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Boeing taking $350M charge
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April 9, 1998: 11:26 a.m. ET
Aircraft maker warns 737 program woes, price pressures to cut 1Q profit
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NEW YORK (CNNfn) - Adding details to its earlier warnings, Boeing Co. said Thursday it will take a pre-tax charge of $350 million in the first quarter as the aircraft maker struggles to keep up with production goals for its 737 program and compete with its big rival.
The Seattle-based aerospace company, beset by production lags last fall due to parts and labor troubles, already had said it will take a charge of $700 million to cover losses on the first 400 planes produced in the next-generation 737 program.
Excluding that loss, Boeing said it expects to report a pre-tax profit of $400-$450 million when it reports first-quarter results April 22.
New costs to retrofit 737s after certification and flight test activity and an effort to remedy the parts and labor dilemmas mean Boeing will put more resources and overtime into the 737 program as its production rate increases, the company said.
"The management and operational complexities, on an industrywide basis, of the rapid production rate buildup that resulted in abnormally high parts shortages and out-of-sequence work in the second half of 1997 cannot be reversed quickly," said Boeing's Chairman and Chief Executive Officer Phil Condit.
"We are making progress and focusing our energies to get back to full production health in 1998 on all of our commercial programs,'' he said. Last October, Boeing said it would take $2.6 billion in charges against earnings in 1998.
The troubles have struck Boeing at a time when it has seen orders soar, partly because it and its big European rival Airbus Industrie are essentially the only two suppliers the big commercial airlines have.
"Our order book remains strong," Condit said. "We have announced orders for more than 850 next-generation 737 aircraft, with 15 delivered through the end of March 1998.
"In total, we have unfilled announced orders for more than 1,750 commercial aircraft," he said, stressing that the company has "solid opportunities in the next several years.''
But on the down side, Boeing said price pressures in its heated battle with Airbus will also hurt top-line growth, and the company has lowered its sales targets as a result.
"Changes in the projected mix of the models offered, coupled with a lower price-escalation trend reduced revenue estimates for the first 400 units [of the next-generation 737s]," Boeing said.
Airbus is feeling the squeeze as well.
In its annual report, released Wednesday. Daimler-Benz AG, the German partner in the Airbus consortium, said the European aircraft maker reported a 61 percent decline in profit in 1997 compared with the prior year. Because Airbus is a partnership, it isn't required to disclose those results itself.
After slumping in pre-open trading, Boeing shares (BA), which are included in the Dow Jones industrial average, were unchanged at 55-1/4.
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