Boeing To Announce Huge Loss -- Production Snarl Costs $1.6 Billion, Shocks Analysts
Seattle Times Business Reporter
Conceding its production problems are far more serious than previously acknowledged, Boeing today said it will report a loss for its third quarter, its first loss since 1992.
Boeing said late deliveries and steps to deal with shortages of parts and skilled labor will cost it $1.6 billion before taxes when it reports third-quarter profit and sales results Friday. Boeing also anticipates the problems will cost another $1 billion next year.
After taxes, the third-quarter loss will pencil out to about $652 million, estimated Peter Jacobs, aerospace analyst with Ragen MacKenzie in Seattle. He had been projecting a profit of $448 million. The figures will, for the first time, include Boeing's acquisition of McDonnell Douglas in August.
Boeing's loss in the first quarter of 1992, $582 million, was due to slow deliveries caused by a slump in the airline industry.
"You just don't equate Boeing with losses," Jacobs said. "With the (increase) in production and the acquisition of McDonnell Douglas completed, it should be the best of times for Boeing. It's been hit a lot harder than we ever thought."
Boeing said $700 million of the extra costs is associated with production inefficiencies for its latest version of the 737.
Phil Condit, Boeing chairman, said the production problems "reached unexpected levels" in September. The company had earlier said it would be resolved in a few months.
But Condit now said snarls related to an unprecedented increase in production rates, training of new workers and parts shortages, along with late-airplane-delivery charges, will continue to pinch profits throughout next year.
"The magnitude of the number is shocking," said industry analyst Bill Whitlow, a Safeco vice president and manager of its Northwest Stock Fund. "We knew Boeing had problems, but that amount is surprising."
Boeing stock dropped $4.125 to $49.875 in late trading today.
Paul Nisbet, aerospace analyst with JSA Research, said Condit's estimates today would roughly shave 55 cents a share off this quarter's earnings and 60 cents a share off 1998 earnings.
Analysts had projected that Boeing would earn 46 cents per share for the third quarter and post earnings of $3.28 a share next year.
Nisbet said Condit has been more aggressive in increasing production than his predecessors, and "now he's paying for it."
Boeing had pared its work force in 1994-95 during an airline slump. Then, orders started pouring in, and the company was forced to increase production starting last year.
Production snarls have forced the company to disrupt its production process on both the 737 assembly line in Renton and the 747 line in Everett. Condit said inefficiencies on the 737 line are mainly responsible for the extra costs.
Boeing has been trying to double its production rate from 21 airplanes a month last year to 43 a month next spring. It had been up to about 30 a month, then slowed this month.
The company announced late in September that it was postponing delivery of at least 12 airliners into the fourth quarter. That could result in late-delivery charges from airlines, as well as lost profits.
As the beginning of this month, Boeing had an order backlog for 1,629 jets, including 173 to be built at Douglas Aircraft.
The unprecedented production increase has shaken suppliers along with Boeing. Many have had trouble getting raw materials, such as aluminum. Suppliers have also had problems getting their own production rates up to Boeing's and, as a result, parts haven't been available.
Many suppliers, recalling the downturn in the early 1990s, have been reluctant to devote their entire workload to Boeing out of fear they could be hit in the next slump, said aerospace analyst Nick Heymann.
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TIMELINE OF IMPORTANT DATES FOR BOEING
December 1996: Boeing announces plan to acquire McDonnell Douglas. Jan. 1: Washington payroll reaches 87,769, from low of 71,834 at beginning of 1996. Jan. 23: Boeing reports 14 percent profit gain in the fourth quarter of 1996 due to a 40 percent increase in jet deliveries. Profits were $254 million, up from $218 million a year earlier. Feb. 25: Boeing announces 2-for-1 stock split. March 28: A 20-year deal with Delta Air Lines brings an initial jet order for 106 airplanes worth $6.7 billion. April 29: Shareholders are told development costs of new jets dampened first-quarter profits and that a rapid increase in hiring and parts requirements were hurting productivity. First-quarter profits were $377 million, up from $119 million in the comparable 1996 quarter. May 7: American Airlines signs order for 103 jets worth $6.5 billion, part of a 20-year plan to buy Boeing jets. May 21: Boeing announces production rates will go from 29 to 43 airplanes a month by mid-1998. May-June: Local Boeing hiring peaked at 2,900 workers added in the two months. June 10: Continental Airlines orders 35 widebody jets worth $4 billion, part of a 20-year plan to buy Boeing jets. July 21: Chairman Phil Condit says high overtime and low productivity continued in factories in second quarter. Aug. 4: First day of combined Boeing-McDonnell Douglas operations. Sept. 2: International Lease Finance orders 61 jets worth $4.5 billion. Sept. 15: Boeing delays delivery of 12 jets worth about $1 billion. Sept. 30: Boeing's Washington payroll grows to 100,200. 1997 Boeing jet orders total 325. Oct. 3: Boeing says it will temporarily stop 737 and 747 production lines to catch up on work. Oct. 6: Boeing says it delivered 89 jets in the third quarter, including nine produced by Douglas Aircraft. Total for the nine months was 272, including 32 from Douglas. Oct. 21: Federal Aviation Administration says it has stepped up inspections in Boeing factories to guard against faulty work. Oct. 22: Boeing says it will have a loss in third quarter, due to $1.6 billion in extra costs associated with the production ramp-up and delivery delays.
Published Correction Date: 10/23/97 - Boeing's Last Operating Loss Was Posted In The Fourth Quarter Of 1969. One-Time Charges For Accounting Changes And To Fund Retirement And Employee Investment Plans Have Resulted In Overall Losses Posted In Other Quarters. This Article About Boeing's Upcoming Quarterly Loss Due To Production Problems Indicated There Was A Loss In The Early 1990S, But It Was Not An Operating Loss.
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