Boeing gave a buoyant assessment of its future business prospects yesterday, but President and Chief Executive Harry Stonecipher also made...
Boeing gave a buoyant assessment of its future business prospects yesterday, but President and Chief Executive Harry Stonecipher also made clear that the coming months may reshape the company significantly.
The fates of Boeing’s 747 jumbo jet and 767 mid-size wide-body jet could be sealed in May or June, when the company decides whether those Everett-built jets will continue in production or close down in 2006.
And a decision on the future of Boeing’s major commercial jet-parts plant in Wichita, Kan., is likely to be announced within three weeks, Stonecipher said.
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Details on the timing of those decisions came as Boeing executives discussed 2004 earnings in a conference call with analysts.
“We expect solid revenue and earnings growth in 2005 and 2006, driven by significant growth at Commercial Airplanes as the commercial market recovers and continued growth [on the defense side],” said Chief Financial Officer James Bell.
The commercial-airplanes unit lost money in the fourth quarter, due to the $555 million pretax charge announced last month for costs of the stalled Air Force tanker deal and the closing of the 717 line in California.
Boeing’s overall financial results showed a solid operating performance for 2004. Even when adjusted to exclude a non-cash write-off in 2003, profits from operations in 2004 were still up 53 percent year-on-year.
The company earned $2 billion from operations on revenue of $52 billion.
Bell said the commercial unit’s profit margin for the quarter would have been “a solid 6 percent” without the accounting charges.
The defense side’s profit margin hit 10 percent for the year; the commercial side averaged 4 percent for the year, even with the charges.
With the underlying performance strong and the commercial market recovering globally — though not in the U.S. — Boeing upgraded its forecast for 2005 and 2006.
Last year Boeing delivered 285 airplanes. The delivery forecast for this year is 320 airplanes, rising to 375-385 next year.
That would raise the Puget Sound-based commercial-airplane unit’s revenues from $21 billion in 2004 to $24 billion this year, and $27 billion to $28 billion next year.
Boeing’s delivery slots are sold out for 2005 and are 78 percent sold out for 2006. But the bullish forecast for 2006 was too much for several analysts.
Glenn Engel of Goldman Sachs said in a note to clients that to meet its forecast, Boeing needs to see orders accelerate.
“Even non-U.S. airlines could fall into the red if oil prices remain high,” Engel wrote. “We see deliveries in 2006 merely matching 2005 as European airlines and low cost carriers pull back expansion plans.”
In contrast, Heidi Wood of Morgan Stanley welcomed Boeing’s forecast.
“Global traffic is recovering. Airlines have put off ordering for well over four years now,” Wood said, “With low interest rates and favorable aircraft prices, it’s a nice time to be placing orders.”
But even if the commercial-airplanes unit swings up as predicted, the division could look very different by the end of this year.
Stonecipher said that he has given authority to the Puget Sound-based commercial unit to offer to customers a new 747 derivative, the 747 Advanced, pending board approval.
This effort is designed to gauge interest in the new jet and to discover if there are enough potential new orders for the existing 747-400 freighter version to bridge the gap until the new derivative would come into production in 2009.
But if that effort fails by midyear, Boeing will close down the 747 line in 2006, he said.
Richard Aboulafia, an industry analyst with Teal Group, questioned the need to end 747 production. He said it would be worthwhile to keep it alive just to put pricing pressure on Airbus’ A380 superjumbo.
“But [Boeing] is a very bottom-line oriented company. If they can save money, they might just do it,” he said. “They might kill the 747.”
The same fate will befall the 767 line if the Air Force fails to come through with a new tanker alternative by midyear.
Separately yesterday, people on Capitol Hill familiar with the tanker deal said that the long-awaited analysis of the need for new tankers could be delayed several more months, pushing out any new contract even further.
That would almost inevitably spell the end of the 767.
In the conference call, Stonecipher downplayed the impact of a 767 closure on the company. He noted that if the Air Force chooses to extend the lifetime of the current KC-135 tankers, Boeing does a large chunk of the ongoing maintenance work on those old jets.
He also raised the possibility that the Air Force tanker would use a different Boeing airframe than the 767. “We have a full line of products,” he said, “We are able to offer them anything they want.”
But he insisted that the 767 is still the most likely model for a new tanker.
Analysts were left with strong doubts.
“I do think [the 767] is dead,” said Wood of Morgan Stanley.
Stonecipher also said that he expects a decision will come on the sale of the Wichita commercial-parts plant in the next 10 to 20 days. Stonecipher said he believed the plant will be sold.
That decision would be followed by extensive discussions on the repercussions of a sale with the unions representing some 7,300 affected workers.
Dominic Gates: 206-464-2963 or firstname.lastname@example.org
Seattle Times reporter Alicia Mundy in Washington, D.C., contributed to this story.