Defense/Aerospace Industries

[DewDiligence]

Boeing Posts $1.56 Billion Q3 Loss

[There’s nothing good one can say about all this, IMO.]

http://online.wsj.com/article/SB10001424052748703816204574486964008811696.html

›OCTOBER 22, 2009
By ANN KEETON And PETER SANDERS

Boeing Co. Chairman and Chief Executive Jim McNerney said the company had overreached in outsourcing production on its marquee 787 Dreamliner program, leading to a string of problems and contributing to a $1.56 billion loss for the third quarter.

Mr. McNerney's comments were the most explicit acknowledgement to date about the limits of one of the company's major strategic shifts in recent years. One of the hallmarks of the Dreamliner program, which is more than two years behind schedule, was Boeing's strategy to outsource most of the work to a network of global suppliers and perform final assembly at its Washington factory.

But Mr. McNerney said problems emerged partly because engineers were scattered around the world. He said Boeing needs to bring more engineers back in house. "When you look back, you see that we lost some of the disciplines, particularly within the context of outsourcing so much of the work," he said on an earnings conference call Wednesday.

Beyond the Dreamliner, Boeing's revamped 747 jetliner also has been beset with delays. Shuffling engineers from the new 747-8 program to the Dreamliner earlier this year contributed to delays and another write-down on the new 747, which mostly is being ordered as a freighter.

Boeing recorded $3.5 billion in previously announced third-quarter charges on its 747-8 and 787 Dreamliner jets in development and on Wednesday slashed its earnings forecast for the year.

The aerospace giant faces challenges in its commercial business, but its defense side is also feeling revenue pressure. MarketWatch's Christopher Hinton reports on the company's latest results.

Mr. McNerney said Boeing's core businesses remain strong, although challenges persist in the commercial-aircraft and defense markets. He said the Dreamliner and 747-8 remain on track to be delivered to their first customers at the end of next year. While costly, the Dreamliner is expected to record a profit [maybe], unlike the 747-8 program.

Mr. McNerney said Boeing continues to evaluate the need to cut commercial-aircraft output but has no plans to reduce production of its 737. Earlier this year, Boeing reduced production for the 777, citing lower demand from airlines. The company is expected to announce in coming weeks whether it will build a second Dreamliner final assembly line at its current factory in Everett, Wash., or at a newly acquired facility in Charleston, S.C.

Boeing's finance unit will provide $800 million of financing this year, falling short of the $1 billion it had expected to provide as capital markets have opened up, Mr. McNerney said.

The Chicago-based company cut its forecast for earnings this year to between $1.35 and $1.55 a share from $4.70-$5 a share. Defense work, which accounts for nearly half of Boeing's revenue, has failed to make up for losses in commercial aircraft.

Defense rival Lockheed Martin Corp. on Tuesday posted a slight increase in profit but forecast a decline in 2010 earnings because of belt-tightening at the U.S. Defense Department.

Boeing said Wednesday that the Dreamliner remains on track to make its first test flight by year-end and its first delivery near the end of 2010. In late August, Boeing shuffled its top management, sending James Albaugh, the head of its defense unit, to Seattle to take over operations at the commercial-airplanes division. Scott Carson, who had run the unit since 2006, stepped down. The move came after a handful of top defense executives moved into high-ranking jobs at the commercial unit, mostly to oversee the struggling Dreamliner and 747-8 programs.

Morgan Stanley analyst Heidi Wood cut her rating on Boeing shares to "underweight" from "equal weight" Tuesday, worried that complex design modifications could delay the first delivery of the Dreamliner into the spring of 2011. That would put Boeing on the hook for paying additional late fees to customers.

The company has shed 7,200 workers since the start of the year and is on track to reach its stated goal of 10,000 job reductions sometime next year, Boeing said.

Boeing's $1.56 billion third-quarter loss amounted to $2.23 a share. That compares with a year-earlier profit of $695 million, or 96 cents a share. Charges reduced results by $3.59 a share.

Revenue reached $16.69 billion, up 9.1% from last year, when a machinists strike hurt sales.

The commercial-aircraft segment swung to a $2.84 billion operating loss. Sales rose 13% to $7.88 billion as higher deliveries offset lower services volume.

Defense-business revenue rose 2.9% to $8.74 billion. Defense earnings increased 3.6% to $885 million.‹