Boeing Might Close 717 Line
Boeing Co. said Thursday that it might end production of its money-losing 717, the last jetliner being built in Southern California.
The 717 program employs more than 3,000 workers, all that remain of a work force at the former Douglas Aircraft facility that numbered more than 40,000 in the 1980s. The fate of the plant, a buttress of the Long Beach economy, has been uncertain for at least a decade.
Sales of the 106-seat plane already were sluggish before Sept. 11. But the airline industry’s massive losses and schedule cuts since the terrorist attacks are slowing production of commercial jets generally and putting pressure on Boeing to reevaluate all of its programs to cut costs.
Boeing, in announcing its third-quarter financial results, singled out the 717 as “the one production line in question.” The Chicago-based aerospace giant is mulling various plans, “including stopping production.”
Boeing Chairman Phil Condit said a final decision on the 717’s fate could come by the end of the year. But, he said, “we are obviously committed to delivering” jets still on order, which could keep the plant going a few more years.
Separately, Boeing disclosed Thursday that it is conducting talks with Hughes Electronics Corp. about a partial refund for its purchase of Hughes’ satellite manufacturing operations in El Segundo.
Boeing also said its third-quarter profit--excluding $100 million in one-time costs related to severance programs for thousands of workers already being laid off--rose 14% from a year earlier to $713 million, or 88 cents per diluted share, from $623 million, or 72 cents. The results were in line with analysts’ estimates as surveyed by Thomson Financial/First Call.
Revenue at Boeing, which is a major producer of military aircraft, missiles and satellites, rose 15% to $13.7 billion from $11.9 billion.
But looking ahead, Boeing is a company in trouble. Nearly 60% of its business still comes from commercial jets, and that segment is slowing rapidly as airlines slash operations, which in many cases includes freezing aircraft orders. In response, Boeing said last month it plans to slash up to 30,000 jobs by the end of 2002.
After the third-quarter results were announced, Boeing’s stock closed down 84 cents, to $32.86 a share, on the New York Stock Exchange. The stock has now plunged 50% so far this year, wiping out about $27 billion of investor wealth.
Boeing said it expects to deliver 522 commercial airliners this year, down from the 538 it had forecast. That figure is expected to drop to 350 to 400 next year and “current estimates for 2003 indicate the downward trend will continue,” the company said.
So, the 717, a program that’s been troubled since Boeing inherited it when it acquired McDonnell Douglas Corp. four years ago, is under intense scrutiny. So far, Boeing has received firm orders for only 137 of the twin-engine jets, of which 82 have been delivered. A year ago, Boeing adopted a new process to churn out a 717 about every 20 days. So completing the 55 planes still on order would keep the plant operating for at least two more years.
Boeing has said in government filings that it needs to sell 200 of the 717s to break even on the program. “Any airplane program is not going to be profitable at the beginning, and we’re still at the beginning of ours,” said John Thom, a company spokesman in Long Beach.
At times the 717’s prospects looked encouraging, with some observers speculating that the airlines wanted smaller jets to handle certain short-hop routes with frequent service. But the anticipated demand hasn’t materialized, and so far mostly mid-size carriers, such as AirTran Airways and the Trans World Airlines unit of AMR Corp., have ordered the jet.
“An analysis will be done” of the 717 program and potential demand for the jet, and Boeing “will have to weigh a lot of factors,” Thom said.
At the beginning of this year, Boeing had 5,000 people working on the 717 and on various other commercial aviation services in Long Beach, Thom said. But already this year, Boeing has twice announced cuts of 600 jobs from the 717 program alone due to weak sales. (An additional 7,300 Boeing employees work in Long Beach making C-17 cargo jets for the Air Force.)
Shuttering the 717 factory and eliminating its remaining jobs “would be a severe blow for our economy, and not just for Long Beach but for the economy of the region, because those workers live in communities throughout” Southern California, said Daniel Flaming, president of the Economic Roundtable, a nonprofit research group that’s studied the Long Beach economy.
“It would be wrenching to see jobs of this quality get lost,” because they’re “jobs that pay family-sustaining wages,” Flaming said. Also, his group estimates that for every Boeing job in Long Beach, there are 1.7 jobs at suppliers and other vendors that support the 717 program.
Long Beach Mayor Beverly O’Neill said “the prognosis does not look good” for the program, but “I’m hoping something will happen to still change that.”
To be sure, the aerospace industry’s presence in Southern California has been dramatically dwindling for more than a decade, and Long Beach has diversified its industrial base to make up for the exodus. “The city has made big strides in diversifying,” Flaming said. “But that [aerospace] sector still accounts for a major part of the local payroll.”
Separately, Boeing said it’s talking to Hughes Electronics Corp. about getting back a portion of the $4 billion it paid for Hughes’ satellite-making business last year.
Michael Sears, Boeing’s chief financial officer, noted that after the Hughes purchase Boeing booked a $1.3-billion increase in its “goodwill,” a financial entry that reflects the value of intangibles above the actual value of the assets acquired.
Sears said Boeing’s claim for repayment will include “almost” all of that goodwill. Hughes spokesman Richard Dore confirmed the talks but declined to comment further.
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Bloomberg News was used in compiling this report.
