Boeing Will Take $1.4-Billion Charge for 4th Quarter
Putting a price tag on its decision to stop production of MD-80 and MD-90 jetliners, Boeing Co. said Wednesday that it will take a $1.4-billion pretax charge in the fourth quarter. That will force the company to post a quarterly loss of $1.40 per share and a loss for the entire fiscal year.
The Seattle-based aerospace giant said in November that it will stop producing the two Long Beach-made planes in mid-1999, when current orders are filled. Analysts had expected Boeing to take a charge as a result of that decision, although few expected it to top $1 billion.
Boeing inherited the MD-80 and MD-90 product lines from McDonnell Douglas, which it acquired last year in a $16.3-billion deal.
Boeing would not detail what it included in the $1.4-billion figure, but company spokesman Larry McCracken said it generally encompassed such items as spare parts, costs associated with shutting down the MD-80 and MD-90 production lines and cancellations of long-term orders. The shutdown is also affecting overhead on the rest of Douglas’ aircraft programs, a cost that is being absorbed in the write-off.
In addition, the charge includes losses on MD-80 and MD-90 leases, because residual values of aircraft held by airlines may be lower than originally guaranteed. Under such leases, Boeing must make up the difference between the guaranteed residual values at the end of the leases and the actual values, which are likely to be hurt by cancellation of the program.
The charge will not affect ongoing operations at the Douglas Products Division--as the Long Beach facility is now known--and does not have negative implications for the plant, McCracken said.
Although the write-off is larger than expected, its financial impact is “rather immaterial” because it reflects a reduced value of physical assets instead of cash costs, said Peter Jacobs, an aerospace analyst with Ragen MacKenzie in Seattle. “This is just accounting, and it’s behind them now,” he said.
Instead, analysts focused on Boeing’s statement that absent the charge--worth $910 million after taxes--the company’s earnings will be in line with Wall Street’s expectations. Boeing shares rose 50 cents to close at $44 on the New York Stock Exchange.
“A lot of people are hoping that this will be the end of the bad news and will close this chapter in the company’s history and move forward to the kind of performance that people expect from Boeing,” said Ken Herbert, research director for Frost & Sullivan in Mountain View, Calif.
However, the charge did not involve any adjustments to the value carried on Boeing’s books of the outdated Douglas plant, McCracken said. Jacobs said Boeing could take another charge in the first or second quarter of this year relating to its facilities for commercial aircraft production and for its space and defense business.
“This is probably not the end of the write-downs, but that’s something Boeing is looking at now,” he said.
