Boeing's 747-8 programme costs shoot up by $1 billion in June-September
06 Oct 2009
The Boeing Company expects a pre-tax charge against third-quarter results of approximately $1.0 billion due to increased production costs and the difficult market conditions affecting its 747-8 programme.
Boeing estimates that approximately $640 million of the charge reflects escalation in the estimated costs to produce 747-8 airplanes at both Boeing and supplier ends.
"As the programme assembled major components of initial 747-8 freighters during the third quarter, it became clear that late maturity of engineering designs has caused greater than expected re-work and disruption in manufacturing," Boeing said in a press release.
This, the company said, has resulted in additional resources being applied on the programme and increasing supplier expenses.
The remaining $360 million of the charge related to challenging market conditions and the company's decision to maintain the 747-8 production rate at 1.5 airplanes per month - nearly two years longer than previously planned and deferring an increase to 2 per month.
Boeing also said it had to incur huge cost escalations in allocation on fixed expenses and volume-based penalties to suppliers.
"Because the 747 programme is in a loss position, costs associated with the factors above will be immediately recorded in the third quarter for future 747-8 deliveries," it added.
The company now expects first flight of the 747-8 freighter to occur by early next year with the flight test programme taking place in 2010. First delivery of the 747-8 freighter is now expected in the fourth quarter of 2010. First delivery of the intercontinental passenger variant remains scheduled for the fourth quarter of 2011.
The third-quarter tax benefit related to the 747 charge and the previously announced 787 charge is expected to be approximately 31 per cent. The full-year tax benefit for both charges is expected to be approximately 37 per cent. Boeing will update its 2009 financial guidance on 21 October when it reports third-quarter results.