Asian Clouds Cast a Shadow Over Boeing Flight Path

Even during the lean years, there was always Asia.

Battered by the last recession, Boeing Co. of Seattle could still look hopefully across the Pacific Ocean, betting that the boom there would generate the updraft to lift the aircraft maker to high-flying success once again.

The predictions were rosy: millions of eager new air travelers. A 30% backlog of orders from Asian airlines, from Thailand to Indonesia to Singapore. Nearly 2,000 jets sold to China alone over the next two decades.

But that was before the economies of several Asian nations went into free fall. Now the long-term health of Boeing--the largest exporter in the U.S.--is tied to the resolution of a financial crisis half a world away.

If Asia can right itself quickly, analysts say, Boeing should be in fairly good shape, and can even put the Asian lull to good use by eliminating its current backlog on domestic and European orders.

If not, then in jeopardy is a market that currently accounts for the lion’s share of Boeing’s foreign sales and one that executives have banked on to fuel dramatic growth well into the next century, from one-fifth of total production output to almost one-third.

“Boeing is a company built on global peace and prosperity,” said Wolfgang Demisch, an aerospace analyst with BT Alex. Brown Inc. in New York. “The peace part still looks pretty decent. But the prosperity is definitely under a cloud.”

The aerospace giant, nervously monitoring the turmoil across the ocean, has already felt the pinch.

Overall, nonmilitary aircraft orders in the U.S. plummeted 73% in December from November, according to figures released this month by the Commerce Department.

Some Asian carriers, such as South Korea’s Asiana Airlines, have pushed back delivery dates for 747s and 777s, Boeing’s newest line of jetliners.

Other carriers, including Philippine Airlines, are weighing outright cancellations, unable to come up with enough in their devalued local cash to pay for jumbo jets that cost as much as $150 million apiece.

And a few other airlines are taking a wait-and-see approach, holding off on their options to buy more planes--16 of them in the case of Cathay Pacific Airways.

“We originally had those options scheduled through 2003,” said Cathay Pacific spokesman Gus Whitcomb. “We juggled the delivery dates, should we exercise those options, to be a little later . . . to give us an opportunity to see how the markets develop in Asia.”

In a show of concern, Boeing Chief Executive Phil Condit flew to Asia last week for high-level meetings with government and industry leaders in both Indonesia and Malaysia, where commitment to Boeing contracts is faltering along with the local economy.

Still, analysts like Demisch are keeping Boeing stock in the “buy” column, albeit with caution.

“I don’t believe that the Asia problem is so fundamental that it’s not containable or curable,” Demisch said. “For the industry to do badly, you have to have the Asian financial breakdown spreading. But at this point, that’s not the higher probability. That leaves me feeling pretty buoyant about the commercial air transport supply industry.”

Boeing President Harry Stonecipher is also upbeat, and has announced no shift in emphasis on Asia as Boeing’s prime growth market. “We still believe the region, despite its troubles, will recover quickly and be one of the fastest-growing regions in the world,” he told reporters recently.

At the same time, however, the company posted a $498-million fourth-quarter loss--much of it stemming from its merger with McDonnell Douglas--and that resulted in Boeing’s first annual loss in memory. Its stock price, as high as $60 last summer, has dropped below $50, with some of the decline attributable to worry over Asian fallout. Boeing closed at $50.38 on Friday, up $1.13, on the New York Stock Exchange.

Stonecipher also acknowledged that his company expects to deliver 60 fewer jets, most of them in the 747 and 777 series, to Asia in 1999 and 2000 than originally anticipated, but he expressed confidence that buyers elsewhere will take them: “We have a very good chance of replacing them with new customers.”

In a sense, the crash in Asia has afforded Boeing something of a breather. Its assembly lines struggled--and failed--last year to boost production from 18 planes a month to 43, part of its plan to churn out as many as 550 planes this year. Plagued by a shortage of parts and workers, the company can now play catch-up with its orders.

But without an economic turnaround across the Pacific and an upswing in the demand for planes, aiming for such a high benchmark in the long run won’t make sense, analysts say.

“Asia has to come back and grow for Boeing to sustain this year after year after year,” said Peter Aseritis of Credit Suisse First Boston.

Aseritis forecasts that production goals will drop to 525 planes next year and dwindle further after that, then level off once the Asian countries rebound in a few years.

“Between ’97 and 2002 to 2003, they’ll be building 450 to 550 jets a year, which is a nice plateau for many, many years instead of the boom-bust cycle they normally go through,” he said, citing the sharp decline Boeing suffered between 1992 and 1995.

Demisch is not so sanguine, given the Asian crisis’ domino effect in the region even after world financial organizations intervened with bailouts and reform packages.

“It’s seductively plausible--it’s a reasonable prognosis,” Demisch said. But “it asks for an Asian crisis which is very finely tuned, not light enough to bounce back by the end of the summer and not severe enough to be contagious.”

And the roller-coaster history of the commercial aircraft industry bodes ill for Boeing, even though the company is now the dominant player in the market, with only one real competitor, the European consortium Airbus Industrie.

“We haven’t had long periods of stability in this industry before,” Demisch said. “This industry has been manic-depressive throughout its existence.”