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Space Station Glitches Are Costing Boeing

Innovation: Problems mean aerospace firm has lost $141.7 million in bonuses so far.

November 19, 1998|From Bloomberg News

Boeing Co. lost almost half its potential bonuses for developing the International Space Station because of cost increases, late parts deliveries and technical glitches, according to National Aeronautics and Space Administration officials.

Boeing, top contractor on the ambitious program, has been docked $141.7 million, or 47% of the potential $295 million it could have made in bonus fees since 1995, NASA figures show.

Boeing's space and communications group in Seal Beach oversees the overall space station project, with the first element scheduled to be launched Friday.

The company's space and rocket unit in Huntington Beach is building the station's main trusses, or supports, as well as a primary sleep station, a laboratory, panels for harnessing solar energy and software. The program is managed in Houston.

Under the contract, Boeing's profit depends on how much it can make in bonuses for containing costs and for good technical performance and management. NASA officials say that despite the financial nicks Boeing incurred executing the $7.45-billion development contract, its performance has improved.

During the latest six-month evaluation, Boeing earned $23 million, or 81% of a potential bonus, the best percentage to date, officials said.

In Seal Beach, the division's president predicted that Boeing's space business will become one of its most profitable, overcoming the high costs of starting new ventures and developing complex technologies.

"We're in a $40 billion-a-year market and it could grow to $160 billion within 10 years," said Jim Albaugh, head of the division, which was formed from parts of Boeing and two acquired companies.

"With our capabilities in the new Boeing, we have a big opportunity to be a part of that growth."

The space and communications division has annual sales of $7 billion. Many of its programs are still in their infancy, from building more powerful Delta rockets able to lift heavier satellites to designing a system of defending the U.S. against missile attacks.

The projects have faced early hurdles. A Delta 3 rocket failed at liftoff in August, destroying a $225-million communications satellite. A new engine for NASA's next-generation space shuttle is running late. Cost overruns have dogged the International Space Station.

The space division's profit lags those of other aerospace businesses. Analysts estimate its operating margin, or the value of sales after expenses, will be about 6% this year.

The average U.S. aerospace company has an 8% margin, according to a survey in Flight International magazine, while top firms have margins close to 20%.

Albaugh said he can live with low returns as long as the division is developing technologies that might pay off later.

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