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Boeing to take US$536m charge for US tanker issues

[WASHINGTON] Boeing Co on Friday said it will take a $536 million after-tax charge in its second-quarter results to deal with problems that emerged during testing of the fuel system on the KC-46 aerial refueling tanker it is developing for the US Air Force.

The Chicago-based company said the charge, which amounts to 77 cents per share, reflected higher estimated costs to complete development, certification and initial production of the tanker aircraft, while keeping the program on track for initial deliveries in 2017.

Its shares fell 1 per cent in premarket trading.

Boeing said the charge would trigger a change in its 2015 earnings per share outlook due to be issued when it reports results on July 22, but gave no further details. It said its outlook for revenue and cash flow would remain unchanged.

Boeing said it was determined to keep the program on track for delivering the initial 18 tankers to the Air Force by August 2017 and building 179 tankers by 2027.

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Loren Thompson, an analyst with the Virginia-based Lexington Institute, said Boeing had to take the charge because it bid a "zero-profit margin" to win the fixed-price tanker contract. He said Boeing aimed to keep the program on track for a first flight of the new aircraft before the end of the year.

Boeing Chief Executive Dennis Muilenburg, who took over as chief executive on July 1, said the company remained optimistic about the longer-term outlook for the program, and expected it to turn a profit once the development phase is completed.

"We have a clear understanding of the work to be done, and believe strongly that the long-term financial value of the KC-46 program will reward our additional investment," he said in a statement.


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