Boeing’s bottom line: big profits

Published 7:10 pm Thursday, April 24, 2008

EVERETT — Lost defense contracts and jet delays didn’t keep the Boeing Co. down in the first quarter of 2008, when it saw a 38 percent jump in earnings over the previous year.

“Our businesses are progressing well,” Jim McNerney, Boeing’s chief executive, said Wednesday. “We are working on the challenges.”

Wall Street, which had beaten Boeing’s stock down roughly $25 per share since last July, liked the company’s performance and sent Boeing’s stocks up roughly 4.5 percent Wednesday. That — along with Boeing’s strong backlog — is good news for the company’s workers in Everett.

With 3,600 unfilled jet orders, Boeing has a record-breaking commercial airplanes backlog of $271 billion and a companywide total backlog of $346.2 billion. Even if the jet market cools, as many observers believe it will, Boeing still has several years’ worth of work.

“During the first quarter, we have seen the U.S. economic situation grow more tenuous,” McNerney said. “Right now, these developments are not having a significant impact on us.”

Commercial demand globally “remains strong,” McNerney said. And the diversity of Boeing’s backlog means the company isn’t so dependent on U.S. carriers for orders. McNerney noted that airlines in this country still have a “significant need” for aircraft since many haven’t placed large orders for new planes since prior to 2001.

“Boeing reported excellent first-quarter results Wednesday that support our view that, despite credit market turmoil and a slowing domestic economy, the current upswing in commercial airplane deliveries should continue through at least the end of the decade,” Morningstar analyst Brian Nelson told investors in a research note.

Boeing shares closed at $82.09 Wednesday, up $3.53 for the day. The company offers workers an incentive plan tied to the stock price. The payout depends on the price on June 30. If it remains around $84 per share, the bulk of Boeing’s 74,000 workers in Washington state would pocket approximately $3,000. That’s up from the $2,700 a $74 share price would pay, but far less than the roughly $6,000 they’d get if the stock were at $104 a share.

The company’s earnings were up in large part due to increased jet deliveries. The Chicago-based company handed over 115 aircraft through March, up nine jets from the same period in 2007. Boeing plans to deliver 475 to 480 jets this year.

Deliveries should increase to between 500 and 505 in 2009, despite a reduction in Dreamliner deliveries for the year. Supply chain and assembly issues have delayed the mostly carbon fiber composite 787 by nearly 18 months. Earlier this month, Boeing revised the Dreamliner assembly schedule, pushing first delivery out until the third quarter of 2009.

James Bell, Boeing’s chief financial officer, said he couldn’t pin down a penalty figure that Boeing will pay for delays on the 787 Dreamliner. But the company previously has done a good job of negotiating penalties with customers, he said. Neither McNerney nor Bell could predict how many of the Dreamliner’s 892 orders the delay will affect.

Despite the difficulties of dealing with global suppliers, which build large sections of the 787, Boeing’s McNerney maintains that the company wouldn’t change its business model much.

“We’ve learned a lot and have the scars to prove it,” McNerney said.

“We might draw some lines differently,” he added. “I think it will be more of an adjustment in strategy rather than a change in strategy.”

As Boeing struggles to get the 787 out the door, it upped its research and development spending to between $3.6 billion and $3.8 billion. The company had to keep engineers on the Dreamliner rather than shifting them over to other jet programs, like its 747-8 or 777 Freighter, McNerney said.

The increased spending also covers costs on the 747-8, the latest version of Boeing’s jumbo jet. The 747-8 freighter debuts in late 2009. Development costs, particularly for the wing on the new 747, have troubled some analysts because of sluggish sales of the 747-8. Boeing had won 104 orders for the new 747 through the end of March, with 78 of those for freighters.

“I’d be less than candid if I didn’t say I wish we had more passenger orders,” McNerney said.

The Associated Press contributed to this report.

Reporter Michelle Dunlop: 425-339-3454 or mdunlop@heraldnet.com.