Boeing’s first-quarter profits are down by half due to the worldwide slump gripping its airline customers, the company said this morning.
Chief executive Jim McNerney said customers have already deferred deliveries by an average of one or two years on some 60 airplanes that had been scheduled to roll out in 2010 and 2011. And Boeing is in discussion with customers about further deferrals of more than 60 additional jets.
But McNerney insisted that the commercal airplane unit’s major programs can remain steady despite the “steep global economic downturn.”
The 787 Dreamliner is on track to fly in June, with ground tests proceeding well so far, he said.
And despite a major cut in 777 production in Everett from 7 to 5 airplanes per month, which Boeing announced April 9 and will put into effect next year, McNerney said he has “reasonable confidence” that he won’t have to reduce the 737 production rate in Renton.
He also said the new 747-8 jumbo jet program, now operating at a loss and with just over 100 orders, is still viable and remains “a good niche airplane.”
“We don’t intend to kill the program,” McNerney said.
Boeing’s first-quarter profits were hit, as expected, by the accounting impact of next year’s 777 production cut, and by reductions in jet pricing linked to deflation.
Those factors led to a charge of $435 million, or 38 cents per share, at the commercial airplane unit.
Overall, Boeing earned $610 million, or 86 cents per share, compared with $1.21 billion, or $1.62 per share, during the same period last year.
The jetmaker and defense giant cut its profit forecast for the year by $0.35 to between $4.70 and $5.05 per share.
The rate reduction planned for next year affects Boeing’s profits today. That’s because the company spreads its program costs out over hundreds of airplanes built over multiple years. When it plans to build fewer airplanes in the accounting period, that means the costs per airplane have to be increased.
And deflation in consumer and commodity prices affects Boeing’s revenue because its jet contracts include clauses that assume inflation in the economy, to be covered by higher customer payments on delivery. With general prices going down instead of up, the revenue expected from deliveries is significantly down.
First-quarter revenues rose 3 percent from the year-earlier period, to $16.5 billion, as the company delivered 121 commercial airplanes, up from 115 a year ago.
But profits from operations in the Commercial Airplanes unit dropped to $417 million from $983 million a year ago.
On the defense side, McNerney expressed concern about the prospect of major cuts in Pentagon spending, with major Boeing programs tagged for reductions by Secretary of Defense Robert Gates. However, he said the budget plan announced by Gates is only the beginning of a long Congressional appropriations process.
He clearly hopes to see politcal pressure that will mitigate the proposed cuts.
Though defense unit profits dropped 18 percent from the same quarter last year, Boeing said that was mainly due to the timing of deliveries of some big-ticket items, including C-17 heavy-lift military cargo jets.