Boeing Tanker Deal Reportedly Delayed for Studies

The company had previously warned of big charges if the $23.5 billion pact was canceled.
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Boeing

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shares were down after hours following reports the Pentagon won't go ahead with a $23.5 billion contract to convert 767 passenger jets into refueling tankers for the Air Force.

Several reports said Defense Secretary Donald Rumsfeld had ordered new studies on the need for the tankers for completion this fall. The decision is a serious blow to Boeing, which warned in a

Securities and Exchange Commission

filing that a cancellation could result in a $270 million to $300 million charge to earnings.

Previously, the Pentagon's inspector general recommended that the government explore alternatives to buying the tankers and said the current contract overcharged the government by $4.5 billion. Earlier this month, the Defense Science Board said the Air Force lacks a "compelling material or financial reason" to buy the tankers, arguing they were unnecessary.

Boeing's status with the Pentagon has been in chaos since a hiring scandal blew up around the contract last year, eventually leading to the ouster of CEO Phil Condit. The company had recently expressed confidence it would ultimately get the Pentagon pact, with CEO Harry Stonecipher telling analysts May 19: "We have a customer who wants them very badly, and that's the Air Force, they're the customer. The customer has not changed their mind one iota about wanting the 767 tanker program that made its way through Congress ... and was in the 2004 defense spending bill."

According to

Reuters

, Rumsfeld set a Nov. 1 deadline for the new studies, a date that would allow funding in the Bush administration's fiscal-year 2006 budget request. The Pentagon is reportedly telling lawmakers that even if Boeing ends up getting the pact, it would have to be renegotiated.

In after-hours trading, Boeing shares were down 69 cents, or 1.5%, to $44.01.