Boeing Faces $317M Loss in Cost Reimbursement Denial

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PARIS — Boeing Co. would face pretax losses of up to $317 million if it is not successful, with its 50 percent-owned United Launch Alliance (ULA) affiliate, in overturning a U.S. Defense Department ruling that denied reimbursement for rocket-related costs, Boeing said April 25.

Denver-based ULA, in which Lockheed Martin and Boeing have 50 percent shares, has until June to file suit against the Defense Department in the Court of Federal Claims, Chicago-based Boeing said in a filing with the Securities and Exchange Commission (SEC).

In an April 26 response to Space News inquiries, United Launch Alliance said: “ULA continues to work with contracting officials to achieve an acceptable resolution to its valid claims for deferred production and deferred supports costs and is prepared to pursue all appropriate avenues to that end.”

The dispute dates from June 2011, when the Defense Contract Management Agency (DCMA) informed Boeing and ULA that some $271 million in deferred support costs were ineligible for reimbursement.

In November, ULA filed a certified claim with the Air Force for collection. The following month, DCMA delivered a separate notification that an additional $114 million in deferred production costs were also ineligible for reimbursement under government contract regulations.

Boeing said DCMA has not yet made a final decision on this second sum.

In a separate protest with their U.S. government customer, Boeing and ULA have taken issue with the Air Force refusal to renegotiate launch prices for three Delta rocket missions. Industry officials have said that, for reasons that were not clear, ULA committed to prices for launches whose satellites were not thoroughly defined.

By the time the Air Force exercised the previously signed launch options, the satellites had grown in size, forcing ULA to prepare higher-priced versions of the Delta rocket.

The Armed Services Board of Contract Appeals has scheduled a hearing on the issue for May 6, 2013, according to Boeing.

In its SEC filing and an April 25 financial statement, Boeing said its Network and Space Systems division, which includes most of Boeing’s civil, commercial and military space work, reported a 23 percent drop in revenue for the three months ending March 31, to $1.8 billion.

The division’s operating earnings were down 48 percent, to $73 million, compared with the same period a year ago, with an operating profit margin of 4.1 percent.

Boeing said the timing of expected revenue from ULA, plus lower sales for the Army’s Brigade Combat Team Modernization program — a program the Army partially terminated in 2011 — accounted for part of the drop.

Boeing said that as of March 31, ULA had consumed $1.2 billion in Boeing-provided inventory since the joint venture was formed in late 2006. It remains unclear whether ULA will be able to sell the remaining Delta 2 rockets in its inventory. NASA, however, took a first step toward ordering one of the unsold Delta 2s for upcoming missions when it added the rocket to its NASA Launch Services-2 contract last September.

If ULA cannot unload its Delta 2 inventory, Boeing may be forced to reduce its earnings by $49 million.

Boeing reported $194 million in equity earnings from ULA in 2011.

 

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