Boeing 717’s Outlook Worsens
Boeing Co. warned anew Friday that it was considering shutting down its 717 jetliner production line in Long Beach, the state’s last remaining commercial aircraft assembly plant, because of slowing sales.
In a filing with the Securities and Exchange Commission, Boeing said that it lost out on the bidding for a major contract in December, increasing the chances that it would end production of the 106-passenger plane.
If it decides to close the assembly line, located adjacent to Long Beach Airport, Boeing said, it would face a pretax charge against earnings of about $400 million.
Boeing has talked before about discontinuing production of the 717 but never as extensively as in the regulatory filing. A decision on the future of the aircraft could happen as early as this summer, analysts suggested.
About 1,500 people work on the 717, completing one plane a month.
Boeing has an additional 7,000 employees at a nearby complex in Long Beach who assemble the C-17 cargo jets for the Air Force under a contract that extends until 2008. The C-17 workers would not be affected by any 717 shutdown.
During its peak of production, the 717 line had 3,000 workers and delivered about three of the aircraft a month.
One Boeing executive, who spoke on condition that he not be identified, said the 717’s fate rested on several key competitions over the next several months, including one with Lufthansa, Germany’s largest airline.
“They’ve got to get some orders this year -- or else,” said Paul H. Nisbet, senior aerospace analyst with JSA Research Inc.
In a separate matter, Boeing said Friday that it could take a $310-million charge against earnings if the Pentagon failed to proceed with plans to lease and buy 100 of its 767 jetliners for use as aerial refueling tankers. The $17-billion deal is under review after allegations of ethical misconduct.
The Chicago-based company also said SEC investigators had requested information on the firing of Boeing’s former chief financial officer, Mike Sears. Boeing alleges that Sears wooed a Pentagon official, Darleen Druyun, for a job at the company while she oversaw negotiations on the tanker contract. Boeing hired Druyun after she retired from the Pentagon in 2002. She too has been let go.
Despite the glum outlook for the 717, Boeing executives in Long Beach asserted Friday that there were no immediate plans to terminate the program or even a timetable to consider such an action. “It is not an indication of an imminent decision,” spokeswoman Cynthia Taylor said. “We’re still out there aggressively marketing the airplane.”
Southern California was once a bastion of aerospace manufacturing, but the area is now pockmarked with shuttered aircraft assembly plants.
During World War II, Douglas Aircraft Co. facilities in Long Beach boasted 160,000 workers turning out military aircraft, including the B-17 bomber. Later, the sprawling complex manufactured DC-8s and MD-11s, among others, for the world’s airlines.
Boeing inherited the twin-engine 717 program when it acquired McDonnell Douglas Corp. in 1997 and changed the jet’s name from the MD-95. The 717, with a list price of $36 million, is the smallest jet in Boeing’s line of commercial aircraft.
Two years ago, Boeing quietly considered shuttering the 717 line after the Sept. 11 terrorist attacks pummeled air travel and orders for new airplanes. But Boeing found that the cost of closing the plant, including paying termination fees to suppliers, was too great. So it decided to continue making the plane, albeit at a reduced production rate, analysts said.
Since launching the 717 aircraft program in 1995, Boeing has garnered 148 firm orders, mainly from regional airlines and discount carriers. The company has said it needs to book at least 200 orders to break even.
Meanwhile, the 717’s production backlog has dwindled to 20, leaving about two years of manufacturing left.
In December, a key prospect for the 717 was dashed when Air Canada decided to purchase 90 new aircraft from Boeing rivals in a $1.35-billion deal. After an intense competition, the airline ordered 15 of the 50-seat CRJ200 and 30 of the 74-seat CRJ700 from Canadian aircraft maker Bombardier Inc., plus 45 planes from Brazilian plane maker Embraer.
The loss was a huge blow to Boeing because Air Canada is part of the Star Alliance, a group of airlines that is currently shopping to buy 105 regional jets for its members. Analysts said the Air Canada decision could reduce the 717’s chances because the group wanted to standardize its orders.
In addition, Boeing insiders said the 717’s biggest supporter, former Chief Executive Philip Condit, was no longer around. The new CEO, Harry Stonecipher, has a reputation for hard-nosed cost cutting.
“There have been lot of predictions that it was a doomed aircraft,” Nisbet of JSA Research said. “That’s the way it’s been for several years.”
One problem for the 717, he noted, is its in-between size. Indeed, the plane is akin to a slow-footed, 6-foot-5 player in the NBA: too small for many major airlines and too big for many regional carriers.
Boeing’s shares rose 9 cents Friday to $42.72 on the New York Stock Exchange.
