47 to $394.28. The stock’s consensus 12-month price target is $417.60.

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