The Chicago-based aerospace manufacturer Boeing reportedly charged the government of Japan as much as 15 times higher price for some spare parts for its refueling tanker aircraft in comparison to the price the U.S. Air Force (USAF) used to pay.
According to the USAF service assessment seen by Bloomberg, following the contract between Boeing and Japan, the Japanese government paid $79 million for navigation lights produced by Boeing‘s subcontractor Honeywell. Under the agreement which was signed in April 2021, the navigation lights for the Japanese Boeing KC-46 Pegasus tanker were reportedly sold at a 1,500% higher price than the Air force had previously paid for it.
Since the USAF manages the contract for 4 Japan‘s KC-46 tankers, it was supposed to ensure proposed prices for spare parts were fair and reasonable. Under US law, contractors are required to provide data of prices for parts categorized as military items. But since the navigation lights ordered by the Japanese government were classified as commercial items, contractors did not provide backup data for such spare aircraft parts.
“The Air Force was unable to determine that approximately $10 million of the total contract price was fair and reasonable primarily due to the lack of information to support cost or price analysis related to commercial spares,“ the USAF spokeswoman Ann Stefak told Bloomberg.
In order to determine whether the price for spare aircraft parts was fair and reasonable, the USAF had been attempting to secure Boeing pricing data since November 2019. Since the time, it had requested pricing for a total of 140 spare aircraft parts, including the navigation lights, reducing the number to 29 later.
However, Boeing reportedly informed the USAF that it was unable to provide the pricing for 28 out of 29 commercial items as such data was considered as non-governmental sales data which could not be used to determine a fair and reasonable spare parts price. The manufacturer also stated that it had provided incorrect prices for the Honeywell navigation light in its previous contracts with the USAF. And as a result, Boeing ended up taking a loss for the sale of such items.
A Boeing spokeswoman Kathleen Kelly said that the manufacturer has “mistakenly undercharged“ the USAF in the earlier contracts for spare parts, resulting in a 1,500% price increase in the Boeing-Japan deal.
“We charged the correct price for subsequent KC-46 Tanker spares contracts, resulting in the perception of a price increase. […] In actuality, this was a price correction,” Kelly said. “Our error was isolated, and we owned our mistake.”
A Boeing spokeswoman outlined that in order to demonstrate good faith, the company offered to exclude the navigation light from the contract with the Japanese government and let the USAF negotiate with Honeywell directly, but the military reportedly declined the offer and decided to continue procuring the spare parts through Boeing.