Estimate on Overrun for C-17 Hiked : Military: Air Force raises figure on McDonnell Douglas cargo jet by another $200 million for first six planes.

The Air Force said Friday that it has increased its cost estimate on the McDonnell Douglas C-17 cargo jet by another $200 million, raising the total cost overrun on development and production of the first six planes to about $1.2 billion.

The new Pentagon cost estimate does not include fixing the C-17’s wing, which failed a major strength test in October. Thus, the cost estimate may soon increase further, an Air Force spokesman said Friday. Government and company engineers have not yet determined why the wing failed.

If the Air Force is correct in its cost assessment, it means that McDonnell has not yet gained full control of the long-troubled C-17 program, which is expected to eventually include production of 120 aircraft in Long Beach. Over the last two years, the C-17’s development cost has spiraled up from an original ceiling of $6.6 billion, despite a myriad of company efforts.

Under its fixed-price contract, McDonnell is paying for the cost overruns. The St. Louis-based firm has written off $550 million on the program, including a $269-million hit in the third quarter that ended Sept. 30.

After taking the third-quarter write-off, McDonnell said it had covered all of the anticipated costs to complete development and the first six airplanes. The write-off included a reserve of about $135 million to cover future uncertainties.

A company spokesman said McDonnell and the government have always disagreed on the cost of the program and that those differences are continuing. He added that the government estimates fail to take account of the firm’s increasing efficiency in its current operations. The company has also filed claims asserting that the government was responsible for $200 million of the overruns.

As a result of the increased cost estimates, the government declined to pay about $100 million to McDonnell in October, because it applied a “loss ratio” to the firm since it had not completed as much work on the C-17 as expected. McDonnell has been increasing its debt and is now seeking a $400-million increase in its line of credit, according to the firm’s third-quarter filing with the Securities and Exchange Commission.

In another new development, congressional sources said that McDonnell has fallen significantly behind schedule in testing the C-17. The firm has flown 25% of the hours required to test the aircraft, but it has completed only 14% of the specific tasks required in the tests.

A company spokesman acknowledged that the firm has fallen behind schedule but said it has taken steps to improve efficiency and to increase test flights.