Guy Norris/SEATTLE
A good year for Boeing's Military Aircraft and Missile Systems helped the company post profits of $1.1 billion for 1998,signalling the beginning of what it hopes will be the start of a sustained recovery from 1997 when it incurred losses of $178 million on a turnover totalling $45.8 billion.
Despite the contributions from the military businesses, the key result for Boeing was a small, but vital, profit of $63 million from the hard-hit commercial business that sustained record losses of $1.8 billion in 1997. These resulted from development issues with the Next Generation 737, chronic production problems and special charges due to the write-off of the McDonnell Douglas lines.
The bulk of the overall 1998 profit, however, came from Military Aircraft and Missile Systems which contributed $1.28 billion. Added to another $248 million from Space and Communications, the combined profit of Information, Space and Defense Systems was $1.53 billion.
Despite the modest improvement in the performance of the commercial business, most of it related to smoother production and deliveries in the last quarter, the company remains cautious. The Asian situation, which particularly hit Boeing's twin-aisle business, is "stabilising" but is "still very tender" says Boeing chairman and chief executive, Phil Condit. "We're not out of the woods, but the direction is right," he adds.
The company's immediate focus remains fixed on improving the health of its commercial airline production. Boeing expects to outline details of a new strategy within 30 to 60 days, says Deborah Hopkins, the company's newly appointed chief financial officer.
This will tackle the problem of raising earnings from operating margin which were at 0% for commercial aircraft in 1998, against 9.9% for military aircraft and missiles, and 3.6% for space and communications. Hopkins predicts the margin will rise to between 2% and 3% this year but slipped 1% and 3% in 2000.
The issue is critical for the medium and longer term health of the commercial arm which faces a "significant" order slump over the next two years. Commercial aircraft turnover is expected to be around $38 billion this year, compared to $36 billion in 1998. It is expected to drop significantly in 2000, however, to around $28 billion as deliveries fall off and the order backlog is eaten up.
Deliveries, which reached a record 559 in 1998, are expected to peak this year at around 620, before falling back to around 480 in 2000. The impact of the drop is compounded by the anticipated cut in 747 production (from 53 in 1998 to 14 in 2000), with a resulting slash in the higher margins that normally flow in from this product.
Source: Flight International