Thu, Sep 20, 2001 page19

• Business Focus: Boeing to fire up to 30,000 workers

  Airlines will ask the EU today to allow non-discriminatory relief from governments such as tax cuts or permission to negotiate capacity reduction with their rivals

  • BLOOMBERG
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  Boeing Co will fire as many as 30,000 employees, or 15 percent of its workforce, by the end of next year as last week's terrorist attacks threaten to bankrupt airlines and slow the world's economy.

  The biggest maker of commercial jetliners said it will deliver about 500 planes this year, down from an earlier estimate of 538, and around 400 next year compared with its forecast of at least 510. Boeing said deliveries will fall again in 2003.

  Next year's 20 percent fall in production is equal to US$6 billion in sales and makes it more likely Boeing's earnings will drop, analysts said. Boeing customers including AMR Corp's American Airlines and Delta Air Lines Inc face losses of more than US$4.8 billion as demand for travel falls after the attacks, leaving no money for new planes.

  

  In this file photo, Boeing 767s taxi down a runway. The same sized plane flying for American Airlines from Boston was hijacked and flown into the World Trade Center in New York City last Tuesday.

  PHOTO: BLOOMBERG

  "At no time did we think it was ever going to be this severe," said Alan Mulally, chief executive of Boeing's jetliner business. "If the airlines don't stay financially viable, we have an even bigger problem." Boeing Chairman Phil Condit had been pushing the company into new businesses such as satellites and in-flight Internet services, in part to lessen the effect of swings in the economy and an already-slowing aircraft market.

  US carriers are seeking US$24 billion in government aid to help counter the expected losses, which are forecast to exceed the previous US$4.8 billion record set in 1992, when travel declined following the Gulf War.

  In Europe, airlines are set to today ask EU Transport Commissioner Loyola de Palacio to allow non-discriminatory relief from governments such as tax cuts or permission to negotiate capacity reduction with their rivals.

  "We're assuming that one way or another, the airlines will find a way to stay alive," Mulally said.

  Carriers have slashed schedules as much as 23 percent and cut more than 28,000 jobs since last week's attacks. Boeing said its delivery reductions are in line with the airlines' cutbacks in flights, and it's still negotiating with customers on precisely how many planes they need.

  "This dashes hopes for a soft landing and foils the company's plans for a consistent string of profitable results," said Richard Aboulafia, director of aircraft consulting at Teal Group in Fairfax, Virginia.

  Airbus SAS, the only other maker of large commercial jetliners, is also lowering its production goals. The planemaker may deliver fewer than 400 jetliners in 2003, down from an initial goal of more than 450, BAE Systems Plc, a 20 percent shareholder in the planemaker, said last week.

  Deutsche Lufthansa AG, Europe's No. 2 airline, may delay approving an order for Airbus's A380 superjumbo when its supervisory board meets yesterday, analysts said. Further announcements on Airbus production rates are expected today, when 80 percent owner European Aeronautic Defense and Space Company reveals its first-half earnings.

  Boeing employs 199,000 overall and 93,700 in its jetliner business, about 60,000 of them in the Puget Sound region of Washington state. The cuts, to be across the board and include virtually every Boeing plant, may begin within two months, Mulally said. Boeing said it may cut as few as 20,000 jobs if the drop in travel isn't as severe as expected.

  He declined to comment on how the decline may affect earnings. He said Boeing will discuss that further when it releases third-quarter results next month.

  "We are making tough business decisions," Condit said in a statement, adding that the move will "enhance the company's ability to maintain its solid financial position." Unlike other defense contractors, which saw their shares increase, Boeing's shares tumbled 18 percent when trading resumed Monday after a four-day halt. The stock dropped US$2.66, or 7.4 percent, to US$33.14 yesterday. It's down 42 percent in the past year.

  Boeing, the second-biggest US arms maker, gets 60 percent of sales from its jetliner business.

  Each jetliner delivery is worth about US$60 million in sales and US$6.6 million in profit, Prudential Securities analyst Todd Ernst estimates. With deliveries of 400 next year, Boeing's earnings per share may drop to US$3.20 from an expected US$3.85 this year, Deutsche Bank analyst Chris Mecray said in a report.

  Boeing had said in July it expected US$58 billion in sales this year and US$62 billion next year.

  Second-quarter profit rose 23 percent as sales rose and the company stemmed losses at its space and communications unit, which makes rockets and satellites. After stumbling with production bottlenecks in the late 1990s, Boeing had beat analysts' earnings expectations for 11 straight quarters.

  "This is a tremendous sad thing," Mulally said. "The Boeing team had come so far in recovering."

  There were signs business was slowing even before the attacks. In July, Condit cut Boeing's jetliner delivery forecast for next year to 510 to 520 from about 530. Several analysts had said Boeing might have to cut deliveries even further, although few forecast such a steep decline.

  While Boeing may slow some product-development spending, it's still committed to its planned "sonic cruiser," a high-speed transport it hopes to introduce later this decade, Mulally said.

  Boeing moved its headquarters to Chicago from Seattle this month, in part to emphasize its expansion beyond aircraft-building. The job cuts are the only latest dislocation for the company's workforce, which was reduced from more than 238,000 in the late 1990s due to the Asian economic crisis.

  Boeing has faced even more drastic swings. In the early 1970s, employment dropped from 150,000 to 50,000 due to a recession, high costs to build the 747 jumbo jet and the cancellation of the planned US supersonic transport, according to Flying High, a 1996 book about Boeing by author Eugene Rodgers.

  The decline prompted a famous billboard that read, "Will the last person leaving Seattle turn out the lights."
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