Is Boeing Out of Its Spin?

Like a jetliner that keeps hitting turbulence, the Boeing Co. has been lurching through some stomach-churning rides. An embarrassing failure to meet delivery schedules helped force the Seattle giant to take a $178 million loss in 1997--its first red ink in 50 years--and to report a 90% drop in profits for the first quarter of 1998. The problem: shortages of parts and a production system that could not keep up with the largest surge of new orders in the history of the jet age.

The burden of too much business, however, may not be with Boeing long. Asia's financial crash has caused carriers across the Pacific Rim to cancel or delay billions of dollars' worth of aircraft orders. Boeing, which plans to build 550 jetliners in 1998, says the downturn may cost it some 90 deliveries--which could carry a value of $10 billion--over the next five years. In Europe, Boeing rival Airbus Industrie, pushing for a 50% share of the world's $65 billion-a-year jetliner market, is wooing long-standing Boeing customers and has been bargaining hard for a $3.8 billion order from British Airways. Just last week US Airways, which previously ordered 400 Airbus jets, said it would buy 30 more from the European consortium.

Is Boeing headed into a more or less permanent tailspin? The stock market has long seemed to be saying so, as it cut the value of Boeing shares 26% over the past year. But the company claims to be in a turnaround. Top executives say Boeing delivered 61 commercial jets last month, a record for June, and has finally broken through bottlenecks that delayed production of its so-called Next-Generation 737s, the fastest-selling new jets in aviation history. That news caused Boeing stock to climb $3.875 a share, to $48.437, last week, still well off its 12-month high of $60.50 a year ago. "We're getting into a normal production situation," says Ron Woodard, president of Boeing's commercial-airplane group. Notes analyst Peter Jacobs of the Ragen MacKenzie investment firm: "They appear to be working their way out of their problems."

Well, not entirely. While Boeing managers crowed about the production results last week, mechanics were rushing to complete 13 behind-schedule NG 737s parked outside the company's overstrained plant in Renton, Wash. Inside the cavernous building, workers struggled to avoid further delays even as Boeing was planning to speed up the NG 737 line from 14 planes a month to 21 to further clear the backlog. Says Boeing chairman Phil Condit: "We've still got some things to do." Like making money on the hot-selling 737s. Boeing has already written off $437 million after taxes against the first 400 737s in order to cover such costs as overtime charges and late-delivery fees. (Last week the Federal Aviation Administration ordered U.S. airlines to replace a supplier-built engine part on 23 NG 737s after an engine shut down on two European carriers during flight. Neither shutdown resulted in injury.)

How could this happen to the company that virtually invented the jet age? After all, Boeing has built no less than 55% of all the jetliners in service today. That figure climbs to 77% with the addition of planes from McDonnell Douglas, which Boeing acquired last year for $16.3 billion.