Boeing to Record Charges From Jet Programs -- Update

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 [e-mail]

(END) Dow Jones Newswires

July 21, 2016 19:28 ET (23:28 GMT)

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