B767-200ER Tanker Program Does Nothing To Bolster Commercial Values

The approval of an order for 100 KV-767A tankers, based on the B767-200ER by the U.S. Department of Defense and due for delivery between 2006 and 2011, will do nothing to reverse the decline in values of the commercial variant or raise the prospect of further commercial orders. The 100 tankers, in a deal yet...

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The approval of an order for 100 KV-767A tankers, based on the B767-200ER by the U.S. Department of Defense and due for delivery between 2006 and 2011, will do nothing to reverse the decline in values of the commercial variant or raise the prospect of further commercial orders.

The 100 tankers, in a deal yet to be finalized, are to be leased in an innovative financing deal. Boeing reportedly would sell the aircraft to a financing vehicle for $131 million each, representing double the cost of a civil version. The financing entity would then lease the aircraft to the U.S. Air Force for six years for a total of $138 million, a figure that includes the cost of financing. After six years, the 100 aircraft could be bought by the U.S. Air Force for $4 billion or $40 million each, a hefty depreciation in such a short time.

The deal would include a commitment by Boeing not to make more than a 15 percent profit on the aircraft and not more than a 15 percent profit on modifications needed to turn the aircraft into tankers. Boeing has also committed not to selling the tanker at a lower cost to another customer. The U.S. manufacturer may be anticipating that the 100 orders are just the start of a replacement program that could involve up to 500 tankers. Pricing may already be based on total sales of at least 200.

The deal would assure production of the B767-200ER for another decade. While the DC10 production line also benefited from KC-10 military production in the 1980s, it also served to delay the development of the MD11, a program that was eventually scrapped by Boeing due to poor sales. The last few commercial DC10s built after the KC-10 program ended saw values fall from $80 million to less than $25 million in the space of less than six years. By continuing production of the B767 in essentially a commercial configuration, Boeing may be tempted to delay developing a replacement. With the B767-200ER and B757-300 programs coming to a close, Boeing currently has nothing to offer airlines in terms of capacity between the B737-900 and B767-300ER, though Airbus is in a similar predicament with a void between the A321 and A330-200.