Boeing Co. said Thursday it will spend as much as $1.12 billion in second-quarter charges to settle a three-year-old Justice Department investigation into its defense contracting and for newly disclosed delays to an international airborne surveillance system.
The nation’s No. 2 military contractor had previously announced the tentative legal settlement for $615 million with the government, relating to the hiring of former Air Force official Darleen Druyun and the alleged use of secret documents obtained from rival Lockheed Martin Corp. to win contracts.
But the delays of up to 18 months in its Airborne Early Warning & Control program emerged publicly only a day earlier, when Australian Defense Minister Brendan Nelson voiced his disappointment about them and harshly criticized Boeing, the lead contractor on the project.
“I think Boeing has let the Australian government down, and I think they’ve let themselves down,” Nelson said at a Pentagon briefing Wednesday. He added that he intends “to make damn sure that Boeing delivers on the project.”
Boeing said it expects to take a pretax charge of between $300 million and $500 million related to the program, in which its 737-700 planes are outfitted with advanced radar systems. The program is known as Wedgetail in Australia and Peace Eagle in Turkey, another affected customer.
The delay was caused by development and integration issues with both hardware and software components, the company said.
“From the outset, as many of you know, this has been a very difficult technology program with an aggressive schedule,” CEO Jim McNerney told analysts on a conference call. “We ran into integration problems early on, addressed many of them, but have encountered some additional technical and schedule challenges.”
He said he regretted impact the program delays are having on Australia and Turkey. The company, he said, is “fully committed to taking the right steps to fulfill our promise to deliver systems that meet their operational requirements.”
Analyst Paul Nisbet of JSA Research doesn’t see any broader problems for Boeing beyond the new surveillance project but said it will cost the company “a whole lot of extra work” as well as the cash.
“It’s not disastrous by any means, but obviously it would have been nice to have that extra billion,” he said of the planned charges.
Nelson said the new planes are expected to provide state-of-the-art air and maritime surveillance for Australia’s military. Its contract with Boeing is worth more than $2.5 billion.
The first two of six aircraft were initially scheduled for delivery in November, but the date was pushed to early next year and could be delayed until 2008.
Boeing is scheduled to report quarterly results on July 26. Analysts had expected the company to earn 80 cents per share on $15.07 billion in revenue, according to a poll by Thomson Financial taken before the announcement of charges. The charges now may send it to a second-quarter loss.