750 jobs chopped, massive balance sheet charges for plant
closure and 767-tanker bribery case
The Boeing 717, the last of a long line of commercial airplanes
to be built in Southern California, has reached the end of the
line. Boeing will take no more orders for the jet that is the last
heir to the name of Donald Douglas, and the last 717 will probably
come off the line in 2006. Boeing has the last batch of eighteen
717s under construction now; only eight of them were 2004
orders.
The first news leaked out on Friday when a reporter for the Long
Beach Press-Telegram secured a copy of an internal memo. Boeing had
apparently intended for the announcement to be made after the
closing of the stock market Friday afternoon. Boeing's attempt to
minimize the impact on the stock's price apparently worked; the
Press-Telegram story focused on probable layoffs, and didn't
mention the certain fact that closing the Long Beach plant would
lead to a large charge against earnings. Indeed, the stock closed
up 28 cents at $50.90 a share. When the size of the charges being
taken sinks in, that share price may be unsustainable.
The charge for the closure of Long Beach is $340 million, but
the fine print seems to indicate that this charge is for
termination of supplier contracts only -- meaning this may not
represent the full extent of the hit. Charges related to the idled
plant and layoffs may still be waiting in the wings. In addition,
Boeing is going to eat a $275 million charge "related to the 767
tanker program." Boeing's Pentagon deal for the tankers unraveled
when massive corruption was exposed -- former Boeing and Pentagon
official Darleen Druyun is serving a prison sentence, which leaves
any tanker deal gravely wounded in Congress and with the public.
The 767 tanker charge does not, however, close that program, so the
possibility of further large charges remains. Even the
currently-announced charges were staggering -- the $615 million
total will probably leave Boeing in the red for the quarter.
The 767 is at risk of
being the next product on the chopping block, if the USAF does not
select the 767 to replace 40- and 50-year-old KC-135s. It will be
an uphill fight, as key law makers, notably Sen. John McCain, R-AZ,
are still outraged over the tanker scandal and remain determined to
punish Boeing.
Some 750 workers in the Long Beach commercial aircraft plant
will lose their jobs -- 300 of them are UAW members who may have
seniority to bump other union workers across the field at the C-17
military aircraft plant. A handful of the others may find work
elsewhere in the sprawling corporation, which will remain Long
Beach's largest employer with over 9,000 workers on commercial,
military, and space programs.
Boeing launched the 100-seat airliner in 1995, as much an
attempt to salvage something from its costly, hasty purchase of
McDonnell Douglas as an attempt to serve the market. The 717
competed directly with some versions of the 737, and was
unfortunate enough to meet head-on the new, larger regional jets,
which have significantly lower operating costs. Furthermore, Boeing
never gave the impression of being fully behind the plane, which
was assembled in a plant that still has a large sign promoting the
plant's owner two corporations ago: "Fly DC Jets!"
The 717 is the Boeing version of the MD-95, which was the last
of the MD-90/MD-80/DC-9 series. Operators such as AirTran, as well
as pilots and passengers have all praised the 717, but Boeing
hasn't sold enough of them to justify keeping the plant open.
AirTran, the operator most identified with the type, placed a
100-plane 737 order in 2003, citing the uncertain status of the 717
program.
Bombardier wasted no time issuing a press release, informing all
parties interested in operating a 100-seat jet that the Canadian
firm will continue to sell one.