Boeing's Blues

It should come as no surprise that since the commercial airline business is taking a beating from the severe drop-off in passenger traffic, that the nation's largest airplane manufacturer would also get slammed. But this bad?

Boeing said Thursday that its earnings for the last quarter will be reduced by 38 cents a share, and it said that it will cut production on its 777 widebody by 29 percent next year. "These are extremely difficult economic times for our customers," said Boeing Commercial Airplanes President and CEO Scott Carson said in a statement. "It's necessary to adjust our production plans to align supply with these tough market conditions. We are in close contact with our customers as we continue to monitor this dynamic business environment."

Boeing will cut production on the 777 from seven airplanes a month to five, starting the middle of next year. Other widebodies are getting affected too as Boeing will postpone plans to boost production of its 747-8 and 767 models. The news release made no mention of the 787, the next generation long-haul plane that has been beset by delays.

In a story on Time.com headlined "Boeing Proves a Poorly Run Company Can Still Do Badly," Douglas A. McIntrye notes:

The damage from the flying public staying at home has claimed another large victim -- Boeing (BA), which only a year ago had business prospects that it would have been proud to set side-by-side with those of any other large American company. Boeing was an $87 stock last May. It trades for $39 today. ...

Boeing is one of the rare instances where the incompetence of its executives is not what is bringing the company to its knees. Good management is supposed to count for a great deal, but, under market conditions which are deteriorating quickly and over which a company has no control, a spider monkey can be at the helm.

To make matters worse for Boeing, the company is being pegged as a loser in the $534 billion budget request Defense Secretary Robert Gates laid out for fiscal 2010. According to The Motley Fool's Rich Smith:

Boeing ... looks to be a major loser. Its C-17 transport program looks to be capped at the 205 birds already planned. However, additional sales may still arrive from overseas as Europe looks for alternatives to its troubled, homegrown A400M military transport.

Potentially worse for Boeing is the Pentagon's increasing skepticism over the massively expensive $200 billion Future Combat Systems program, led by Boeing and SAIC. Planning to gut the program, Gates is looking to eliminate $87 billion in funding for high-tech armored vehicles.

Last but not least, Boeing will feel the pinch as Gates cuts spending on the Airborne Laser Project. The first prototype will continue receiving funds, but a planned second plane is now off the table. Suffering alongside Boeing from this cut will be partners Lockheed, Northrop, and Raytheon.

The Motely Fool notes that there's one saving grace for Boeing in the Defense budget, namely that the Defense secretary "seems committed to to restarting last year's abortive attempt to pick a contractor to build the KC-X refueling tanker. If Boeing can beat out archrival Northrop Grumman in this contest, it will at least reduce the sting of the other cuts." In Boeing's release on its commercial division, it noted that production on the workhorse 737 will continue as planned, without any cutbacks.

by J. Jennings Moss