Talk about optimism. A $23.5 billion Air Force contract with Boeing for tanker aircraft was thrown out by Congress last fall. Then the Pentagon decided to hold a new round of...
Talk about optimism.
A $23.5 billion Air Force contract with Boeing for tanker aircraft was thrown out by Congress last fall.
Then the Pentagon decided to hold a new round of bidding that will include Boeing’s chief rival in Europe.
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Now the Pentagon says the bidding might not even take place in 2005.
Yet Boeing’s accountants haven’t yet changed their opinion that the jet maker will land the Air Force’s contract to rebuild its aging tanker fleet.
If they had, Boeing already would have written off almost $300 million in deferred expenses that it incurred to transform a Boeing 767 commercial airliner into a high-tech, flying fuel tank.
Boeing could have expensed the tanker costs as they occurred over a two-year period. That would have been the conservative thing to do, accounting experts say. Instead, it chose to defer those expenses until it could match them with revenue from the contract.
Boeing says its decision to defer the tanker expenses is completely above board and in keeping with accounting guidelines for contracts. The company has footnoted the potential charge so investors can factor it in if they choose.
But Haresh Sapra, an associate professor of accounting at the University of Chicago Graduate School of Business, says Boeing is using “very, very aggressive accounting” by not taking the write-off when it has no contract in hand.
“This contract is up for grabs right now. Right now there is no contract so they cannot show it as an asset on their balance sheet,” he said. “They should be passing [the tanker expenses] through their income statement, affecting their bottom line directly dollar-for-dollar.”
A nearly $300 million write-off could trim almost 15 percent off Boeing’s estimated 2004 earnings of about $2 billion. In 2003, a particularly tough year for Boeing, the deferred expenses would have been more than 40 percent of net income.
Sources at Boeing say the company is holding off on a final decision until it is formally briefed on a study of tanker alternatives commissioned by the Air Force. But no briefing is currently scheduled, a Boeing spokesman said Tuesday. At the earliest, the briefing might take place next month.
Boeing is expected to release its year-end earnings the last week of January or the first week of February.
If Boeing does decide to write off the tanker expenses, it would reduce 2004 earnings, which could translate into smaller executive bonuses. Then again, Boeing’s board could view the write-off as a one-time event and decide that it shouldn’t be factored in.
A Boeing spokeswoman says bonus calculations have nothing to do with the timing of a possible tanker write-off. In a statement, the company said it would be “inappropriate to discuss individual elements of company performance, and therefore incentive compensation, ahead of public disclosure.”
Even if the tanker write-off did cut into net income, Boeing executives are still likely to get hefty bonuses. At the end of the third quarter, Boeing was handily exceeding the financial goals set by the board for 2004. (The company doesn’t reveal to outsiders what those goals are.)
Any adjustment that occurs between then and when Boeing files its 10-K annual report with the Securities and Exchange Commission — most likely in late February — will be reflected in 2004 numbers, Boeing said.