Boeing sees $1 Billion 3rd-quarter charge
Airplane production woes continue to bedevil Boeing Co., which on Tuesday announced another delay to the 747-8 program as well as a $1-billion pretax charge against third-quarter earnings.
This is the third earnings hit that Chicago-based Boeing has absorbed in less than a year because of the revamped jumbo jet, which is running over budget and about one year behind schedule.
The jet’s freighter version will take its first flight early next year rather than late this year, as Boeing had said earlier, and be delivered during the fourth quarter of 2010 rather than midyear. Boeing also postponed plans to accelerate the jumbo’s production by about two years to late 2013.
The 747’s rocky makeover has been overshadowed by nagging supply-chain and design problems that have delayed the better-selling 787 Dreamliner more than two years.
The costs of the continued delays are adding up. Boeing plans to take a $3.5-billion combined charge for the two troubled airplane programs during the third quarter, the largest such accounting hit in its history, a spokesman confirmed.
But the greater damage may be to Boeing’s credibility as a top-notch manufacturer able to meet deadlines. “At this point, so much of Boeing Commercial is a show-me story,” said Richard Aboulafia, aerospace analyst with Teal Group, a Virginia-based consulting and research firm. “Hopefully for them, despite the financial overhang, their product strategy will pay dividends.”
Boeing had viewed updating its decades-old 747 as a relatively inexpensive way to steal sales from rival Airbus’ A380 super-jumbo jet, a double-decker aircraft designed to seat more than 500 people.
The venerable 747, known for its bubble-shaped fuselage, was stretched and given some of the 787’s design innovations, such as its upswept wings and powerful engines. But continued cost overruns have undermined that strategy. Boeing has announced a total of $2.03 billion in charges related to the 747-8 to date. The company revealed Tuesday that the program was in a “loss position,” meaning that Boeing doesn’t expect to earn a profit on virtually any of the 105 planes on its order books.
Boeing has struggled to gain orders for the jet, unveiled in 2005, as the global aerospace market cooled and the air freight market collapsed. The vast majority of the jumbo’s sales have come from cargo companies; Boeing hasn’t landed an airline order for the passenger version of the jet since Lufthansa AG ordered 20 in December 2006.
Boeing said as it assembled major components of the first 747 freighters in the third quarter, “it became clear that late maturity of engineering designs has caused greater-than-expected rework and disruption in manufacturing.” As a result, Boeing has had to pour additional resources into the program, driving up costs for the airplane manufacturer and its suppliers. About $640 million of the latest 747 charge reflects the higher estimated cost to produce the airplane, Boeing said. The remaining $360 million relates to “challenging market conditions.”
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