Boeing (NYSE:BA) shareholders, rejoice! After a major design review in early July, Boeing's KC-46 Tanker looks like it's not only on schedule, but actually ahead of schedule. This is especially good news considering that during the development phase, cost overruns on the tanker soared to approximately $700 million -- for which Boeing is responsible. But with this latest review, Boeing may be set to move on to production. Here's what you need to know.
The final report for the Critical Design Review, or CDR, hasn't been released, but following the review Boeing released a statement stating: "Boeing believes the review went well and initial feedback from our customer has been positive. Final approval by the USAF is anticipated in the near future."
If Boeing does get CDR approval, it'll be able to move onto tanker production, something Boeing and the Air Force eagerly anticipate. More good news? Boeing is scheduled to deliver the first 18 out of 179 tankers in 2017. But Boeing has said that if there aren't major issues reveal in the CDR, it expects to deliver the first completed tanker by the end of 2016.
Considering the Air Force has said the KC-46 tanker is its No. 1 modernization priority as it replaces the aging KC-135, this may be especially good news for Boeing's reputation, which in the past hasn't fared as well.
Major profits ahead
With a price tag of $52 billion, the KC tanker contract is one of the Pentagon's largest weapons initiatives. Further, some analysts estimate that with future parts and maintenance, the contract worth could climb to $100 billion. This is great news for Boeing, but it's also great news for its subcontractors on the project -- Honeywell International (NYSE:HON) is supplying the auxiliary power unit and cabin pressure control unit, Northrop Grumman (NYSE:NOC) is supplying Large Aircraft Infrared Countermeasures, United Technologies' (NYSE:UTX) subsidiary Pratt & Whitney is supplying the engines, Rockwell Collins (NYSE:COL) is supplying the integrated display system, and Raytheon is supplying the digital radar-warning receiver. All in all, this is a major initiative for defense contractors, and good news for Boeing is good news for all.
The news regarding Boeing's CDR is certainly welcome, but there's still a lot to do before the tanker makes it to flight status. Still, so far Boeing has done an admirable job with the KC-46 tanker. Let's hope it keeps it up, because with $100 billion riding on the line, this is definitely something that could affect Boeing's stock.
Fool contributor Katie Spence owns shares of Northrop Grumman. Follow her on Twitter: @TMFKSpence. The Motley Fool owns shares of Northrop Grumman and Raytheon. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.