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Jul 25, 2018

Boeing’s US$418M tanker writedown rattles investors

Boeing earnings hit by tanker troubles

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Boeing Co. reported a US$418 million blow from additional costs as it prepares to deliver the first of its delay-plagued aerial tankers to the U.S. Air Force, rattling investors accustomed to smooth sailing from the world’s largest planemaker.

The latest tanker writedown covers the cost of retrofitting eight aircraft in various stages of production with upgraded software and other enhancements that resulted from flight-testing, Boeing said in a statement Wednesday as it reported earnings. The company had already amassed US$3 billion in charges developing the aerial refueler based on its 767 jetliner.

The tanker stumble marred an otherwise strong quarter for Boeing, with profit and sales exceeding Wall Street’s estimates. The company’s strong cash generation has made it one of the top performing U.S. industrial stocks for more than a year, but the ascent has slowed in recent months as tariffs imposed by President Donald Trump have fueled trade tensions and threatened to dent Boeing’s order book.

“Trade and tariff risks have kept sentiment on BA stock recently in check,” Canaccord Genuity analyst Ken Herbert said in a report Tuesday, referring to Boeing by its stock ticker.

The shares fell 3.4 per cent to $346 ahead of regular trading in New York. Boeing advanced 21 per cent this year through Tuesday, the third-biggest gain on the Dow Jones Industrial Average.

Adjusted earnings rose to US$3.33 a share, exceeding the US$3.27 average of estimates compiled by Bloomberg. Revenue climbed 5 per cent to UA$24.3 billion. Analysts had predicted US$24 billion.

The Chicago-based company generated free cash flow of US$4.3 billion, topping estimates of US$2.1 billion, another sign its underlying business remains healthy.

Boeing expects to deliver the first of the KC-46 aircraft to the U.S. Air Force in October, more than two years behind schedule.

The manufacturer has finalized its design for the complex tankers, part of a potential US$44.3 billion program, after wrapping up flight-testing earlier this month. Boeing has wrestled with a handful of technical issues, including the plane’s 59-foot extended boom accidentally scraping the protective coating off military airplanes refueling in mid-air.