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 The Chicago-based company said the charge, which amounts to 77 cents
per share, would result in lower earnings for the full year. It said
added funds were needed to cover higher costs for development,
certification and initial production of the tanker aircraft, while
keeping the $49 billion, 179-aircraft program on track for initial
deliveries of 18 tankers by August 2017.
This is the second charge Boeing has taken on the KC-46 tanker, one
of its biggest defense development efforts, bringing the total
after-tax charges to just over $800 million, with the pre-tax bill
reaching nearly $1.3 billion.
The world's biggest commercial planemaker, which is also a major
defense contractor, beat European rival Airbus <AIR.PA> to win the
contract in 2011, capping a nearly decade-long saga that saw two
senior former Boeing executives serve prison terms for violating
federal ethics rules.
Boeing had long rejected U.S. Air Force estimates that it would cost
the company over $1 billion more than expected to develop and test
the refueling planes, but unexpected problems over the past year
changed the situation, analysts said.
Brigadier General Duke Richardson, who runs the program for the Air
Force, said he remained optimistic that Boeing would meet its
delivery targets and that the first fully integrated KC-46 tanker
would fly in September, as planned.
"While we have more heavy lifting coming up, we believe it is
achievable and do not see any technical showstoppers," he said in a
statement.
Boeing must absorb the additional costs of development of the
program since U.S. government costs are capped at $4.9 billion under
a fixed-price contract.
The company's shares were down 1.1 percent at $146.89 in afternoon
trading on the New York Stock Exchange.
Boeing said it would adjust its earnings per share outlook when it
reports results on July 22, but said its outlook for revenue and
cash flow would remain unchanged.
The tanker investment will have a cash impact this year, but Boeing
"will make up for it in other ways" to maintain its full-year cash
outlook, said company spokesman Bernard Choi.
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Ken Herbert, an analyst at Canaccord Genuity Inc, who rates Boeing a
buy with a $165 price target, said the charge was not a surprise,
and investors were relieved that Boeing did not announce any further
charges or problems with its 787 commercial airliner program. Losses
on the 787 continue to rise, though the pace is slowing as Boeing
improves the production system.
Loren Thompson, an analyst with the Virginia-based Lexington
Institute, said Boeing knowingly underestimated its KC-46
development costs to prevent Airbus from winning the deal, but the
losses were larger than the company initially expected.
Dennis Muilenburg, Boeing's former defense chief who took over as
chief executive on July 1, said the longer-term outlook for the
program remained upbeat, and it should turn a profit once the
development phase is completed.
Boeing said the extra spending was needed to fix the tanker's
integrated fuel system, which delivers fuel to the aircraft itself
and is also used for refueling other aircraft in mid-air after
problems emerged during testing.
It said testing of non-fuel system components is 90 percent
complete, and it is making progress on its overall ground and flight
test program.
Boeing has forecast a long-term $80 billion market for refueling
planes. Airbus beat Boeing to win a big South Korean tanker
competition earlier this month.
(Additional reporting by Alwyn Scott; Editing by Bill Rigby and Tom
Brown)
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