Boeing to take big US tanker charge, says it will hurt bottomline

WASHINGTON (Reuters) – Boeing Co. said it will take a $536 million aftertax charge in its second-quarter results to deal with problems in the fuel system on the KC-46A aerial refueling tanker it is developing for the US Air Force.

The Chicago-based company said the charge, which amounts to 77 cents per share, would result in lower earnings for the full year. It said added funds were needed to cover higher costs for development, certification and initial production of the tanker aircraft, while keeping the $49 billion, 179-aircraft program on track for initial deliveries of 18 tankers by August, 2017.

This is the second charge Boeing has taken on the KC-46 tanker, one of its biggest defense development efforts, bringing the total after-tax charges to just over $800 million, with the pre-tax bill reaching nearly $1.3 billion.

The world's biggest commercial planemaker, which is also a major defense contractor, beat European rival Airbus to win the contract in 2011, capping a nearly decade-long saga that saw two senior former Boeing executives serve prison terms for violating federal ethics rules.

Boeing had long rejected US Air Force estimates that it would cost the company over $1 billion more than expected to develop and test the refueling planes, but unexpected problems over the past year changed the situation, analysts said.

Brigadier General Duke Richardson, who runs the program for the Air Force, said he remained optimistic that Boeing would meet its delivery targets and that the first fully integrated KC-46 tanker would fly in September, as planned.

"While we have more heavy lifting coming up, we believe it is achievable and do not see any technical showstoppers," he said in a statement.

Boeing must absorb the additional costs of development of the program since US government costs are capped at $4.9 billion under a fixed-price contract.

The company's shares were down 1.1 percent at $146.89 in afternoon trading on the New York Stock Exchange.

Boeing said it would adjust its earnings per share outlook when it reports results on July 22, but said its outlook for revenue and cash flow would remain unchanged.