Quality Magazine

Boeing to Recognize Third-Quarter Charge for the 747 Program

October 6, 2009

CHICAGO-The Boeing Co. 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 program.

Approximately $640 million of the charge reflects higher estimated costs to produce 747-8 airplanes at both Boeing and supplier facilities. As the program 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. This is resulting in additional resources being applied on the program and higher supplier expenses, which are the primary cost drivers.

The remaining $360 million of the charge relates to challenging market conditions and the company's decision to maintain the 747-8 production rate at one and a half airplanes per month-nearly two years longer than previously planned, deferring an increase to two per month. Higher allocation of fixed expenses and volume-based penalties to suppliers are the main drivers of the additional costs.

Because the 747 program is in a loss position, costs associated with the factors above will be immediately recorded in the third quarter for future 747-8 deliveries.

The company now expects first flight of the 747-8 Freighter to occur by early next year with the flight test program 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%. The full-year tax benefit for both charges is expected to be approximately 37%. Boeing will update its 2009 financial guidance on October 21, 2009, when it reports third-quarter results.