Boeing Profit Falls 43% as Jet Deliveries Decline

Battered by a slump in the commercial aircraft business, Boeing Co. reported sharply lower third-quarter earnings Wednesday and acknowledged that a downturn in the airline industry could well last through 2004.

Boeing Chairman Philip Condit also predicted that the Chicago-based company’s commercial satellite and rocket launch business would remain sluggish for the foreseeable future. Much of Boeing’s satellite and rocket work is handled in Southern California, where its space and communications unit is the largest private employer.

The aerospace giant’s net income declined nearly 43% for the three months ended Sept. 30 to $372 million, or 46 cents a share, from $650 million, or 80 cents, a year earlier. Revenue fell 7% to $12.7 billion from $13.7 billion.

The falloff at Boeing’s commercial aircraft operations was especially steep. Revenue for the unit dropped nearly $2 billion to $6.1 billion. Boeing delivered 73 jets in the quarter, a 39% drop compared with the year-earlier quarter.

In trading on the New York Stock Exchange trading, Boeing shares fell $1.65 to $30.50 on the heels of the earnings report.

“We’re in a very dramatically changed business environment,” Condit said Wednesday in a conference call with analysts. “The downturn is severe.”

Indeed, Boeing said it was lowering its production forecast for 2003 and said demand for commercial aircraft could continue to decline through the end of 2004, a year longer than its earlier estimate. The grim outlook had been expected by analysts.

It also didn’t surprise hundreds of Boeing suppliers in Southern California, who have been struggling with shrinking orders for parts all year.

Many in the industry are concerned that a prolonged slump could ignite a major shakeout among small- to medium-sized contractors, particularly those heavily dependent on commercial aircraft orders.

Most Boeing suppliers have weathered the downturn by slashing jobs and trying to boost defense-related work, but “there is going to be increasing inexorable pressure on these guys,” said Ross K. Anderson, a principal director of Janes Capital Partners, an Irvine aerospace investment bank. “They can’t hold out two or three years.”

Since last year’s terrorist attacks, air travel has remained anemic and has put major U.S. airlines in a severe financial crunch. Although major airlines aren’t canceling orders, they’re not placing new ones. They also have taken many planes out of service and have pushed back deliveries of new jets.

Faced with this weak demand, Boeing said aircraft production in 2003 is likely to be in the range of 275 to 285 new jets, rather than its previous forecast of 275 to 300. Boeing delivered more than 500 new airplanes last year.

With lower orders, Boeing projected that revenue and operating margins also would be lower than previously expected. The company reduced next year’s revenue forecast to $50 billion from $52 billion and expects profit margins to shrink to 6.5% from 8.5%.

Boeing’s space and communications unit, with major operations in El Segundo, Seal Beach and Huntington Beach, reported a third-quarter loss of $36 million, compared with a $181-million profit in the previous year. The satellite business, hurt by a downturn in the telecommunications industry, has cut 1,900 jobs in El Segundo.

“Commercial satellite and launch businesses may be several years from recovery,” Condit said.

One bright spot in the earnings report was Boeing’s military and aircraft business. The U.S. has increased defense spending in the wake of the terrorist attacks and for military action in Afghanistan. The trend is expected to continue as the U.S. prepares for possible war on Iraq. Revenue at Boeing’s military aircraft and missile systems business rose 14% to $3.8 billion, mainly due to increased orders for precision bomb kits and military transports such as the C-17 jet, assembled in Long Beach.

Separately, TRW Inc., which is being acquired by Northrop Grumman Corp. for $7.8 billion, posted a profit in the third quarter after incurring heavy losses a year earlier, mainly because of a boost in defense spending that bolstered its Redondo Beach-based military space and missile defense operations.

Net income was $13 million, or 10 cents a share, as contrasted with a loss of $57 million, or 65 cents, a year earlier when TRW took a charge for discontinuing a commercial satellite program. Earnings from continuing operations rose to $115 million, or 89 cents, from $80 million, or 64 cents. Revenue climbed 10% to $3.95 billion from $3.59 billion.

Northrop said Wednesday that U.S. regulators were still reviewing the proposed acquisition of TRW, but the company said it was confident the deal could be closed by year-end.

Northrop, which is set to report earnings today, cleared a key hurdle Wednesday when the European Union OKd the deal.