Sunday, March 8, 2009

An Order Slowdown Hits Boeing

An Order Slowdown Hits Boeing

The global slump in travel and sharp fall-off in financing for purchases of everything from homes to companies is hitting Boeing's (BA) order book for new jets with a vengeance. The planemaker on Mar. 5 reported that it clocked just four new orders for planes in February, a big decline from 125 in the same month last year. Even more dramatically, the company reported that it has lost 32 orders for its still-to-be-delivered 787 Dreamliner.

Analysts say Boeing, which until last fall was soaring on ever-rising orders, appears to the be the latest victim of a credit crunch that shows no signs of abating soon. "The world has changed," says Jefferies (JEF) analyst Howard A. Rubel. "The world is short of capital, and this is a capital good." Boeing shares shed 3% on Mar. 5, to 29.39, amid a broad stock market sell-off.

Boeing's Record Order Backlog

But analysts say the decline in orders should not hit Boeing's financial performance for the remainder of this year, at least. Such orders are generally for planes to be delivered years from now, and Boeing is still working down a record backlog of some 3,700 orders—although the company will likely shuffle deliveries to account for cancellations and deferrals. "It's going to be a very difficult year in terms of orders," says Broadpoint AmTech analyst Peter Arment. "We believe deferrals and cancellations will probably exceed new orders."

Boeing delivered 36 jets in February, down just three from the year before. The company, whose production tally for last year was cut by some 100 planes by a nearly two-month-long machinists strike, has plenty of work to carry it through the rest of 2009 and for some time beyond, analysts say. The global slowdown is also hitting Boeing's chief rival, Airbus (EAD.PA), which reported orders for just four planes in January, compared with 238 planes a year earlier.

Analysts Sticking by 2009 Forecasts

So far, much of Wall Street is sticking by estimates for Boeing's financial performance for the next couple of years, although some analysts say they are less confident about 2010 than this year. Indeed, Boeing Chief Executive W. James McNerney Jr. has declined to make any predictions about results next year. Jefferies' Rubel forecasts that net income this year will rise to $3.8 billion, up from $2.7 billion in 2008, while revenues will climb to $69.4 billion, up from $60.9 billion last year.

The Seattle-based planemaker, in a weekly posting of orders on its Web site, reported a net decline of 10 orders for the year so far. New orders, primarily for 737 and 777 model planes, were offset by a loss of 32 orders for the much-delayed Dreamliner. But for now Boeing still has plenty of Dreamliner orders on its books, 878 in all for the new jet, which is due to take wing by June. Most of the cancellations for the plane, nearly two years late, are from a Russian carrier and a Middle Eastern leasing company.

Anticipating tougher times, the company in January disclosed plans to cut some 10,000 jobs. About 4,500 of the cuts are slated for the commercial plane unit, and are planned for back-office support functions instead of production-line posts. "We do have some orders, and that's something to celebrate," says spokeswoman Liz Verdier. "We are working hard with the customers to help them get what they need. It's really important now to keep working with them."

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