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Shares of Boeing Drop as it Warns of More Than $2 Billion in Charges

Shares of Boeing Drop as it Warns of More Than $2 Billion in Charges
More than $2 billion in charges related to the 787, 747 and KC-46 tanker aircraft programs would be included in Boeing Co's second-quarter results. This was announced by the aerospace and defense company said on Thursday.
After the company gave notice of its largest write-offs in years which is to be detailed in quarterly results on Wednesday, the share price of Boeing fell 1 percent after hours to $132.26.
High-profile problems such as a hangover of nearly $30 billion in deferred costs from producing the 787 Dreamliner and dwindling demand for very large planes like the 747 would be addressed by the combined charges of $2.05 billion.
Analysts expect that earnings of the company would be hit by Boeing's well-known problems with KC-46 tankers for the U.S. Air Force and this is also reflected in the announcement by the firm.
Boeing said in the statement that it will update its earnings per share outlook while reaffirming its forecast for full-year revenue and cash.
"These are the right, proactive decisions to strengthen our business going forward," Chief Executive Dennis Muilenburg said in a statement.
Two test planes made in 2009 that remain unsold is the sources of the 787 charge of $847 million after tax, or $1.33 a share. Boeing said that reduction of the deferred cost balance would be helped by the process of reclassifying the costs and shifting from 787 inventory to research and development expense.
A "reach forward loss" that would have reflected a change in assumptions about future earnings from the high-tech aircraft  was not reflected by the charge, Boeing said.
Carter Copeland, an analyst at Barclays in New York said that the amount was in line with prior charges for 787s. However he said that it was not expected and left a large deferred balance. "It's a small number in the grand scheme of things," he said.
Anticipated weak demand for air cargo shipments is reflected by the 747 charge of $814 million after tax, or $1.28 a share. Citing the weak market, Boeing cut production of its 747-8 aircraft to six per year a year ago. Allowing it to lift output to 12 a year, Boeing expected the market to improve by 2019, the company had said at that point in time.

However it is now clear that fewer 747-8 freighter aircraft are likely to be produced in the future as the company has said that those assumptions now appear unlikely to materialize.
Also due to weak demand for large aircraft, cuts in production of  its biggest plane, the A380,  was announced by  rival Airbus last week.
The delays in deliveries and hardware issues that the company had already announced is covered by the KC-46 tanker charge of $393 million after tax, or 62 cents a share. The costs that are related to the potential compensation the U.S. Air Force is seeking for the schedule delay and initial operational deficiencies of the aircraft is not included in the charge, Boeing said.
The issues arose from de-emphasis of engineering at Boeing, said Richard Aboulafia, an aerospace analyst at the Teal Group in Virginia.
Still "they are starting to deal with the problems that have been in the works for some time now," he said.

Christopher J. Mitchell

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