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. Last Updated: 07/27/2016

Battered Boeing Sees Turbulence Ahead

LOS ANGELES -- Battered by a slump in the commercial aircraft business, Boeing Co. reported sharply lower third-quarter earnings Wednesday and acknowledged that a downturn in the airline industry could well last through 2004.

Boeing chairman Philip Condit also predicted that the Chicago-based company's commercial satellite and rocket launch business would remain sluggish for the foreseeable future. Much of Boeing's satellite and rocket work is handled in Southern California, where its space and communications unit is the largest private employer.

The aerospace giant's net income declined nearly 43 percent for the three months ended Sept. 30 to $372 million, or 46 cents per share, from $650 million, or 80 cents, a year earlier. Revenue fell 7 percent to $12.7 billion from $13.7 billion.

The falloff at Boeing's commercial aircraft operations was especially steep. Revenue for the unit dropped nearly $2 billion to $6.1 billion. Boeing delivered 73 jets in the quarter, a 39 percent drop compared with the year-earlier quarter.

"We're in a very dramatically changed business environment," Condit said Wednesday in a conference call with analysts. "The downturn is severe."

Indeed, Boeing said it was lowering its production forecast for 2003 and said demand for commercial aircraft could continue to decline through the end of 2004, a year longer than its earlier estimate. The grim outlook had been expected by analysts.

It also didn't surprise hundreds of Boeing suppliers in Southern California, which have been struggling with shrinking orders for parts all year.

Many in the industry are concerned that a prolonged slump could ignite a major shakeout among small- to medium-sized contractors, particularly those heavily dependent on commercial aircraft orders.

Most Boeing suppliers have weathered the downturn by slashing jobs and trying to boost defense-related work, but "there is going to be increasing inexorable pressure on these guys," said Ross Anderson, a principal director of Janes Capital Partners, an aerospace investment bank.

Since last year's terrorist attacks, air travel has remained anemic and has put major U.S. airlines in a severe financial crunch. Although major airlines aren't canceling orders, they're not placing new ones. They also have taken many planes out of service and have pushed back deliveries of new jets.

Faced with this weak demand, Boeing said aircraft production in 2003 is likely to be in the range of 275 to 285 new jets, rather than its previous forecast of 275 to 300. Boeing delivered more than 500 new airplanes last year.

With lower orders, Boeing projected that revenue and operating margins also would be lower than previously expected. The company reduced next year's revenue forecast to $50 billion from $52 billion.

One bright spot in the earnings report was Boeing's military and aircraft business. The U.S. has increased defense spending in the wake of the terrorist attacks and for military action in Afghanistan.