Business Too Good At Boeing Snags In Increased Production To Cost Company $2.6 Billion
Business is so good at the Boeing Co. that it’s losing money.
The world’s largest manufacturer of commercial jets is so swamped with orders - and is so far behind - that it will have cost the company $2.6 billion in a year and a half.
Late aircraft deliveries, a lack of skilled labor, parts shortages and a snarled assembly line have resulted from an unprecedented increase in production. The problems will result in a rare loss for the third quarter and will hurt earnings into next year, the company said Wednesday.
“We knew that we were going to have significant problems in ramping up our production,” Boeing spokesman Paul Binder said.
The problems will cost Boeing about $1.6 billion before taxes in the third quarter ended Sept. 30, said Phil Condit, chairman and chief executive. Even if Boeing’s production recovery plan works, additional disruptions will add $1 billion in costs through 1998, he said.
The unexpected size of the loss sent Boeing’s closing stock price tumbling more than 7 percent, or by $4.12-1/2 a share, to $49.87-1/2 Wednesday on the New York Stock Exchange, dragging down the Dow Jones industrial average.
Boeing, which will announce earnings Friday, will experience only its third quarterly loss in the last 25 years. A year ago, it earned $254 million in the period.
In contrast to the current troubles, the last loss came as Boeing was paying for an early retirement program to cut employment by 12,000 two years ago.
Blindsided by the sudden turn-around in orders, Boeing has hired 32,000 people in the past 1-1/2 years and plans to hire more.
Boeing said two weeks ago it would halt new production of 747-400 jetliners for a month and slow some 737 production to try to unscramble problems caused by its attempt to more than double the number of aircraft it makes.
“If you judge by the number of people they’ve hired and the size of the write-off, the problem is greater than they anticipated and Wall Street anticipated,” said Bill Whitlow, manager of the Safeco Northwest Fund.
So much work was being done out of sequence on the 747 assembly line in Everett that Boeing halted it for 20 working days to catch up.
And during flight tests for Boeing’s new-generation 737-700, a flaw was found in the horizontal stabilizer design. Fixing that forced Boeing to stop final assembly on the new 737s for 25 days.
Two years ago, Boeing was turning out just 17 planes a month. Orders plummeted in the early 1990s because of a global recession and a drop in travel due to Gulf War fears. But when airlines became healthy again, they bought planes.
In 1994, airlines ordered 120 Boeing planes worth about $7.8 billion. So far this year, Boeing has announced orders for three times as many jets - 355 - worth about $25 billion.
Boeing now produces about 40 planes a month, with a goal of 43 by next spring - 48 if production of newly acquired McDonnell Douglas is factored in.