Boeing takes up to $500m charge for 18 month delay in 737 Wedgetail early warning programmes

Washington DC
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By Graham Warwick in Washington, DC

Boeing will take up to $1 billion in charges to cover delays in two 737-based airborne early warning and control (AEW&C) programmes and to settle a deal with US federal investigators over the handling of a rival's proprietary information.

The delays mean that the six aircraft for Australia's Wedgetail programme will now be delivered by the end of 2008, 18 months later than planned. A revised schedule for deliver of Turkey's four Peace Eagle aircraft is still being negotiated. The company will take a charge of $300-500 million to cover the delay. A charge is a reduction in pre-tax earnings.

Additionally, the company revealed a $615 million charge it will take for the Darleen Druyun affair, centring on the handling of proprietary information on rival Lockheed Martin's rocket-launching business. The two charges could result in a potential $1.1 billion loss, enough to cancel out second quarter profits. 

Boweing Integrated Defense Systems president and chief executive Jim Albaugh says the delay was forced after recent flight tests of the radar-equipped 737 revealed the planned schedule for development and testing of the AEW&C platform was "flawed". The issues involve hardware and software integration, particulary with the radar and communications suite.

"This is an advanced and complex programme - a new radar, a new platform and a commercial venture. There are technical challenges at the subsystem level and integration level," Albaugh says. "Hardware and software and integration has not progressed as quickly as we expected." Boeing took a $100 million charge in 2002 to cover development cost overruns on the AEW&C radar, mainly associated with the Northrop Grumman Mesa electronically scanned radar.

The final charge will be knowen when Boeing posts its second-quarter results later this month. The charge does include damages to be paid to the customers, says Boeing chief financial officer James Bell.

Albuagh does not expect the delay to disqualify Boeing from the E-X competition now under way in South Korea, where the 737 AEW&C is being offered against an Israel platform based on the Gulfstream G550. "We have not been able to demonstrate a fully compliant system, but it is not a paper aircraft, which is what we are competing against," he says.

The airborne mission system is now being installed in Wedgetail aircraft number 1 for flight testing to gain US Federal Aviation Adminsitration certification of the modifications in the fourth quarter. Aircraft number 2 is continuing flight tests of the Mesa radar. It was analysis of data from flight tests in late May that led Boeing to realise it needed more time to complete development of the 737 AEW&C.