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Boeing Ready to Scrap or Sell Ailing Projects

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TIMES STAFF WRITER

Boeing Co. pledged Wednesday to fix, sell or shut down projects that it says are “destroying value” at the company and slowing efforts to boost the aerospace giant’s profit. The action could imperil the 717 program in already hard-hit Long Beach.

The get-tough remarks stem from a new Boeing report showing that about 10% of the company’s overall investments--or projects worth about $1.3 billion--will be unprofitable this year. Another $2 billion in programs are merely breaking even, the company said.

The detailed study, conducted by an outside firm, is the first of its kind at Boeing and is further proof of the company’s willingness to take drastic steps to increase earnings.

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Boeing Chairman and Chief Executive Phil Condit and Chief Operating Officer Harry Stonecipher said they will forgo their bonuses this year because of the company’s poor performance.

Boeing also has shuffled its managers and hired several key executives from outside the company to bring new perspectives to the firm.

As a result of the report’s findings, Boeing will examine all its programs--especially projects that are draining resources, company officials said.

“Nothing escapes scrutiny here. . . . This is every single program we’ve got,” said Condit, who declined to specify which businesses are vulnerable. “There are no sacred cows.”

A likely target would be Boeing’s 717 jet program in Long Beach--largely because it has seen disappointing sales despite its status as the only 100-seat commercial jet in production. The program employs about 2,000 workers in Long Beach.

Boeing executives said the company will push harder to gain a slice of the large jet-servicing and repair business, which it has only dabbled in. In addition, Boeing will consider consolidating specialty functions--such as high-speed machining--or outsourcing them.

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The unusually harsh announcements by Boeing seemed aimed mostly at Wall Street investors, who have been skeptical about Boeing’s repeated assurances that it has righted the ship in Seattle.

Boeing shares have plunged 41% from their record high of $60.50 in 1997, making the stock one of the worst performers among blue-chip shares.

Boeing closed at $35.63 on Wednesday, down $1.75 in New York Stock Exchange trading.

“There is not that much low-hanging fruit” to cut, said Jon Kutler, president of Quarterdeck Investment Partners, a Los Angeles-based aerospace investment firm. “Everything is a trade-off and there’s no easy solution.”

Kutler added that Boeing’s troubles lie more in the way it does business than in the projects it pursues.

“This program stuff is smoke and mirrors,” he said. “The real solution is improving their operations and margins.”

Boeing officials made clear they’re focusing on the commercial jet unit, which has struggled to make money amid production troubles, aggressive price-cutting and slack demand from Asia.

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In 1998, the commercial business produced 63% of Boeing’s $56.1 billion in sales but just 4% of the company’s operating profit. A year earlier, the unit lost $1.8 billion.

By contrast, Boeing’s military aircraft and missiles unit, which includes the C-17 cargo program in Long Beach, has “good margins and great programs,” Condit noted.

In addition, the company’s space and communications businesses--many of them based in Southern California--are growing fast and are seen as having great potential. The challenge for that unit, Condit said, is to “make the right choices, pick the right programs and invest in the right spots.”

What’s more, earlier cost-cutting moves by Boeing have already set in motion a wide-ranging consolidation of the company’s sprawling facilities in the region.

By mid-2000, Boeing will halt production of the MD-11, MD-80 and MD-90, leaving the short-haul 717 as the only remaining civilian project in Long Beach. Boeing recently nixed plans to add an assembly line at the facility for specialty 737 models.

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