Boeing to take $536 million charge for U.S. tanker issues

WASHINGTON (Reuters) - Boeing Co on Friday said it will take a $536 million after-tax charge in its second-quarter results to deal with deficiencies in the fuel system on the KC-46 aerial refueling tanker it is developing for the U.S. 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 1.4 percent in early trading on the New York Stock Exchange.

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.

Loren Thompson, an analyst with the Virginia-based Lexington Institute, said Boeing had to take the charge because it bid a "zero-profit margin" in the development phase 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.

Dennis Muilenburg, who took over as Boeing 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.

Boeing said the extra spending was needed to fix the tanker's integrated fuel system, which delivers fuel to the aircraft itself and is also used for refueling other aircraft in mid-air.

It said testing of non-fuel system components is 90 percent complete, and the company is making progress on its overall ground and flight test program.

Boeing has forecast a long-term $80 billion market for refueling planes. Earlier this month, Europe's Airbus beat Boeing to win a big South Korean tanker competition.

(Reporting by Andrea Shalal; Editing by Chizu Nomiyama and Bill Rigby)

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