C-17 Charge Drags McDonnell Profit Down 10%

After long insisting that its C-17 cargo jet program would not lose money, McDonnell Douglas Wednesday posted an $80-million pretax charge against the program in its first quarter, ended March 31. But the company’s commercial aircraft business posted a healthy gain.

The St. Louis-based firm had net earnings of $52 million, or $1.34 a share, down from $58 million, or $1.50 a share, in the period last year. At $4.14 billion, sales fell 2% from $4.24 billion last year.

Securities analysts interpreted the C-17 write-off as a new commitment by McDonnell to acknowledge and fix problems, rather than put them off. For the first time, McDonnell changed its accounting practices to report the C-17 program in its military aircraft sector.

So far, McDonnell has reported losses of $100 million in overhead charges on the C-17, along with the $80-million write-off taken Monday. The Air Force has projected that the firm could exceed its contract ceiling by $850 million, but the firm disputes that estimate.

McDonnell said the C-17 charge was taken to cover increased costs of research, development and production of the first six planes. That portion of the program is more than 90% complete, spokesman Andrew Wilson said.

The company’s other major aircraft programs, including the F-15 jet fighter and the Harrier jump-jet, were profitable.

McDonnell lost three firm orders for its MD-80/90 and gained one order for the MD-11. The firm failed to win orders for its new MD-12 jetliner, which is believed to be holding up the firm’s equity deal with Taiwan Aerospace.