By Mike Stone
WASHINGTON, April 2 (Reuters) - The U.S. Air Force will release $882 million in payments to Boeing that were held back due to flaws in the KC-46 air refueling tanker, a Pentagon official said on Thursday.
The release of the payment to Boeing is part of a broader recommendation sent to Air Force contracting officials, according to a memo seen by Reuters, aimed at maintaining the financial health of suppliers to the Department of Defense.
Will Roper, the Air Force's chief buyer, told reporters the initiative will free up billions of dollars in funding for numerous contractors, not just Boeing.
"If we want to have a defense industrial base coming out of COVID-19, that's able to continue building," Roper said, "every day is a new challenge."
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 had 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. With 33 jets delivered thus far, the Air Force could have withheld up to $924 million.
The Air Force plans to buy 179 of the aircraft, which refuel other aircraft mid-air, 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 to the release of funds, 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, which was announced on a call with reporters 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 will pay for the changes, Roper said.
Boeing Defense, Space & Security chief executive Leanne Caret said the "takes advantage of new remote vision systems technologies that are orders of magnitude better than what was available when the program started."
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.
(Reporting by Mike Stone in Washington; Editing by Chizu Nomiyama and Daniel Wallis)
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