Boeing Profit Takes Hit From Tanker, 747

Boeing took a surprise USD$156 million charge for its KC-46 aerial tanker, pushing first-quarter profit down 9 percent amid concern about meeting deadlines for the US Air Force.

Boeing also took a USD$70 million pretax charge for the 747, reflecting a weak air cargo market that has slowed sales of freighter versions of the jumbo jet.

Earnings fell to USD$1.22 billion, from $1.34 billion a year earlier.

But Boeing backed its full-year profit and revenue forecasts, saying it was confident other parts of its business could make up for the added expenses.

Some analysts had anticipated a tanker charge after the government said earlier this year that it was at risk of falling behind schedule. Boeing has already taken nearly USD$1.3 billion in charges.

"It’s the gift that keeps on giving," Citi analyst Jason Gursky said in a note to clients.

Other analysts said they would not rule out more tanker charges as Boeing races to deliver the initial 18 tankers by August 2017.

Analysts also had said Boeing could still write off some of the deferred costs incurred in building the 787 Dreamliner, which has been the subject of an accounting probe.

Boeing did not take a 787 charge, and said deferred costs rose USD$141 million to USD$28.65 billion in the latest quarter, a slower pace than in the past. It dismissed the idea of abandoning the accounting method that allows such large cost deferrals.

Some investors still think a large 787 write-off is ahead. Analysts said that fear, and slowing orders, are likely behind a rise in short sales of Boeing stock. Short interest reached 27.4 million shares in the latest tally, the highest level in at least a decade.

Boeing could avoid such a charge by extending the number of planes it uses to account for 787 costs. But that means it must sell more 787s at a time when low fuel prices have reduced demand for the fuel-efficient plane.

Boeing has blamed price competition from Airbus for rigorous cost cuts this year, including eliminating up to 8,000 jobs in its commercial plane unit.

But the runaway success of the Airbus A320neo family has put pressure on Boeing to cut prices of its competing 737 to avoid losing market share.

Job cuts are just one aspect of a company wide effort to improve Boeing's competitiveness and lift profit margins to "mid-teens" by the end of the decade, Boeing chief executive Dennis Muilenburg said.

In the latest quarter, Boeing's operating margin fell to 7.9 percent from 9.1 percent a year ago, weighed down by the tanker and 747 charges.

Airbus also is enjoying a currency advantage because of the strong dollar. Still, amid the dog fight on price, Boeing beat Airbus in sales and deliveries in the first quarter.

Boeing also is aggressively building its services businesses. It recently said it cancelled a license allowing supplier Spirit AeroSystems to make aftermarket parts.

"We are very serious about growing our services business," Muilenburg said.