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Report Cites Major Boeing Cost Overruns

August 25, 2000|From Bloomberg News

Boeing Co. has incurred major cost overruns since January in managing the new U.S. missile defense program, according to internal Defense Department documents.

Boeing's projected cost to complete its management contract for the system grew $125 million to $2.28 billion from January to March. The costs by June 30 increased another $194 million to $2.48 billion. This is 14% over the target cost of $2.17 billion, according to the documents, prepared last month.

The program is managed out of Boeing's Anaheim-based Electronic Systems & Missile Defense unit. Seattle-based Boeing is the largest private employer in Southern California.

"Trends indicate the situation may deteriorate even more," according to a July 25 quarterly program review prepared by Army Maj. Gen. Willie Nance.

The Pentagon is assessing Boeing's cost problems as it reviews a recommendation to President Clinton on whether the U.S. should proceed with construction of a key radar site in Alaska, a crucial step if the system is to be deployed by its target date of 2005.

Neither Boeing nor the missile defense program office responded to calls for comment.

The U.S. National Missile Defense system ultimately envisions a network of ground-based radar, low-orbiting satellites, communications equipment and at least 100 interceptor missiles based in Alaska or North Dakota. The system's cost is pegged at $36.2 billion.

It is designed to protect all 50 states from a limited number of missiles carrying nuclear, chemical or biological weapons, presumably fired by "rogue" nations such as North Korea or Iraq.

Despite the assessment, Boeing shares rose $3.06 to close at $53.63 on the New York Stock Exchange after Credit Suisse First Boston Corp. said it expects commercial-aircraft maker stocks to perform well over the next few months.

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