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VOL. 123 | NO. 208 | Thursday, October 23, 2008

Boeing's 3Q Profit Dives 38 Percent Amid Strike

By DANIEL LOVERING | AP Business Writer

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Boeing Co.'s third-quarter profit dropped 38 percent as a strike and supplier production problems hurt results at the world's No. 2 commercial airplane maker. Its shares fell more than 6 percent in afternoon trading on Wednesday.

Boeing, a maker of passenger and military jets, satellites and other defense systems, has endured several setbacks, including a 46-day worker strike that analysts estimate has cost roughly $100 million a day in deferred revenue and production delays on its highly anticipated next-generation passenger jet.

Just weeks before the quarter ended on Sept. 30, Boeing was forced to shut down commercial aircraft plants in Washington state, Oregon and Kansas when about 27,000 union workers walked off the job after rejecting a final labor contract offer.

On Wednesday, the Chicago-based company reported net income of $695 million, or 96 cents per share, for the three months ended Sept. 30, down from $1.11 billion, or $1.44 per share, a year earlier. The latest results include a 60-cents-per-share erosion in earnings as the strike and a shortage of key parts lowered Boeing's airplane deliveries.

Without the strike, the company would have delivered 119 planes during the quarter, but instead delivered just 84 – 35 fewer than planned, Boeing said.

Quarterly revenue, meanwhile, dipped 7 percent to $15.29 billion.

Analysts polled by Thomson Reuters, on average, expected earnings of 98 cents per share on revenue of $14.61 billion. Analyst estimates typically exclude one-time items.

Boeing's results "are likely to be something of a sideshow, with the overriding and unanswered concerns" being the strike and outlook for commercial airplane deliveries in 2009 and beyond, Banc of America Securities analyst Harry Nourse wrote in an investor note.

Negotiations to end the Machinists' union strike will resume Thursday with a federal mediator in Washington, D.C. Earlier this month, two days of bargaining ended in failure. It was the first attempt to return to the bargaining table since the strike began Sept. 6.

"While the suspension of commercial airplane deliveries had a major impact on the quarter, we effectively executed the remainder of our business and kept our focus on the strong balance sheet we have built over the past few years," Jim McNerney Boeing's chairman, president and chief executive, said in a statement.

Boeing said it will provide updated financial guidance and information about the schedule for its affected airplanes after the strike ends. In July, Boeing backed its earnings outlook for 2008 and 2009.

Boeing's passenger planes include 737s, 747s, 767s, and 777s. Through the first nine months of 2008, the company had delivered 325 such planes, essentially flat compared to the same period last year.

The company's backlog of planes now stands at a record $349 billion worth, up from $346 billion at the end of the prior quarter.

Demand for new, fuel-efficient planes remains strong and exceeds supply, the company said.

To date, 58 customers have ordered 895 new 787 passenger jets from Boeing. The aircraft has been touted for its promise of greater fuel efficiency due to its construction from lightweight carbon-fiber composite parts.

Even before the strike, the jetliner had been hampered by lengthy production delays due to supply chain glitches.

Boeing has lost credibility, and billions of dollars in expected additional costs and penalties, with three delays in the 787's delivery schedule that leave it more than a year behind the original schedule.

During the quarter, the plane underwent a successful hydraulic system test, landing gear test and pressurization test of the static airframe. The company also began testing the flight controls and started final assembly of its fourth flight-test plane.

Boeing, which ranks as the world's second-largest commercial airplane maker after Europe's Airbus, said it may need to finance some airplane deliveries beginning in 2009, the first such financing since 2006, but declined to specify which deliveries.

Boeing also said it has made backstop financing commitments for 3 percent of its commercial airplane backlog, mostly for 787s, for deliveries through the end of the next decade.

"Virtually all lending sources have tightened up," McNerney said in a conference call with analysts and reporters. "Having said that, there is still aircraft financing available on a selective basis, and we have no current evidence that says our backlog won't be financed over the next five quarters or so."

In a recent note to investors, JP Morgan analyst Joseph P. Nadol III said Boeing financed about $3 billion of aircraft purchases in 2001 and 2002. But tighter credit is likely to result in a funding gap next year of $10 billion to $20 billion for $65 billion worth of deliveries from Boeing and rival manufacturer Airbus, he said.

At an aviation finance conference in New York on Tuesday, Klaus Heinemann, chief executive of the aircraft leasing company AerCap Holdings NV, said deliveries of aircraft from Boeing and Airbus will peak in 2009 and 2010. If financing falls short, airlines may need to cancel or delay adding the new planes to their fleets.

Another conference speaker, Robert Agnew, president and CEO of the consulting firm Morton Beyer & Agnew, compared the current situation to 2002, when about 20 percent of Boeing and Airbus orders were canceled following the 9/11 terrorist attacks.

Shares of Boeing slid $2.92, or 6.3 percent, to $43.48 in afternoon trading.


On the Net:

Boeing Co.: http://www.boeing.com/

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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