Boeing Will Take $1 Billion in Charges on Delay Costs, Investigation Settlements

Boeing Co. (BA) said on Thursday it will take up to $1.1 billion in charges to cover the costs of delayed surveillance aircraft for Australia and Turkey and the previously announced settlement of two U.S. government investigations into its defense unit.

The charges will likely wipe out Boeing's second-quarter profit, which Wall Street had forecast at $967 million, before interest and tax. Boeing shares fell 75 cents, or 0.9 percent, to $81.90 on the New York Stock Exchange.

The planemaker, which is the Pentagon's No. 2 defense supplier, had already made public the terms of its government settlement, which has yet to be finalized, but the charge on the surveillance program was more of a surprise to investors.

"A charge of this sort is rare," said Paul Nisbet at aerospace specialists JSA Research, pointing out that overseas contracts work on a fixed-price basis, meaning Boeing must meet the costs of any overruns itself.

Problems with Australia's Wedgetail program, as it is known, came to light when Australian Defense Minister Brendan Nelson blasted Boeing on Wednesday for "significant delays" on the $3.5 billion contract to supply six of the early warning aircraft.

Boeing said it will now deliver the planes by the end of 2008, because of an 18-month delay in integrating radar and sensor computer systems. Defense contractor Northrop Grumman Corp. (NOC) is building the radar system for the planes.

The schedule for delivery of four of the planes to Turkey, where the program is known as Peace Eagle, has yet to be worked out, Boeing said.

The company said it would take $300 million to $500 million of pretax charges for delays to the two airborne surveillance programs overall, disclosing the exact amount when it issues its second-quarter financial results on July 26.

The Chicago-based company also said it would take a $615 million charge for the tentative agreement struck with the U.S. government in May, which settled two high-profile criminal investigations into Boeing's hiring of a former top Air Force weapons buyer, and its appropriation of thousands of Lockheed Martin Corp. (LMT) rocket program documents.