Boeing Shares Decline After Losing Jet Deal

Shares of Boeing Co. fell 10% Monday after the aerospace giant lost a huge fighter jet contract to rival Lockheed Martin Corp. on Friday, clouding the future of its defense unit.

Chicago-based Boeing’s shares dropped $3.93 to $33.75 in Monday’s New York Stock Exchange trading as investors reacted to its apparent exclusion from a $200-billion program likely to produce the last manned fighter for the foreseeable future in the United States.

“The loss could theoretically put Boeing out of the fighter business once [Boeing’s] F-18 is completed,” said Christopher Mecray, aerospace analyst at Deutsche Banc Alex. Brown.

Already reeling from a sharp decline in orders at its world-leading Seattle-based commercial jet unit, Boeing now faces a daunting job trying to build its lucrative defense business, second only to Lockheed’s among U.S. contractors.

“For Boeing ... we have not changed [earnings] estimates, but the loss raises long-term strategic risks,” Merrill Lynch analyst Byron Callan told clients in a research note.

Boeing could still snare a portion of the Joint Strike Fighter (JSF), or F-35, but Lockheed has said only that it would consider bringing Boeing on board if the Pentagon requests it.

Pentagon officials on Friday said, however, that that was Lockheed’s decision to make.

Sharing the deal could mean revising the JSF design and development plan, which could add to the program’s costs and jeopardize the savings that the fighter was meant to achieve.

Boeing still has the F/A-18E/F fighter jet, assembled in St. Louis, and the C-17 transport aircraft assembled in Long Beach, as its main military programs.

It is also a major subcontractor on Lockheed’s F-22 fighter and has a number of non-fighter programs that could boost revenue.

“The [JSF] loss makes it harder to grow Boeing’s military aircraft and missiles division longer-term,” according to Mecray. “The loss could force the company to rethink its strategy more broadly, including linkages with other domestic defense suppliers, or foreign companies.”

The JSF loss lowered Boeing’s revenue guidance for 2002 to $55 billion from $56 billion, or about 10 cents a share, analysts said.

Of its $51 billion in revenue in 2000, Boeing booked $31 billion in its commercial jet business, $12 billion in the military unit and $8 billion in space and communications.