By Mike Stone
WASHINGTON (Reuters) - The U.S. Air Force has recommended the release of up to $924 million in payments to Boeing (NYSE:BA) that were held back due to flaws in the KC-46 air refueling tanker, according to a memo seen by Reuters and a source familiar with the situation.
The recommendation, which was sent to Air Force contracting officials, is aimed at maintaining the financial health of suppliers to the Department of Defense, and will free up funding for numerous contractors, not just Boeing.
Boeing's financial situation has become increasingly precarious as economic fallout from the coronavirus has frozen key lending markets and cut off demand for Boeing's commercial aircraft.
The Air Force has the right to hold back about $28 million of the cost of each of the first 52 KC-46 Pegasus jets on order to ensure Boeing delivers fully functional tankers.
Thirty-three of the aircraft, which refuel other aircraft mid-air, have so far been delivered. The Air Force plans to buy 179, but the program has been plagued with problems, including foreign object debris found onboard the planes and issues with a camera system used during the refueling process.
In addition, a second person familiar with the matter said the Air Force and Boeing have a memo of agreement that would allow the flying tanker jet to enter service for refueling missions. So far the jet has only been flying cargo missions.
The agreement, expected to be announced later on Thursday, focuses on the remote vision camera system and will allow for a series of new technical upgrades to cameras, processors and displays on the jet.
Boeing has temporarily shut several production lines in Washington state due to the spread of the coronavirus.
On Monday, the Air Force announced an additional major technical issue with the KC-46 Pegasus related to fuel leaks that could endanger the aircrew and aircraft.
An Air Force spokesperson did not immediately respond to a request for comment.