Boeing Co said it will cut production of its most profitable model next year, reducing earnings starting with the first quarter of 2009, as the global recession hurts business at airlines and cargo carriers.
The company will take a charge of 38 cents a share in the previous quarter because of lower output and weaker-than- projected pricing, Chicago-based Boeing said in a statement today. The world’s second-largest commercial-plane maker was expected to earn $1.21 a share, the average estimate of 19 analysts surveyed by Bloomberg.
Monthly production of the twin-aisle 777 will drop to five from seven beginning in June 2010, and plans to increase output for the new 747-8 jumbo jet and the 767 will be delayed, Boeing said. The company is keeping production steady at 31 a month for the single-aisle 737, the world’s most widely flown plane.
Boeing has been studying next year’s manufacturing plans as financing for airlines has dried up, leading to deferrals and cancellations that exceeded new orders in the first quarter. The company, which said as recently as last month that it would boost deliveries to 480 to 485 aircraft this year and keep production stable through at least mid-2010, plans to give more details when it posts earnings on April 22.
“This is the first step,” said Peter Arment, a Broadpoint AmTech analyst with a “neutral” rating on Boeing stock who had projected earnings of $1.23 a share before today’s announcement. “There will be other production-rate changes in the coming months, and they will be on the narrow-body side.”
737 production
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Boeing has a shorter lead-time for its 737s than for the larger models, so it may scale back 2010 plans for that plane in coming months and slash production by 19 per cent to 25 jets a month, said Robert Stallard, an analyst with Macquarie Capital USA.
Today’s decision will hurt suppliers including General Electric Co, Precision Castparts Corp, Goodrich Corp, Rockwell Collins Inc, Honeywell International Inc. and United Technologies Corp starting this year, Stallard wrote in a note.
Boeing fell as low as $37.25, a drop of $1.90 or 4.9 percent, after the close of regular trading on the New York Stock Exchange. The shares later pared losses, climbing back as high as $39.13 at 6.40 pm. Boeing tumbled 50 per cent in the past year, prior to the announcement.
Boeing in January forecast profit of $5.05 to $5.35 a share this year. The company has to take the charge now because next year’s production cuts will result in fewer deliveries to absorb fixed overhead costs and lower margins for each plane in the program’s backlog, said spokesman John Dern.
Delivery Plans
Boeing delivered 121 planes in the first three months of this year, a 5.2 percent increase from a year earlier, as it worked to return to its growth plan and fill a record order backlog for 3,589 planes. Shipments dropped 15 percent to 375 last year because of a two-month machinists’ strike that idled factories in the Seattle-area manufacturing hub. Deliveries are important because that’s when a planemaker gets paid.
Airbus SAS, Boeing’s larger rival, said last week that it still expected to deliver 483 planes this year, though shipments may drop as much as 15 percent next year in a worst-case scenario before picking up again in 2011.
Boeing’s commercial-airplane chief, Scott Carson, said in March that carriers still were seeking new planes to replace less fuel-efficient models, even if they were reluctant to expand. He said the company could cut output by about 10 percent next year if the air-travel market deteriorated further.