Boeing expects $1 billion charge

updated 1:20 p.m. ET Oct. 6, 2009

CHICAGO - Boeing said Tuesday it expects to record a charge of $1 billion in the third quarter due to higher costs in its 747-8 program and difficult market conditions.

About $640 million of the charge reflects higher estimated costs to produce 747-8 airplanes at Boeing and its suppliers, Boeing said. Higher fixed expenses and penalties to suppliers are the main drivers of the additional costs, Boeing said.

The company said that as major components were assembled for initial 747-8 Freighters in the third quarter, it became clear that later-than-expected engineering designs "caused greater than expected rework 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," Boeing said.

The company said the remaining $360 million of the charge relates to "challenging market conditions" and its decision to maintain the 747-8 production rate at 1.5 airplanes per month nearly two years longer than previously planned. The company is delaying an increase in 747-8 production to two per month.

Boeing also said it expects the first flight of the 747-8 Freighter by early next year. First delivery of the 747-8 Freighter is expected in the fourth quarter of 2010.

Last year, the company said it was delaying deliveries of the 747-8 freighter and passenger jets due to design changes, limited engineering resources and a strike that shut down the company's commercial jet factories for eight weeks.

The third-quarter charge is the latest problem for Boeing.

The company has struggled with the development of its new 787, a mid-size aircraft built for fuel efficiency with lightweight carbon composite parts, and repeatedly delayed the plane's schedule due to production problems.

Boeing originally scheduled the 787's first test flight for the fall of 2007. The first delivery to Japan's All Nippon Airways Co. is more than two years behind schedule.

In August, Boeing said the 787 will be ready for its first test flight by the end of this year and its initial delivery in the last three months of 2010. It said it will book a charge of $2.5 billion in the third quarter for the first three test planes, which have no commercial value.

Boeing is grappling with dwindling orders during the global recession, which has undercut demand for air travel and cargo services. Some airlines have been forced to cancel or delay plans to buy new planes.

Boeing has cut costs, including plans to slash 10,000 jobs and scale back production of some planes.

Boeing said it will update its 2009 financial guidance on Oct. 21 when it reports third-quarter results.

Shares fell 38 cents, to $51.90 in morning trading.

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