Cobham PLC (LON:COB) has said it will take an additional £160mln profit hit after the aerospace engineer settled its dispute with aircraft giant Boeing Co. (NYSE:BA) over the KC-46 aerial refuelling contract.
The FTSE 250-listed firm said it would take a charge of £86mln related to the settlement, with the balance of £74mln to be reported as additional costs to complete the retained contract.
READ: Cobham keeps full-year guidance in place; updates on Boeing dispute
The group added that it would offset amounts relating to £37mln in invoices that have been withheld by Boeing, resulting in a £49mln balancing payment to be paid to the US firm during the first half of 2019.
Cobham said the complex Wing Aerial Refuelling Pod (WARP) qualification programme remains in its early stages and is now anticipated to complete around the middle of 2020, with associated flight test expected to commence in the first half of 2019.
It added that the rebased schedule has led to a reassessment of the aggregate risks including supply chain, resource and concurrency ahead of final WARP certification and production.
The group said the non-underlying charge of £74mln has been taken to reflect the best estimate of the retained KC-46 contract risks, as well as the costs of the revised schedule in light of today's agreement. This sum is in addition to the £40mln non-underlying charge announced on 26 July 2018.
Cobham was forced to issue a string of profit warnings as the contract issues developed, leading it to launch a rights issue in 2017 to boost its stretched balance sheet.
Resolution provides relief
In a note to clients, analysts at UBS commented: “This programme has created meaningful disruption to Cobham over the last three years and the resolution amount is more contained (total £160mn) than feared. Cobham results are on 7 March and the management team should finally be able to comment on growth and cash prospects for the group, having now resolved a major hurdle.”
They added: “The settling of the KC-46 dispute provides relief to the investment case.”
UBS reiterated a ‘buy’ rating and 132p price target on Cobham shares
In early afternoon trading in London, Cobham shares were 2.8% higher at 118.55p. In pre-market New York trading, Boeing shares were 0.2% lower at $417 each.
-- Adds analyst comment, updates share prices --