By Bryan Corliss
Herald Writer
The Boeing Co.’s commercial aircraft production will fall as much as 30 percent next year, and the company is considering scrapping its line of 717 jets, chairman and chief executive Phil Condit said Thursday.
Production levels are likely to fall even farther in 2003, Condit told stock market analysts and reports at the company’s quarterly earnings report.
"The run rate on every single one of our lines is going to come down," Condit said.
However, the 717, built in Long Beach, Calif., is the only commercial jet program that could be completely halted, he said. "We’re comfortable with all the others."
"We certainly don’t want to understate the challenge to Commercial Airplanes — it is significant," added Mike Sears, Boeing’s chief financial officer. "We are clearly entering a challenging period for our company."
Boeing increased its revenues and profits during the third quarter this year even though it ran up $100 million in severance costs relating to the first round of layoffs announced in the wake of the Sept. 11 terrorist attacks.
Revenues were up 15 percent over last year’s third quarter, to almost $13.7 billion, the company announced. Profits — excluding the severance costs — increased 14 percent to $713 million, or 88 cents a share. Severance costs pulled actual earnings down 8 cents a share.
Boeing’s Commercial Airplanes group saw revenues climb to $8 billion for the quarter, up from $7.5 billion in the third quarter of 2000. Profits climbed to $835 million, and the profit margin grew from 8.4 percent to 10.5 percent.
The good financial news, however, was overshadowed by the likelihood of bad news to come. The airline industry worldwide has been hammered by the drop-off in air travel following the Sept. 11 attacks, Condit said.
"It would not surprise me if there were some bankruptcies," Condit said. "The North Atlantic market is off. … Latin America has been hit very strong. Asia has been hit less — Japan a bit more."
As a result, airlines are going to park a large number of their current planes, and demand for new planes will be sharply reduced, Condit said.
After the Sept. 11 attacks, Boeing cut 2002 production projections from about 500 planes to somewhere in the "low 400s." Condit cut that again Thursday, to between 350 and 400.
Boeing held off projecting 2003 production levels, but Condit said they’d likely continue to fall.
Condit said layoffs in Commercial Airplanes will be in the "order of magnitude" of the 20,000 to 30,000 people announced last month.
Boeing will not make a broad effort to pull in-house work now done by suppliers, Condit added. Boeing relies heavily on those suppliers, he said. "If we damage that supplier base, our ability to increase production is damaged."
The airline crisis will affect other business units, Condit said. Connexion by Boeing will trim 200 workers by year’s end as airlines delay the rollout of the company’s new airborne Internet system. And Boeing’s spare parts business will tail off as airlines park more of their older jets.
The best comparison for the current crisis is what happened to the airlines during the Persian Gulf War, when traffic fell off sharply, pushing down demand for new Boeing planes, Condit said. But "We’re somewhere between five and 10 times what we saw there."
However, some Boeing units will benefit from the current environment, Condit said.
Boeing Capital Corp., formed last year to help airlines finance purchases, will grow, Sears said. The company expects to do an additional $1 billion in lease financing for new jets this year.
Boeing’s Military and Space and Communications groups are "very well positioned for what promises to be an increased defense sector," Condit said.
And some of the defense programs could offset employment cuts in Commercial Airplanes, Condit said.
The U.S. government is to announce on Oct. 26 the winner of the Joint Strike Fighter contract, a $400 billion, 25-year contract. Boeing previously said it would add up to 3,000 workers in the Puget Sound area if it wins the contract.
That figure "absolutely" would include workers now subject to layoffs, Condit said. "If we get a win on JSF, we know the kind of people (we need), and we know where they are."
Boeing also is hopeful at its prospects of winning contracts to build 767s as aerial refueling tankers for the military, Condit said. Boeing already has won a contract to design a build a handful of 767 tankers for the Italian air force, and is eyeing a potential market of up to 600 such tankers for the U.S. Air Force.
Such a program would "clearly employ a number of people on the commercial side," Condit said.
You can call Herald Writer Bryan Corliss at 425-339-3454
or send e-mail to corliss@heraldnet.com.
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