Boeing Plans $615 Million Hit For Scuttling 717, Tanker Costs

The Wall Street Journal 01/17/05
author: Andy Pasztor
(Copyright (c) 2005, Dow Jones & Company, Inc.)

Boeing Co. said it will take $615 million in fourth-quarter charges from discontinuing its 717 jetliner and from its scandal-plagued campaign to provide aerial-refueling tankers to the Defense Department.

The write-down of $275 million in research and development costs marks the final blow to Boeing's three-year battle to provide the tankers to the Air Force. But by writing off investment in research and development for the tanker program now, the move also could give Boeing a competitive advantage when the U.S. military reopens bidding on the project.

Boeing said the charges amount to 48 cents a share. Boeing is taking a charge of $340 million, or 27 cents a share, to gradually shut down production of its 717 jetliner, the smallest commercial aircraft in its product lineup. The 717 production line in Southern California is slated to shut down next year. The tanker charge amounts to 21 cents a share. Boeing said the step was prompted by "continued delay and now likely re-competition" of its proposed $23 billion tanker contract. The charge comes almost a year after the Chicago aerospace giant warned that it would have to take a significant charge unless Congress and the Pentagon managed to end the deadlock over tankers.

A charge taken now means Boeing might be in a better position later to undercut a bid from U.S. and foreign rivals, namely Europe's Airbus, Lockheed Martin Corp. and other contractors that have expressed interest in supplying the Air Force with a fleet of aerial tankers. By not having to include the cost of development work, Boeing could offer a lower price when the contract comes up again.