By Andrea Shalal-Esa

WASHINGTON (Reuters) - A Boeing program for a aerial tanker that will refuel other warplanes mid-flight is nearly ready for a major design review likely to occur in July, a U.S. Air Force official told Reuters last week.

The $5.2 billion KC-46 program is expected to contribute to early production of the new planes, based on Boeing's commercial 767 airplane.

Major General John Thompson, a former top official with the F-35 fighter program who now oversees Air Force tankers, said in an interview that the KC-46 was in "a really good place" despite mandatory funding cuts and civilian furloughs expected later this summer.

Boeing is set to deliver the first 18 of 179 new planes to the Air Force by 2017, allowing it to start replacing the current fleet of 50-year-old KC-135 tankers.

The tanker program, one of the Pentagon's biggest weapons programs, has been closely scrutinized after a decade-long contest between Boeing and European rival Airbus, and an ethics scandal that sent two former Boeing officials to prison in 2005.

Thompson said the program was staying on track because Congress and the Air Force had given it sufficient funding and maintained stable requirements. Boeing was also meeting its targets under the program's fixed-price contract.

Strict oversight by top Air Force leaders and the rigorous process used to work out the development contract with Boeing has helped ensure success, said Thompson.

He noted that a tightly written contract and the need to get the approval of top leaders had dampened requests for the kinds of design changes that had triggered delays on other programs in the past.

"People think, 'It's executing well. Let's not muck with it,'" Thompson said. Under the fixed-price contract, Boeing is responsible for all but a small fraction of any cost overruns. It still expects to complete the development phase of the program for $5.2 billion, while the government projects the cost will be closer to $5.7 billion, he said.

Government and industry officials spent the past year reviewing the aircraft's major systems and over 200 specifications, detailed drawings and other documents to prepare for the design review, according to Thompson. It is likely to start in July and wrap up several weeks or months later, he said.

After a preliminary review completed last June, Boeing had to redesign parts of the airplane's refueling systems. Those changes are largely locked in at this point, said Thompson, but program officials are keeping a close watch to see if there will be on any impact on the flight test schedule.

Developmental testing of the new airplanes is due to end in 2015. Final tests to establish fitness for combat would start the following year.

Thompson said the Air Force avoided having to renegotiate a costlier contract with Boeing last year because Congress ultimately passed a fiscal 2013 defense spending bill. The mandatory budget cuts known as sequestration came out to just 8.2 percent, less onerous than first predicted.

The full effect of 11 furlough days, also part of the cuts, is not yet clear, Thomson said. Civilians account for about 100 of the 156 authorized jobs on the program, or about 60 percent of the total staffing, although the Air Force was loaning the tanker program officials from other programs to make sure the labor-intensive review could be completed on time, he said.

Despite his optimism, Thompson cautioned that the program still faced risks since it was only about a third of the way through its development phase and no production, flight testing or critical-component demonstrations had yet occurred.

(Reporting by Andrea Shalal-Esa; editing by Prudence Crowther)

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