Boeing Profit Drops 80% Amid Air Travel Slump
Boeing Co., hurt by one of the biggest slumps in air travel in decades, said Wednesday that fourth-quarter earnings plunged nearly 80%, mainly reflecting a one-time charge to pay for massive cuts in its commercial aircraft business.
With airlines struggling to recover from the Sept. 11 terrorist attacks, which have kept skittish passengers off airplanes, Boeing also revised downward its revenue projections for the next two years, saying it could not predict when a recovery might occur.
But the world’s largest aerospace company said it is betting that strong results from its growing defense and space communications operations will help offset any drop in profit at its commercial aircraft business.
For the fourth quarter, earnings fell to $100million, or 12 cents a share, from $481million, or 55 cents, in the year-earlier period. Without the anticipated one-time charge of $622million for severance costs, writing down spare parts and other items, the company would have posted a profit of $722million, or 90 cents a share, which was in line with analyst expectations.
The bulk of the charge was related to company plans to slash as many as 30,000 jobs, most of them in the Seattle area where the company assembles most of its commercial jetliners. Boeing said it has so far pared 12,000 from its payroll, and Chairman and Chief Executive Phil Condit said there is only a “low probability” that the company will make fewer cuts than planned.
“We are in a challenging period for commercial aircraft, but all of our businesses are performing well,” Condit said in an interview Wednesday as he visited the headquarters for the company’s space and communication business in Seal Beach. “The real key is the breadth of the company; that we can have one part of the business clearly experiencing a real downturn and have other parts of the company significantly balancing that impact.”
Indeed, the defense and space businesses, which have been growing in prominence, added $502million to Boeing’s operating profit in the fourth quarter, up from $54million a year earlier. The two businesses now make up 40% of overall sales for Boeing, up from less than 25% a few years ago. Condit, who has been trying to diversify the Chicago-based company, said the biggest growth may now come from its space and communication operations.
Prospects for its defense and space business also got a boost Wednesday when President Bush announced he will propose huge increases in defense and homeland security spending. Bush said he plans to seek $38billion more for defense.
Boeing, which also is the world’s largest satellite maker and the nation’s second-largest defense contractor, would be one of the biggest beneficiaries of such spending increases, analysts said.
Still, the reaction was mixed among investors. After rising nearly 70 cents in early-morning trading, Boeing shares fell 45 cents to close at $39.33 on the New York Stock Exchange.
Boeing said that revenue for 2002 is expected to be about $1billion less than initial projection and fall to about $54billion, and that 2003 revenue is likely to fall to $52billion. In 2001, Boeing posted revenue of $58.2billion, up 13% from $51.3billion.
Boeing’s space and communications unit, California’s largest private employer, with 43,000 workers, posted fourth-quarter operating earnings of $224 million, contrasted with a loss of $284 million. The year-earlier results reflect a one-time charge related to the acquisition of Hughes Space & Communications.
Meanwhile, General Dynamics Corp., benefiting from a buildup in defense spending, said fourth-quarter earnings rose 11% on higher sales at its combat systems unit. Sales at the unit rose 93%, reflecting results from acquisitions and from sales of interim armored vehicles and tanks. Fourth-quarter earnings for the Falls Church, Va.-based defense contractor increased to $246million, or $1.21 a share, from $219million, or $1.09, in the year-earlier period. Revenue was $3.5billion, compared with $2.7billion a year ago.
Raytheon Co., Lexington, Mass.-based maker of missiles, radars and aircrafts, posted a fourth-quarter loss of $106 million, reflecting higher tax payments and losses from discontinued operations. In the year-earlier period, the nation’s fourth-largest defense contractor had earnings of $168 million, or 49 cents a share. Sales rose nearly 6% to $4.63 billion from $4.38 billion a year earlier, bolstered by defense spending increases, the company said.
