Sunday, April 12, 2009

Dark Clouds Loom For Boeing Co.

. Sunday, April 12, 2009

By stockOzone team

These are indeed troubled times for airplane maker Boeing Co. (NYSE: BA). The Chicago, Illinois-based company is hit hard by the crisis in the financial market and the subsequent turmoil in the airline industry.

Last week, Boeing announced that it will cut back production of its 777 model at its Everett plant from seven planes a month to five and delay a plan to ramp up production of its 747 and 767 models. The company blamed the action to a “significant deterioration in the business environment for airlines and cargo operators driven by unprecedented global economic conditions.” The company also lowered its first-quarter quarter earnings projections by 38 cents a share.

The move prompted credit rating company Standard & Poor’s to place some of Boeing Co.’s long-term credit ratings on the “credit watch negative” list with “negative implications.” In a statement, S&P said "We believe the global economic weakness, decreased air traffic, losses at airlines, and difficulty in arranging financing are likely to result in further aircraft order cancellations and deferrals of aircraft deliveries and could require additional cuts in production to match output with demand.”

In 2008, the Chicago-based aerospace giant delivered 375 commercial aircraft, down from 441 in 2007. In the first quarter, Boeing had 28 new orders as against 32 cancellations from January through March,which translates into a net decline of four orders. There's no doubt that a low order book this year would mean weaker deliveries in 2010 and 2011.

For Boeing, challenging conditions are likely to persist for some time. It is being suggested that U.S. carriers, which have already downsized, may be forced to defer or cancel more aircraft orders if the prolonged economic downturn further hurts travel demand and continues to choke credit markets. According to Official Airline Guide, commercial aircraft use in the average airline fleet will drop 4 percent worldwide this year from last year. Passenger traffic as a whole is likely to drop by 5.7%, as businesses and consumers alike cut back on travel spending. Moreover, for 2009, the IATA said it now expects an aggregate industry loss of $4.7 billion, compared to a loss of $2.5 billion that it forecast in December. Apart from capacity cuts, aircraft orders also are being hit by tight credit markets, which make it hard for airlines to finance expensive aircraft.

The company is due to report first-quarter earnings, and update financial guidance for 2009, on April 22.

Boeing shares have lost over 50% in past 52 weeks. Shares of the company finished at $39.15, up $2.28 or 6.18% in regular trade on Thursday.

Disclosure: Author does not own any of the stocks discussed here.

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