BOEING TAKES AEW&C CHARGE IN RESULTS
24 Jul 08. The FT reported that Boeing warned yesterday that orders for its commercial aircraft could be cancelled or deferred as airlines struggled to cope with the high cost of fuel.
“Clearly, economic conditions are tough for many of our commercial customers, with oil prices putting significant pressure on them to restructure their businesses,” said Jim McNerney, chief executive. “We are concerned about the impact of energy prices on our customers, and we do expect that we could have more deferrals and some cancellations.”
Mr McNerney’s comments are bearish for a company that has remained steadfastly optimistic in the face of rising oil prices. Airbus, Boeing’s main competitor, warned this month that more than a quarter of its backlog could be at risk due to the challenges airlines face in remaining profitable. His remarks came as Boeing reported second-quarter earnings below analysts’ expectations as it was hit by costs on its repeatedly delayed 787 Dreamliner programme and charges for a delayed military aircraft contract.
Net income for the quarter was $852m or $1.16 per share, down from $1.05bn or $1.35 per share in the same period last year.
Profits were dragged down by a 22 cents-per-share charge for delays on the Wedgetail, a surveillance aircraft programme for Australia’s air force. Boeing had previously warned about the charge. However, even including the charge, analysts had expected earnings of about $1.23 per share. Revenue – little changed at just under $17bn – also came in below expectations of $17.3bn.
Joseph Nadol, an analyst at JPMorgan, noted that the figures added up to “the worst quarter we have seen from Boeing in some time”.
However, the Chicago-based company maintained its outlook for this year and 2009. Mr McNerney said Boeing had so far received only “a handful of deferrals by US carriers” and added: “We’ve had no cancellations to speak of, nor have the international carriers come to us to discuss deferral plans.”
Boeing’s commercial division is enjoying a record backlog, with orders representing eight years of production. Mr McNerney noted that only 10 per cent of that backlog comes from US airlines. “If we see more deferrals or cancellations, the geographic mix should protect us from a significant downturn in any one region,” he said.
He also reiterated Boeing’s view that higher oil prices will prompt airlines to seek more fuel-efficient models. “Right now, the demand for fuel-efficient new aircraft is still higher than what we can supplyfrom our production plants.”