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Boeing 2Q profit falls; expects defense layoffs

Wed, 07/28/2010 - 12:28pm
Manufacturing.net

Boeing's second-quarter profit fell 21 percent, and it said layoffs are likely in its defense business because of expected government spending cuts and bargain-hunting.

Profits and revenue fell in both Boeing's airplane and defense businesses. The commercial airplane downturn seems to be ending, with orders up sharply from last year and U.S. airlines reporting profits. But Boeing said the defense business would have lower margins than it expected for this year because of pricing pressure in the U.S.

"There is no question that the overall cost structure of that business has to come down," Chairman and CEO James McNerney told analysts on a conference call. He didn't say which programs or plants would see layoffs, when, or how many. He added that regular attrition as workers retire or quit would be part of the reductions as well.

Boeing Co.'s second-quarter profit of $787 million worked out to $1.06 per share, five cents more than expected by analysts surveyed by Thomson Reuters. Revenue fell 9.1 percent to $15.57 billion. That was short of the $16.13 billion expected by analysts.

Defense revenue fell 8 percent to $7.98 billion, with profits down 19 percent to $711 million. The revenue drop-off was mostly because of its space unit.

One of Boeing's strategies to boost its defense business is to sell to more international customers, McNerney said. That's beginning to bear fruit, with late-stage talks happening with customers in the Middle East and Asia, he said.

"I think there's as strong a pipeline as I've seen in the international defense business in a long long time," he said.

The Air Force tanker competition is a huge wild card for Boeing's defense prospects. It's competing with European defense contractor EADS, the parent of Airbus, to build 179 planes for the $35 billion program. McNerney said Boeing submitted "an aggressive but responsible bid" to make the tanker, and it expects the Pentagon to pick a winner in November. Other military aircraft built by Boeing include the C-17 cargo plane and the F-15E fighter.

Boeing's commercial aircraft business was hurt by a drop in deliveries — 114 for the quarter, down from 125 a year earlier. The recession was one factor. Another was problems with a seat manufacturer in Japan, which delayed some deliveries. Boeing said the seat problems should clear up in the second half of the year.

Commercial airplane revenue fell 12 percent to $7.4 billion, with operating profits down 16 percent to $683 million.

Boeing said the first delivery of its new 747-8 may slip into early next year. The plane is a longer, revamped version of its 40-year-old jumbo jet. Four of them are in flight testing, and Boeing is still working toward delivering the freighter version by the end of this year, but "there is increasing pressure on that schedule," it said.

A delay of the 747-8 isn't a huge surprise, but Boeing could have to pay penalties to customers if the delays are too extensive.

Similarly, Boeing is trying to get its new 787 delivered by the end of the year, but it has warned that might not happen. The midsize 787 is made of composite materials and has been in high demand for its fuel efficiency but is running more than two years late.

The company left its 2010 revenue and profit guidance unchanged, although that was partly because it cut capital spending plans by $200 million. It said it still expects to deliver 460 to 465 commercial airplanes this year, including the first few 787s and 747-8s.

Boeing said 2011 revenue should rise as it delivers those planes. It said its new planes for this year are sold out. It booked $12.8 billion in future aircraft orders or commitments at the Farnborough International Airshow last week, most of them 737s. Boeing has a backlog of 3,304 commercial planes, almost two-thirds of them its workhorse 737. The majority of its planes are flown by airlines outside the U.S.

Shares of Chicago-based Boeing shares fell $1.34, or 2 percent, to $67.28 in afternoon trading.

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