Boeing to Record Charges From Jet Programs -- Update
22 July 2016 - 9:43AM
Dow Jones News
By Jon Ostrower
Boeing Co. on Thursday revealed more expensive stumbles with the
production of new commercial and military jets, saying it would
take $2.1 billion in charges in its coming earnings.
The pretax charges, which have been expected by some industry
analysts, stem from delays to developing its new Air Force
refueling tanker, demand concerns about its biggest jetliner, the
747 jumbo, and the original high costs of its 787 Dreamliner, its
most advanced jetliner.
The latest charges are part of a yearslong hangover of high
initial development costs on crucial new programs, as well as
continued struggles getting its tanker completed for the U.S. Air
Force, its biggest defense contract. The problems have diluted the
benefits of a surge in orders and deliveries of passenger planes in
the past decade.
The charges will wipe out a total of $3.23 per share as part of
its second quarterly earnings to be announced next Wednesday,
according to the company.
Boeing Chief Executive Dennis Muilenburg has revealed a series
of charges since taking the top seat at the company in July 2015.
"These are the right, proactive decisions to strengthen our
business going forward," he said in a statement Thursday.
The company continues to face several long-term challenges,
including sagging twin-aisle jet demand, pressure on its jet prices
and declining market share against European and Canadian rivals for
its highly lucrative single-aisle 737 jetliners.
A company spokesman said the company's closely watched revenue
and cash guidance for 2016 are unchanged.
But the delayed refueling tanker for the Air Force, known as the
KC-46, will add $573 million, or 62 cents per share, more in
charges to its $1.5 billion in cost overruns the program has
suffered. The program is more than 40% past its original $4.9
billion budget, according to its initial contract.
The company in May delayed deliveries by five months to the Air
Force, as it worked through design issues and incorporates changes
on already-built aircraft. The company earlier this week said it
had completed aerial refueling tests ahead of a Department of
Defense purchase decision.
Reflecting continued weakness in the airfreight market, the
company is tallying $1.2 billion, or $1.28 per share, in charges on
its venerable 747 jumbo jetliner. Boeing announced earlier this
year it would cut output to just six a year starting in September,
but continued weak demand has also curtailed plans to raise its 747
output in 2019 back to one plane each month.
Rival Airbus Group SE, is also scaling back production plans for
its biggest jet, the A380, as airlines prefer bigger twin-engine
jetliners.
The charges related to Dreamliner program involve a pair of
aircraft it used to flight test its advanced 787 Dreamliner, which
entered service in 2011. The company had hoped to sell them to VIPs
such as the ultrarich or head of state operators, but it said on
Thursday that there were no buyers. That will lead to $1.33 per
share hit and will now count the $1.2 billion as sunk research and
development spending, Boeing said.
The long-range jet's development has already stretched three
years past due and cost tens of billions of dollars more than
anticipated to build. The company has amassed nearly $30 billion in
deferred costs building the Dreamliner, but the company says the
advanced jet is profitable under approved rules that allow it to
stretch those costs over 1,300 deliveries.
Write to Jon Ostrower at jon.ostrower@wsj.com
(END) Dow Jones Newswires
July 21, 2016 19:28 ET (23:28 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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