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Boeing To Take $320 Million Charge On Connexion By Boeing

By | August 21, 2006

      By Dave Ahearn

      In yet another move to clear away old financial deadwood and gain a fresh start, The Boeing Co. [BA] will take an expected $320 million charge to rid itself of the poorly performing Connexion by Boeing high-speed broadband communications service, the company announced.

      This is yet another step by Jim McNerney, the Boeing chairman, president and CEO who took office a year ago, seeking to resolve long-standing problems and clear the decks for better times in the second-largest defense contractor.

      McNerney also bit the bullet recently on long-standing legal issues with the Justice Department, with Boeing agreeing to pay more than $600 million to resolve issues over possession of bid-sensitive documents of competitor Lockheed Martin Corp. [LMT], a controversy over hiring of an Air Force procurement policymaker, and other issues.

      As well, Boeing said it wouldn’t take a tax break on that payment, a move that drew high praise from top-ranked lawmakers who once had criticized the company.

      While Boeing in recent years has been hit with such controversies, since McNerney took over last summer, the company has been scandal-free, and turning in decent financial results, not counting the charges.

      What McNerney aims to do is to get long-standing issues behind Boeing, so that it faces a bright future.

      Toward that end, the company announced that with Connexion gone, the firm will reap an expected earnings benefit of approximately 15 cents per share, beginning next year, thanks to an end of pouring money into Connexion.

      The decision to drop Connexion came after “a detailed business and market analysis,” according to the company.

      Boeing announced it will work with its customers to facilitate an orderly phase out of the Connexion by Boeing service.

      “Over the last six years, we have invested substantial time, resources and technology in Connexion by Boeing,” McNerney said.

      “Regrettably, the market for this service has not materialized as had been expected. We believe this decision best balances the long-term interests of all parties with a stake in Connexion by Boeing.”

      That $320 million charge will translate to a 26 cents reduction per share in profits for the second half of this year. That will be divided, with approximately $290 million of the charge falling in the third quarter and the balance in the fourth quarter.

      Boeing will update its financial guidance when it releases third quarter results on Oct. 25.

      The Connexion charge relates to writing down certain assets, payments of early termination fees and other costs related to shutting down the service. Boeing expects the majority of Connexion employees will find other jobs within the company.

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