EVERETT — The challenges of 2008 gave way to layoffs, order cancellations and financial losses for the Boeing Co., the company reported Wednesday.
“We are indeed facing one of the more difficult commercial and financing markets that most of us have ever seen,” said Jim McNerney, Boeing’s chief executive, during an earnings call Wednesday.
Boeing pointed to a 57-day Machinists strike last fall as a factor in its $56 million loss last quarter, saying the work stoppage reduced the company’s earnings by $1.8 billion in 2008 because of lost jet deliveries. Boeing’s earnings were further reduced by $685 million because of delays in its 747-8 program. But the company is taking steps — including reducing its work force by 6 percent, or 10,000 people, and reorganizing its commercial jet operations — to put itself in a better position for 2009.
“I remain optimistic about this company’s future,” McNerney said.
Boeing’s performance for 2008, as well as its estimated earnings of $5.05 to $5.35 for 2009, fell short of analysts’ expectations. Revenue in the fourth quarter missed Wall Street expectations, sliding 27 percent to $12.68 billion.
JSA Research analyst Paul Nisbet said the results were “surprisingly poor,” noting the unexpected charge for the 747-8 jets.
However, Boeing did well enough in 2008 to award more than 100,000 workers with six days of bonus pay as part of a company incentive plan. Eligible employees will receive their extra pay by Feb. 19. The 27,000 members of the Machinists union are not part of the incentive program.
Layoffs
Boeing will slash 10,000 jobs from the payroll this year to support what it calls productivity efforts. The company previously announced it would cut 4,500 positions, most in the Puget Sound region, from its commercial airplanes division. Boeing also had warned of 800 defense job cuts in Wichita, Kan., and handed out nearly 200 notices to members of its Shared Services Group. The remaining 4,500 positions will be shed from corporate services and defense work, not from commercial airplanes, McNerney said.
The company declined to say how many jobs will be lost in total in Washington state, where Boeing employs 76,400 people, mostly in the commercial division. Boeing plans to issue layoff notices for the 4,500 commercial jet workers by Feb. 20. Most of the remaining notices will go out in the first and second quarters.
Production rates
Despite an anticipated decline in orders and an upswing in deferrals, Boeing intends to maintain its jet production rates at its factories in Everett and Renton. Boeing received just six cancellations last year, along with 110 deferral requests, and has a backlog of 3,700 orders. The company still intends to deliver between 480 and 485 jets this year even as the industry expects to lose $2.5 billion on declining passenger and cargo traffic.
That’s because Boeing is “significantly overbooked” on jet requests this year, McNerney said.
Analyst Richard Aboulafia with the Teal Group called the company’s delivery estimates for 2009 “realistic for now.” He believes 2010 could be a difficult year. But even though the market looks grim, Boeing doesn’t have reason yet to slow down.
“They have to keep going full throttle,” Aboulafia said.
Troubled jets
Boeing reported a cancellation for 15 of its 787 Dreamliner jets on Wednesday. The company declined to name the customer, but chief executive McNerney described the cancellation as more from the customer’s response to the challenging business climate than a result of continued delays.
Deliveries of the mostly composite 787 Dreamliner have been delayed roughly two years because of complications in the jet’s global supply chain and production glitches. Boeing’s McNerney reaffirmed the schedule Boeing laid out last month with the 787’s first flight scheduled for between April and June. Japan’s All Nippon Airways said Wednesday that it plans to take delivery of the first 787-8 in February 2010.
Last year, Boeing also pushed back deliveries of its updated 747 jumbo jet. Design changes, scarce engineering resources and the strike led Boeing to delay deliveries of the cargo version of the 747-8 until the third quarter of 2010. The charges associated with the delays cut Boeing’s earnings by $685 million.
Boeing has received a disappointing response to the passenger version of the 747-8 with only 28 orders compared with 78 for the freighter. McNerney said the company continues to have talks with interested customers. Boeing considers both 747-8 versions potentially successful business models.
Analyst Aboulafia can’t foresee Boeing abandoning the 747-8 unless the company “isn’t being upfront about the costs and risks” associated with the program.
Union unrest
Boeing’s major unions voiced dismay at both the company’s layoff plan and its earnings report.
The Society of Professional Engineering Employees in Aerospace questioned Boeing’s wisdom in increasing its quarterly dividend, announced last year, given the company’s disappointing results and pending layoffs.
“They’re helping shareholders but cutting the people who do the work,” said Bill Dugovich, spokesman for the union.
The engineers’ group has been concerned that Boeing may seek to close or sell its plant in Wichita, but said the aerospace company refuses to answer its questions about the plant. SPEEA and Boeing have yet to agree on a new contract for about 700 engineers there. Boeing already announced plans to cut 800 of its 3,000 workers in Wichita.
Leaders for both SPEEA and the Machinists say that Boeing should lay off contractors before letting union members go. The Machinists union said it expects layoffs of its members to be “minimal.”
But Tom Wroblewski, local Machinists’ president, was frustrated by the company’s characterization of the strike and its effect on earnings.
“Boeing finds it easy to blame a two-year delay in getting the 787 off the ground on our 57-day strike,” Wroblewski said. “They will never admit it was poor management decisions or a business model that failed miserably which caused the first loss in revenue in recent years.”
Boeing’s shares increased 2 cents in trading Wednesday to close at $43.24.
The Associated Press contributed to this report.
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