Boeing,estimating higher costs for a U.S. Air Force tanker program, will end production of the 717 airliner.
Boeing plans to recognize pre-tax charges totaling approximately $615 million, or $0.48 per share, related to the U.S. Air Force 767 Tanker program and expenses incurred to end production of the 717. The charges will be incorporated in the company’s fourth-quarter and full-year 2004 results, scheduled to be released on Feb. 2, 2005.
The charge related to the initial production of aerial refueling tankers for the U.S. Air Force is approximately $275 million pre-tax, or $0.21 per share, including expected supplier obligations. The charge, which is a result of the Company’s regular quarter- and year-end reviews, reflects Boeing’s updated assessment of securing the specific USAF 767 Tanker contract that was being negotiated, given the continued delay and now likely re-competition of the contract.
Boeing remains firmly committed to the USAF 767 Tanker program and is ready to support its customer in whatever decision is made regarding the recapitalization of the nation’s current aerial refueling fleet. Boeing used its own money and received no government funding in development of the USAF 767 Tanker.
The impact of this decision on the 767 commercial airplane program’s gross margin is expected to be offset by favorable performance. No decision has been made on the potential phase out of the 767 line.
“The 717 brings tremendous value to the airlines that operate it. Unfortunately, the overall market for the airplane does not support continuing 717 production beyond delivering on our current commitments,” said Boeing Commercial Airplanes President and Chief Executive Officer Alan Mulally. “We extend our appreciation and gratitude to all our employees, customers and partners who worked so well together on the 717. The moving production line pioneered on this airplane will be a lasting legacy across our current and future airplane programs.”
Another charge of approximately $340 million pre-tax, or $0.27 per share, is attributable to a decision to conclude production of the 717 commercial airplane in 2006 and includes expected supplier termination charges. Most of the cash expenditures related to the charge and an additional $45 million of period expenses associated with the shutdown are expected to occur in 2005 through 2007.
“As with all Boeing airplanes, we will continue to provide exceptional customer support for 717s in service for many years to come. And Boeing will continue to compete aggressively with our popular 737 Next Generation family of airplanes, which serves the 100- to 215-seat market,” said Mulally.
The Company plans to discuss its financial outlook in more detail when it releases fourth-quarter and year-end 2004 results on Feb. 2.
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