Boeing's 747-8 costs lead to $1 billion charge

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NEW YORK (CNNMoney.com) -- Boeing expects to take a $1 billion pre-tax charge against its the third quarter results due to higher production costs and tough market conditions related to its 747-8 program, the company said in a statement released Tuesday.

The airplane maker said about $640 million of the charge reflects higher-than-expected production costs for the 747-8 cargo planes at both Boeing (BA, Fortune 500) and supplier facilities.

"The root of the problem is that the engineering designs were late," said Boeing spokesman Chaz Bickers. "When the final assembly was happening and the first airplane came together, we realized that there was more re-work that needed to be done than expected."

The remaining $360 million of the charge is in response to "challenging market conditions," said the Chicago-based company.

Instead of increasing its 747-8 manufacturing schedule to two planes per month, Boeing decided to continue making the airplanes at a rate of 1.5 planes per month for nearly two years longer than previously planned. That decision resulted in additional costs.

The company expects to delay testing and delivery of the 747-8 freighters by one quarter. Boeing now expects to test the cargo planes in early 2010 and deliver them in the fourth quarter of next year. The first delivery of the passenger version is still scheduled for the fourth quarter of 2011.