Boeing’s Late-Night Demands Send British Supplier Tumbling


After an exhausting night, Cobham Plc Chief Executive Officer David Lockwood was in no mood to gloss over the flood of bad news the U.K. aerospace company had for its investors.
The maker of air-to-air refueling gear would take a 150-million pound ($188 million) charge against a delayed Boeing Co. tanker plane and write off large parts of a recent acquisition, Lockwood said Thursday just hours after an early-morning agreement with the Chicago-based company, prompting the biggest stock drop in at least 28 years.
The revelation followed weeks of what Lockwood described as “incredibly intense” negotiations with his Boeing counterpart Dennis Muilenberg, culminating in the accord that he said had left Cobham to absorb most final development charges for the KC-46 aircraft.
“It has been a turbulent and disappointing year,” Lockwood said on a call with analysts, explaining that questions needed to be kept simple as he had been up until the early hours. “There’s nothing else really to say about that.” The CEO, who took over Jan. 1, will now hold a weekly call with Muilenberg to flag any other issues that “might dislodge the program.”
Cobham received no cash from Boeing in 2016, and the standoff contributed to the resignations of former CEO Bob Murphy and Chairman John Devaney. Talks to resolve the issue were halted by the management shuffle, but resumed a few weeks after Lockwood took over.
Systemic Flaws
Cobham shares fell 32.90 pence, or 24 percent, to 102.50 pence following its fifth profit warning in less than 18 months, and traded 16 percent lower at 114 pence as of 11:29 a.m. in London. That follows a 15 percent decline on Jan. 11, when the Wimborne, England-based company first hinted at the gravity of the tanker issue.
Forecasts for 2017 are difficult to make, but delivery of a similar performance to that of 2016 in 2017 “may be challenging,” according to Cobham, which plans to publish figures for last year on March 2. Lockwood said that the extent of the company’s “execution failures” points to “systemic issues.”
Cobham announced a further 680 million pounds of charges, earnings revisions and writedowns beyond the tanker hit.
That includes 574 million pounds of goodwill adjustments at its wireless, semiconductor and integrated electronics activities in part reflecting “a lower 2016 outrun” and sluggish growth after the $1.46 billion purchase of semiconductor maker Aeroflex in 2014.
The aerospace manufacturer will also take charges of 29 million pounds against contracts within its mission systems, advanced electronics and communications divisions, and 33 million pounds for aging inventory and surplus machinery, while making a 20 million-pound adjustment to underlying trading profit for 2016 relating to items including IT security compliance and bad debt charges, some of which will be recurring. Extra legal costs will total 25 million pounds.