Boeing to Digest $1 Billion Charge

The Boeing Company (BA - Analyst Report) yesterday announced that it will record a $1 billion charge in the third quarter of fiscal 2009. The company attributed the charge from a delay in producing a new version of the 747-8 series freighter jet, leading to slow sales and late design changes. The aircraft competes with Airbus' A380 series aircraft.

The goliath of commercial aerospace, Boeing has witnessed falling orders for its commercial planes in the recent times on account of tepid demand for air travel and cargo services. Already, a slew of commercial airlines have cancelled or deferred their fleet additions. Boeing has cut costs, reduced workforce and scaled back production of some aircrafts to cope with the changing market dynamics.
 
The $1 billion charge includes $640 million for higher estimated production costs consisting of late engineering design changes. This is besides the $360 million stemming from Boeing's decision to hold average production of 1.5 airplanes per month rather than boost it to 2, a result of slow orders.

Boeing currently has 78 orders for the 747-8 freighter and 27 for the passenger version. The company expects the first flight of the 747-8 by early fiscal 2010. First deliveries of the 747-8 freighter are expected in the fourth quarter of 2010, while initial deliveries of the passenger version remain scheduled for the fourth quarter of 2011.

Headquartered in Chicago, Boeing is the world’s largest manufacturer of commercial jet liners and military aerospace products (based on total sales). The company competes with companies such as Northrop Grumman Corporation (NOC - Analyst Report), General Dynamics Corporation (GD - Analyst Report) and Force Protection Inc. (FRPT - Snapshot Report).

Boeing designs and produces commercial airplanes (787, 737, 747, 767, 777), defense systems and civil and defense space systems. It is also the largest NASA contractor. Non-airplane products include helicopters, electronic and defense systems, missiles, satellites, rocket engines, launch vehicles and advanced information and communication systems. We maintain our market Neutral recommendation on the shares.