Boeing's share price fell sharply Wednesday after disappointing second-quarter earnings.

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Boeing’s share price fell sharply Wednesday after disappointing second-quarter earnings, despite firm assurances from management that profits will recover in the second half of the year and grow 20 percent more next year.

Wall Street analysts said what concerns them is not the immediate shortfall but the potential impact of the crisis in the airline industry, which is struggling with high oil prices.

“It’s tough to imagine a scenario where Boeing’s stock is constantly marching up when all the airlines are reporting big losses and deferring deliveries,” said Rob Stallard, an analyst with Macquarie Capital investment bank.

Boeing delivery projections show the company this year should finally reclaim the production lead it lost to Airbus five years ago, and it projects airplane deliveries from its Puget Sound-area factories will continue to climb through 2010.

Yet as some of the world’s airlines struggle to stay in business and others cut back service, doubts remain about the level of aircraft production in 2010 and beyond.

Stallard minimized the past quarter’s problems as “short-term operating concerns that eventually will be fixed,” and said the bigger issue is “the state of the cycle.”

The cyclical demand for airplanes determines the amount of work at Boeing’s factories. Chairman and Chief Executive Jim McNerney suggested the eight years of production backlog on the books of Boeing Commercial Airplanes will cushion it against declining demand but conceded concern over the airline outlook.

“Despite minimal impact on our business so far, we are concerned about the impact of energy prices on our customers,” McNerney said in a conference call to discuss the earnings results. “We do expect that we could have more deferrals and some cancellations.

“Right now the demand for fuel-efficient new aircraft is still higher than what we can supply,” he said. “We remain confident we will deliver the commercial airplanes in our guidance for 2008 and 2009 and that deliveries will be higher in 2010 due to 787 production ramping up.”

Despite all the troubles of the airlines, that would mean the industry is still at least two years from peak airplane production.

From 441 jets last year, Boeing forecasts it will reach 475 to 480 deliveries this year, and between 500 and 505 deliveries in 2009. Airbus projects only 470 deliveries this year.

McNerney did not put a number on jet deliveries in 2010. Production could possibly reach the level last seen in 2001, with 525 airplanes delivered.

But if the airline crisis broadens, that delivery rate might be out of reach.

Lehman Brothers analyst Joe Campbell said the financial results and the stock price of Boeing and other aerospace companies are now “captive to oil prices and the fortunes of airlines.”

Until now, the consensus among Wall Street analysts was that Boeing’s profits would rise steadily in 2008, 2009, 2010 and probably in 2011 too.

“The market is now wondering whether high oil prices are going to cause those prior expectations to be dramatically curtailed,” Campbell said. “The central issue is whether high oil means that deliveries will be lower than Boeing is saying today.”

Because of the potential for massive deferral of orders worldwide — which hasn’t happened, yet might — “investors are petrified that Boeing will have to cut deliveries in 2010,” he said.

Campbell said he expects Boeing to deliver on its promises, and that investors’ fears will eventually subside.

The same analysts were unfazed by the 19 percent decline in Boeing’s second-quarter earnings and by the 2 percent reduction in profit margins in the commercial airplane unit.

Even though the factories here delivered 12 more aircraft than in the corresponding quarter in 2007, revenue fell 2 percent and operating earnings were down $183 million.

Boeing’s Chief Financial Officer, James Bell, said this was in part due to the mix of airplanes delivered — proportionally more of the smaller and less-profitable narrow-body 737s, and fewer of the big wide-body jets.

A second reason for the earnings decline was an accounting change forced by the 787 schedule delays announced back in April.

Boeing spent heavily on 787 overhead costs this year, for example, increasing staffing at organizations such as supplier management, quality assurance and the airplane-delivery center in Everett.

According to Boeing’s usual accounting procedures, those costs would have been averaged over years of production, creating barely a blip in this quarter’s earnings.

Not this time, though. The costs could not be allocated to a program that hasn’t delivered a single airplane and has zero revenue. The 787 overhead costs were therefore spread over all the existing programs, reducing profitability throughout the commercial unit.

Bell said those increased costs would be offset by year-end by productivity improvements that are in the pipeline.

In addition to the profit squeeze, large cash outlays on the 787 have slashed Boeing’s 2008 cash flow, which is projected to be down $4 billion from what was forecast just a year ago.

Those outlays include advance payments to suppliers and penalty payments to both suppliers and customers; paying suppliers for sections delivered; paying the cost of fabricating the 787 tail sections and other parts Boeing makes itself; and paying the cost of holding inventory that’s not assembled yet.

McNerney offered assurances that the 787 is “on track.”

Still, the financial market focused on the earnings shortfall and the uncertainties in the broader industry. Boeing’s stock price fell 3.7 percent for the day, closing at $66.72.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com