McDonnell Takes a $15-Million Hit : Defense: A $269-million charge to cover the troubled C-17 cargo jet program results in a third-quarter setback.
McDonnell Douglas said Tuesday that it took a $269-million charge for expenses related to its troubled C-17 cargo jet program, resulting in a $15-million loss for the third quarter.
The $269-million charge covers the projected cost of redesigning and fixing the C-17’s wing, which failed earlier this month in a stress test. The charge also includes a reserve of about $135 million for future uncertainties and an undisclosed amount for continued cost overruns on the C-17 program.
A McDonnell spokesman said the firm still has not determined the “root cause” of the wing failure, but engineers have been able to roughly estimate the potential cost of fixing the broken wing, modifying existing planes and fixing aircraft still in production.
Although the charge exceeded analysts’ expectation, the specific cost of fixing the C-17 wing also suggested that the failure is not a catastrophic setback to the program.
For the quarter, the company’s loss amounted to 39 cents a share, contrasted with earnings of $77 million, or $2.02 a share, during the same period last year. Revenue dropped 11% to $3.96 billion.
Without the C-17 charge, the St. Louis-based aerospace company would have earned $152 million in the latest quarter. It posted sharply higher earnings in its space and missiles business and improved profit in its military aircraft segment.
McDonnell’s commercial aircraft segment had $52 million in operating earnings, down from $92 million last year. It cited higher research and development costs. It said deliveries of the MD-80 jetliner were down, but profit was up. The MD-11 jetliner program, profitable last year, posted an undisclosed loss.
Including the third quarter’s C-17 charge, McDonnell has now written off about $550 million and expects to write off another $50 million in “period charges.”
The firm is projecting that it will exceed its original contract to develop and produce the first six C-17s by about $1 billion, close to what Defense Department officials have been projecting for some time.
McDonnell said the third-quarter charge should cover all of its expected expenses in completing its contract to develop the C-17. The firm expects to receive $200 million in claims filed against the Pentagon. And the Air Force has added $200 million to the contract because of changes.
McDonnell stock closed Tuesday at $47 a share, down 37.5 cents. The company’s release of quarterly results came after the close of trading.
