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.
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The aerospace giant said it would take a $536 million after-tax charge in Q2, or 77 cents per share, on higher estimated engineering and manufacturing costs on the KC-46 tanker it’s building for the Air Force. Additional funds were necessary to cover costs for certification, initial production and development of this aircraft to keep the $49 billion program of delivering 18 such tankers by August of 2017 on track.
The charge is the second in the past year related to the KC-46, following a $272 million after-taxes expense for cost overruns in July 2014.
Boeing has been rejecting the estimates of the US Air Force that it would cost at least $ 1 billion more to develop & test plane refueling but this situation has changed over the past year due to unexpected problems.
Shares in Dow member Boeing fell 1.4 percent to 146.38 in early trade on the New York Stock Exchange.
Loren Thompson, an analyst with the Virginia-based Lexington Institute, said Boeing had to take the charge because it bid a “zero-profit margin” in the development phase to win the fixed-price tanker contract.
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.
“We have a clear understanding of the work to be done, and believe strongly that the long-term financial value of the KC-46 programme will reward our additional investment”, he said in a statement.
Boeing has forecasted an $ 80 billion market as far as plane refueling is concerned.
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Boeing is also a key defense contractor and won the 2011 contract beating its Airbus which is its rival from Europe.
