Boeing Blues

Slumping with the airlines

As the world's leading commercial planemaker, Seattle's Boeing Co. stands to benefit handsomely when times are good in the airline business. But when times are bad, as they are now, Boeing gets the blues. Airlines are now beginning to cut back sharply on orders for the new 757 and 767 jets that the aerospace company had hoped would make it fly high through the 1990s.

Boeing's earnings were off 58%, to $61 million, during the first three months of this year as compared with the same period a year ago. In the state of Washington, Boeing employment is down to about 72,000 from a high of 81,500 in January 1981. That has raised the state's unemployment rate to 12.4%, and things could get worse. Boeing President Malcolm T. Stamper said that 8,000 to 10,000 more workers may be laid off if business does not improve.

A warning of the company's plight came in February, when American Airlines, bleeding from a deep 1981 fourth quarter net loss of $20.3 million, canceled its plans to buy 15 Boeing 757 planes, an order worth about $600 million. Although American earned a profit for the year of $47 million, that was still not enough to begin buying new planes.

Then in May, United Airlines dealt Boeing another blow by delaying delivery of 20 767 aircraft worth $900 million. United Chairman Richard J. Ferris cited the sluggish economy and fare wars as undermining United's ability to buy, plus congressional threats to kill or modify so-called safe harbor leasing provisions, which allow companies that do not need tax credits to sell them to companies that do. United would have thereby gained many millions of dollars, enabling it to buy Boeing's airplanes.

Even the politics of world trade is working against Boeing, in one instance pitting its planes against trains. Air Canada, suffering from financial ills of its own, last week was seeking to delay delivery of a dozen 767s ordered from Boeing. At the same time, the Reagan Administration has been considering an effort to block the sale of $663 million worth of Canadian-built subway cars to New York City. The American competitor claimed that the Canadians got the deal largely because the Ottawa government had overly subsidized the interest rate that New York City paid.

Boeing has also been hit by the glut in the used-airplane market, where prices keep getting lower and lower. Asks Morgan Stanley Analyst Wolfgang Demisch: "Why pay $30 million for a new airplane when you can get a used one for one-third that price?" The bankruptcy of Braniff Airways last month at least temporarily idled an additional 69 planes.

The Administration's planned military buildup could help Boeing, but such sales account for less than 25% of its business. The company will become profitable only when sales of civilian aircraft pick up. That may not happen soon. Says Chairman T.A. Wilson: "We're operating with the belief that it's not going to get any better during the next year."

Despite Boeing's present problems, most analysts expect the company will come out of its doldrums in 1984, if the economy improves as expected. Nothing, say oldtimers, could be as bad as the slump that hit the company in the early 1970s. At that time a recession, the winding down of the Apollo space program and the end of the war in Viet Nam struck almost simultaneously. As a result, Boeing's domestic civilian aircraft orders fell to zero between April 1970 and September 1971. Orders are down sharply now, but at least they exist: 26 so far this year, vs. 224 for 1981 and 481 for 1978.

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