Boeing reported a new $565M loss on the KC-46 program, while looking to a reprice because of supply chain costs, production support, and ongoing RVS 2.0 upgrades.
Boeing has once again reported a significant financial charge on its KC-46A Pegasus tanker program, following the long-running challenges associated with what has become one of the U.S. Air Force’s most troubled major acquisition efforts. In fact, in its fourth quarter 2025 earnings release, Boeing disclosed a $565 million loss tied to the KC-46.
According to the company’s statements, the loss is driven primarily by higher supply chain costs and increased production support expenses at the Everett, Washington, facility, where the aircraft is assembled. The company acknowledged that the charge reflects persistent cost pressures linked to the 767 airframe, upon which the tanker is based.
The loss was further detailed during an investor call, where Boeing Chief Executive Officer Kelly Ortberg described the outcome as “disappointing” but emphasized that recent operational performance trends point toward improving stability in the program. Ortberg further said Boeing’s increased investment in quality and engineering support is intended to ensure the company can meet delivery commitments and prepare for the next phase of tanker procurement.
“This has been a bad contract for the last decade,” Ortberg said. “As we enter into a new opportunity where we get to reprice, we want to make sure that we … underwrite that contract, to ensure it’s a fair contract, and we can make money on that.”
Billions in Losses
Boeing has already accumulated more than $7 billion in losses because of the new tanker since contract award. This makes the KC-46 Pegasus one of the costliest fixed-price programs in the company’s defense portfolio.
Under the terms of the original fixed-price contract, Boeing is responsible for covering all costs that exceed the agreed ceiling, thus absorbing all financial risk in place of the Air Force. Boeing’s yearly results show that its Defense, Space & Security business closed 2025 with negative operating margins at -0.5%, yet it represented a notable improvement compared to the -22.6% margin recorded in 2024.
Company executives stressed that the KC-46 loss does not indicate systemic problems across the defense business, but rather reflects concentrated issues fueled by the base airframe’s production and support costs. “The predominance of the charge is increased cost on the actual 767 commercial airplane production,” Ortberg explained.
Chief Financial Officer Jay Malave further added that Boeing intentionally maintained elevated staffing levels for quality assurance and engineering at Everett, in an effort to reduce rework and ensure delivery schedules could be met. Malave explained these measures are expensive but they appear to be helping.
“For example, as compared to the first half of the year, we saw average factory rework levels decrease by 20 percent in the fourth quarter,” Malave said. “While these investments are starting to evidence progress, we need to sustain them for longer than previously planned to promote stability.”
Boeing stated it delivered 14 KC-46s in 2025 and is now targeting an increase to 19 deliveries in 2026. The company is currently under contract to provide 183 tankers for U.S. and international customers, but the number might soon increase as the Air Force is planning to procure 75 additional aircraft to recapitalize the aging KC-135 Stratotanker fleet.
Technical Deficiencies
The KC-46’s cost overruns are also due to its long history of technical challenges, which included issues with the aircraft itself and the refueling equipment. These problems notably led to a temporary halt to the deliveries in 2024.
Among the most serious and enduring issues has been the Remote Vision System (RVS), which replaces the classic boom operator’s rear-facing window and controls with a new console equipped with a camera system. However, the system has suffered from many issues, leading the Air Force to classify it as a Category 1 deficiency, which represents problems that could result in loss of life or damage to aircraft.
The tanker has also experienced problems with its refueling boom actuator, which affected the stiffness and controllability of the boom during refueling operations. These issues limited the KC-46’s ability to refuel certain receiver aircraft, with a notable instance being the A-10 Thunderbolt II, and required new modifications to meet Air Force requirements.
Product quality issues involved three separate parts of the aircraft: drain masts for its auxiliary power unit (APU), a seal for its fuel manifold and a drain line that runs near the cockpit. Specifically, the APU’s drain masts showed a tendency to crack, solved with additional reinforcements.
The fuel manifold, which runs 555 feet throughout the plane, is fitted with flex couplings throughout so that it can bend in flight. However, an incorrect positioning of the coupling’s seals enabled fuel to seep out of the inner tube into the outer one, so Boeing implemented a new flex seal.
The last one was related to the AAR receptacle on top of the cockpit, specifically the receptacle drain line, which empties liquid out but is at risk of cracking and could cause fuel to leak into the cockpit. A fix has been found and is being implemented.
Structural concerns have also interrupted production. In 2024, Boeing was forced to temporarily halt KC-46 deliveries for approximately three months after cracks were discovered in the aircraft’s wing structure, requiring inspections and repairs across multiple aircraft. The pause highlighted the ongoing manufacturing challenges, complicating once again delivery schedules.
Progress on Remote Vision System 2.0 Testing
Boeing is continuing work to address the Remote Vision System (RVS). As we previously reported here at The Aviationist, Boeing achieved a key milestone in November 2025 following the first flight of a KC-46 equipped with the upgraded Remote Vision System 2.0 (RVS 2.0).
Boeing Defense, Space & Security CEO Steve Parker described the event as “a huge milestone for the program,” noting that the flight took place in the Seattle area under challenging weather conditions and would be followed by an extended test campaign through 2026. The Air Force also recently published a short video on social media saying the 418th Flight Test Squadron (FLTS) supported Boeing for the RVS testing during rapidly changing lighting conditions over the Mugu Sea Test Range.
A Flight Test #Engineer mantra.. come for the #data… stay for the views. #USAF crews with our 418th FLTS recently supported @BoeingDefense teams with KC-46 Remote Vision System testing during rapidly changing lighting conditions across the Mugu Sea Test Range. @HQ_AFMC pic.twitter.com/M3kkZi1Jv9
— Edwards Air Force Base (@EdwardsAFB) January 24, 2026
RVS 2.0 is intended to resolve persistent problems affecting the current system, including image distortion, depth perception errors, and degraded performance under variable lighting conditions. These issues have been particularly problematic during night operations and in scenarios where sunlight and shadow interfere with the cameras’ ability to provide reliable visual cues to boom operators.
RVS 2.0 is intended to resolve the problems with the incorporation of upgraded long-wave infrared and visible-spectrum cameras, increasing the total number of sensors from four to six. The upgrade, however, was affected by delays.
While testing is in progress, Boeing has continued to deliver aircraft with the interim RVS 1.5 configuration, with full fielding of RVS 2.0 not expected until 2027. Parker described RVS 1.5 as “exceptional,” without adding details.
Balancing Risk and Preparing for Repricing
Boeing’s executives argued that the latest charge reflects a deliberate decision to prioritize execution and delivery reliability over short-term financial performance. In fact, with the Pentagon increasingly scrutinizing contractor delivery schedules in recent weeks as it looks to change military procurement, the company said the investment was essential to the KC-46’s program long-term recovery.
“We took that decision – albeit, a big gulp – to have to take a charge here on the tanker program,” Ortberg said. “I think it will pay off in dividends with us, in terms of allowing us to make sure we meet the 19 deliveries next year.”
Boeing is now focused on not repeating the same “errors” of the original fixed-price development deal, especially with negotiations for the new Air Force procurement now approaching. The company appears determined to avoid absorbing new losses.
