Delays hurt Boeing Co.'s second-quarter profit, which fell 19 percent because of late delivery of military aircraft and rising costs from the postponed introduction of its 787 jetliner.

But the Chicago-based company, the world's second-largest commercial airplane maker after Europe's Airbus, reaffirmed its forecasts for 2008 and 2009, saying productivity gains would overcome the quarter's setbacks.

Shares of the Boeing tumbled nearly 4 percent Wednesday afternoon after the company reported its earnings.

Boeing posted profits of $852 million, or $1.16 per share, for the three months ended June 30, compared with $1.05 billion, or $1.35 per share, a year earlier.

Revenue remained essentially flat at $17 billion.

Analysts polled by Thomson Financial, on average, expected profit of $1.23 per share on revenue of $17.24 billion.

The results included a previously disclosed charge of $248 million for Boeing's Airborne Early Warning & Control program due to delays in delivering six military aircraft to Australia. It said annual gains would offset the charge.

Lower commercial airplane profit also cut into overall results

Boeing's commercial airplane business reported a 19 percent decline in quarterly earnings from operations, to $777 million from $960 million last year, due to customer and model mix, expense timing and costs tied to its long-delayed 787.

Quarterly revenue for the unit fell 2 percent to $8.57 billion from $8.71 billion.

The company said 787 production was following a revised schedule announced in April, and that the program is in the final stages of assembling the first airplane in preparation for a test flight.

In a conference call with analysts and reporters, Boeing's chairman, president and chief executive, Jim McNerney, said “the plane will be flying in the fourth quarter,” and that assembly and testing was on schedule or ahead of schedule.

“The structural assembly of the plane is largely complete,” McNerney said. “There are some systems installations yet to be done.”

Boeing has touted the 787 for its greater fuel-efficiency potential as it's the first large jetliner to be built mostly from lighter, carbon-fiber composites. But the jetliner has been hampered by lengthy production delays due to supply chain glitches.

Boeing has lost credibility, and billions of dollars in expected additional costs and penalties, with three delays in the 787's delivery schedule that leave it more than a year behind the original schedule.

Fifty-eight airline customers have placed 896 orders for the much-anticipated 787.

Looking ahead, Boeing reaffirmed its earnings outlook for 2008 and 2009 and said its backlog of airplane orders rose 6 percent to a record $346 billion.

“We remain confident we will deliver the airplanes in our guidance for 2008 and 2009, and that deliveries will be higher in 2010 due to 787 deliveries ramping up,” McNerney said.

Boeing was “disappointed” about having to take “another charge” for the Airborne Early Warning & Control program, he said. “The vast majority of our programs continue to perform very well,” McNerney added.

He said the company had “no (order) cancellations to speak of,” and that Boeing's strong productivity program would make up for the “stumbles” in the company's efforts to innovate, including the $248 million charge and the 787 problems.

Airlines, meanwhile, have been struggling with rising fuel costs that have been sucking profits out of the industry, and executives say they need income from new travel fees more than ever. Several carriers have posted big losses in recent days.

For the first half of the year, Boeing's profit increased 7 percent to $2.1 billion and revenue edged up 2 percent to $33 billion.

Boeing backed its 2008 earnings guidance of between $5.70 and $5.85 per share and its 2009 guidance of between $6.80 and $7.00 per share.

Paul Nisbet, an analyst with JSA Research, said the quarterly results were “poor, surprisingly so.”

“The company didn't telegraph anything that would have led us to believe that the costs were going to go up for the infrastructure for the complete commercial airplane operation because of the delay of the 787s,” he said in an interview.

“And I think they were remiss in not doing that,” Nisbet said. “That was the only real surprise.”

Boeing's stock dropped $2.54, or about 3.7 percent, to $66.72 in late trade. Year-to-date, shares have fallen about 24 percent.

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