Outlook is Realistic, not Cheery

The Boeing Company yesterday reported a net loss for the second quarter of 2003 of $192 million on revenues of $12.8 billion. This compares with net earnings of $779 million, on revenues of $13.9 billion for the second quarter of 2002.

On July 15, 2003, the company disclosed it would recognize charges related to its launch and satellite businesses. These charges decreased net earnings for the quarter by $693 million, or $0.87 per share.

"We took strong actions this quarter to recognize and address the challenges in our commercial space businesses," said Boeing Chairman and Chief Executive Officer Phil Condit. "Our strong defense portfolio again performed well, and Commercial Airplanes and Boeing Capital Corporation are successfully managing through the downturn for strong future returns."

The company reported losses from operations totaling $293 million in the second quarter compared with earnings from operations of $1.2 billion in the second quarter of 2002. Previously announced charges related to the satellite and launch businesses reduced earnings from operations $1.1 billion.

Boeing Commercial Airplanes

 Commercial Airplanes continues to aggressively manage for profitability through the unprecedented downturn in its markets while focusing on the future. During the quarter, Commercial Airplanes continued to resize operations, improve efficiency, and pursue a disciplined product development strategy, including the new 7E7 airplane. As part of resizing operations, after the quarter Commercial Airplanes announced additional employment reductions of 4,000 to 5,000 people, bringing year-end employment estimates in the range of 55,000 to 56,000.

During the second quarter, deliveries of commercial airplanes decreased 34 percent to 74 airplanes, and revenues fell 24 percent to $5.8 billion when compared with the second quarter of 2002. Earnings from operations totaled $313 million, and reflect significantly lower deliveries and revenues and higher pension expense, offset by good performance and lower R&D spending. Operating margins were 5.4 percent in the period compared to 7.3 percent for the second quarter last year.

Integrated Defense Systems

Integrated Defense Systems’ revenues increased 7 percent to $6.6 billion, up from $6.1 billion in the second quarter of 2002. Reported operating losses totaled $429 million compared with earnings from operations of $639 million in the second quarter of 2002 due to the previously disclosed charges recognized primarily in the Launch and Orbital Systems segment. Aircraft, weapon, military support and network-centric programs continued to perform well.

Network Systems

Results reflected continued growth in its homeland security and Department of Defense (DoD) network-centric program base as revenues rose 13 percent to $2.2 billion. Operating margins were 4.5 percent, down from 7.3 percent last year, due to previously disclosed cost growth on DoD satellite programs.

Support Systems

Support Systems delivered strong growth, with revenues up 18 percent to just over $1.0 billion on significant increases in tactical and transport aircraft spares and modernization. Operating margins remained excellent at 10.5 percent compared with 10.7 percent in the second quarter of 2002.

 Launch and Orbital Systems

Revenues for the quarter were up 14 percent to $770 million on higher satellite deliveries. Charges recognized during the period, as previously announced, resulted in an operating loss of approximately $1 billion.

Boeing Capital Corporation

During the quarter, revenues increased 13 percent to $287 million as a result of portfolio growth during 2003. Pre-tax income, including interest expense, totaled $72 million compared with $73 million in the second quarter of 2002. The slight decline primarily reflects higher depreciation expenses when compared with the second quarter of 2002, largely offset by increased revenues.

At quarter-end, approximately 78 percent of Boeing Capital Corporation's portfolio was related to Boeing products and services (primarily commercial aircraft) compared with 76 percent at the end of the first quarter.

"Other"

The "Other" segment consists chiefly of the Connexion by Boeing, Air Traffic Management, and Boeing technology units, as well as certain results related to the consolidation of all business units. Losses from operations for the quarter totaled $57 million as Connexion by Boeing prepares to launch full-scale service in 2004.

 During the second quarter, Connexion by Boeing completed successful consumer trials with Lufthansa and British Airways, and signed an initial service agreement with Lufthansa for 88 aircraft. Boeing’s Air Traffic Management unit continued to build support for a modernized global air traffic management system, signing an agreement with the Air Traffic Alliance to cooperate on several projects around the world.

Outlook: a billion here, a billion there.

Boeing Commercial Airplanes’ deliveries forecast for 2003 is unchanged. The delivery forecast for 2003 remains approximately 280 airplanes and is virtually sold out. The delivery forecast for 2004 has been narrowed from between 275 and 300 airplanes to between 275 and 290 airplanes. The 2004 delivery forecast is now approximately 90 percent sold at the lower end of the range. Commercial Airplanes expects demand for aircraft services and spares to remain soft due to severe market conditions.

Boeing Capital Corporation portfolio growth is expected to slow as airplane delivery rates remain at depressed levels. BCC is focused on minimizing risk and preserving value with prudently structured transactions and portfolio management.

The outlook for 2003 revenues is unchanged at +/- $49 billion. The company is revising its 2004 revenue outlook from $52 - $54 billion to +/- $52 billion.

FMI: (report)