Boeing Says It Will Take a Charge of $158 Million
In another sign that the commercial aircraft industry won’t be recovering any time soon, Boeing Co. said Friday that third-quarter earnings would be cut by a $158-million charge, reflecting a sharp drop in the value of commercial jets it helps finance.
Separately, Boeing said it is extending a price freeze on commercial airplane spare parts to help the airline industry. Prices for parts, produced by Boeing as well as independent suppliers, will remain at 2001 levels, Boeing said.
Hundreds of suppliers in Southern California make Boeing parts, and the move could further exacerbate declining profits.
The world’s biggest commercial aircraft maker also operates one of the largest aircraft-financing businesses, which has been hurt by shrinking demand for jets after the Sept. 11 terrorist attacks.
The value of aircraft that the Boeing Capital Corp. unit helped buy or lease has shrunk by as much as 40% in some cases. At the same time, credit ratings for the struggling airlines have been reduced, raising financing risk and cost.
The unit had $11.5 billion in financing assets at the end of the third quarter.
In taking the charge, Boeing said it was expecting airline traffic and profitability to gradually recover after the attacks, but “recent announcements by the major domestic airlines and credit rating agencies indicate that this recovery will not be as rapid as anticipated.”
As a result, the company said it decided to bolster reserves to account for the reduced value of the aircraft. Boeing said older and out-of-production aircraft have seen the most significant decline in value, but added that even newer models have seen “moderate” declines.
The charge, which will reduce per-share earnings by 20 cents, prompted investors to unload Boeing stock Friday. Boeing shares fell $2.30 to $32.01 on the New York Stock Exchange. The company earned $713 million, or 88 cents a share, in the year-earlier period. Analysts on average estimated that Boeing would post 66 cents for the latest third quarter.
Boeing is scheduled to report third-quarter results Oct. 16.
Several analysts said the charge was not unexpected considering the dismal outlook for the airline industry, which has been trimming orders for new jets and taking aircraft out of service. About 2,500 commercial jets now sit in so-called boneyards worldwide waiting to be called back.
“It’s not surprising, given the state of the airline industry and the lack of demand for aircraft,” said Paul H. Nisbet, an aerospace analyst for JSA Research Inc. who does not own Boeing stock.
