By Renae Merle
Washington Post Staff Writer
Thursday, July 27, 2006; D02

Boeing Co. reported a second-quarter loss yesterday and lowered its profit forecast for the year as it accounted for more than $1 billion in charges to its defense business, including a federal settlement that ended a three-year investigation into the aerospace giant.

The Justice Department was investigating Boeing's illegal hiring of a high-ranking Air Force official and the company's use of Lockheed Martin Corp. proprietary documents to win government work. Company officials determined that most of the settlement is tax deductible but said yesterday that they would not pursue the benefit, which would have raised protests from some in Congress.

"Without question the short-term financial impact of the taxability issue is significant," W. James M. McNerney Jr., Boeing chief executive, said in a conference call with analysts. "However, the long-term value of Boeing's reputation is even more significant."

The company also took a $496 million charge to account for two troubled foreign contracts to supply surveillance planes to Australia and Turkey. The technology needed for the planes turned out to be more difficult than expected, and the company said the charge would cover a 15 percent cost overrun on the fixed-price contracts, which are worth a total of about $4 billion, and some penalty payments.

The charges dragged down earnings during the quarter and prompted Boeing to lower its profit forecast for the year, to $2.40 to $2.55 from a range of $3.25 to $3.45. The company reported a loss of $160 million (21 cents a share) in the quarter, compared with a profit of $566 million (70 cents) in the comparable period a year earlier. Revenue increased 2 percent, to $14.9 billion from $14.6 billion.

Boeing's stock lost 4.6 percent, or $3.85 a share, on the New York Stock Exchange to close yesterday at $79.90.