Boeing Overruns on Space Station Near $1 Billion

Boeing Co. will forfeit most of its potential profit from the International Space Station because of almost $1 billion in cost overruns, the National Aeronautics and Space Administration inspector general said.

The aerospace giant will receive about $75.4 million of the $203 million it could have earned for keeping within budget. The company has also received $106 million to date, or about 60%, of the bonus set aside for overall contract management, according to NASA figures.

NASA Administrator Daniel Goldin ordered a review of the space station contract last year after Boeing said its cost overruns on the projected $9.8-billion contract had risen $203 million to $986 million. Boeing’s acknowledgment came just weeks after Goldin had assured Congress the overruns had stopped. The audit rebuked the company for flawed reporting.

“Boeing reported to NASA management unrealistically low estimates of projected cost overruns,” NASA Inspector General Roberta Gross said in the report. “And presented the cost data to indicate that no additional cost overrun would occur.”

Boeing officials issued the unrealistic overrun estimate to motivate its managers to stay within costs, the review said.

The $986-million overrun is about 11% of the entire projected development contract, which runs through 2002.

The U.S. and 15 other countries are working on the space station, a roughly 200 meter laboratory that will house as many as seven scientists for research in zero gravity.

Space station work is performed at Boeing facilities in Canoga Park and Huntington Beach, as well as Houston and Huntsville, Ala.

Boeing’s Space and Communication unit, based in Huntington Beach, had operating profit of $415 million in 1999 on revenue of $6.8 billion. The unit manages the Delta family of rockets, Global Positioning System satellites, the Airborne Laser and National Missile Defense program.

Two compartments are orbiting the earth. A third, a long-delayed Russian module, is scheduled for launch in July. The first crew is to be launched later this year. The station will begin partially operating next year and operate through 2012.

The NASA review is the most complete assessment to date of Boeing’s performance in managing costs.

Boeing said its contract to develop and manage the space station has been modified so “a significant amount” of the remaining bonus is tied more closely to managing costs.

“We have cooperated with NASA and the inspector general’s office since the review began in April 1999,” said Keri Allen, a Boeing spokeswoman in Houston.

Boeing’s contract is 88% complete and the cost overruns appear to have stabilized, said Barry Waddell, NASA’s space station business manager.

Boeing could lose profit it has been paid if the space station hardware it has delivered or assembled doesn’t perform well in space, Waddell said.

Shares of Seattle-based Boeing closed up $2.88 to $38.88 on the New York Stock Exchange. Disclosure of the profit forfeiture came after the markets closed.