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Cobham dives as KC-46 tanker programme gets messy

Boeing has said it is going to seek damages for delays in the programme but has yet to specify how much it will be seeking; Cobham intends to contest those claims

Refuelling plane
Refuelling plane

Defence firm Cobham Group PLC (LON:COB) disappointed the market with news of a £40mln charge relating to its US KC-46 tanker programme.

The good news is that qualification testing on the centerline drogue system (CDS) to be used on the KC-46 Pegasus refuelling tankers has been completed and submissions have been supplied to support achievement of supplementary type certification of the aircraft, with CDS production deliveries having commenced in the period.

READ: Cobham shares rise as Morgan Stanley upgrades to ‘overweight’

The bad news is that completion of CDS qualification has taken longer and has been more challenging than expected.

Furthermore, qualification of the wing aerial refuelling pods (WARPs) is in its early stages, with risks relating to schedule and cost.

Completion could take significantly longer than originally planned, and this increases concurrency risk as well as base cost assumptions, Cobham warned, before revealing there would be an additional non-underlying charge of around £40mln in Cobham's interim results.

Meanwhile, its customer, Boeing has withheld payment of the KC-46 CDS and WARP invoices and indicated it would seek damages in respect of delays; Cobham will be disputing these assertions.

Shares in Cobham tanked 10.4% to 117.9p.

Quick facts: Cobham PLC

Price: 164.5 GBX

LSE:COB
Market: LSE
Market Cap: £3.96 billion
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