AIRSHOW-Boeing may face higher than expected costs on KC-46 tanker

FARNBOROUGH, England, July 14 Mon Jul 14, 2014 6:15am EDT

FARNBOROUGH, England, July 14 (Reuters) - Boeing Co may face significantly higher than expected costs in the development phase for a new tanker for the U.S. Air Force, although the fixed-price contract with the government means the company will absorb those overruns, the Pentagon's chief arms buyer said.

Defense Undersecretary Frank Kendall told reporters late on Sunday that Boeing was performing "satisfactorily" on the KC-46 tanker program, but several events - including water damage caused by a sprinkler malfunction at the company's Everett, Washington plant - meant costs were higher than expected.

Boeing and the U.S. government disagree about the size of the potential overrun on the program, largely because Boeing expects its flight test program to be less expensive than the government projects.

"We do see an overrun that Boeing will have to absorb," Kendall said. "It's just a question of what the magnitude of that overrun is going to be. We see it as a potentially significantly higher number than they have acknowledged in the past."

Boeing had no immediate comment on the size of the expected cost overrun in the development program. (Reporting by Andrea Shalal; Editing by Mark Potter)

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