- The Washington Times - Wednesday, January 1, 2003

SEATTLE — 2002 couldn't end soon enough for Boeing.
The aerospace manufacturer limped through last year as it dealt with a series of setbacks, particularly in its core commercial jet business. Boeing cut 30,000 jobs, announced more reductions for 2003, slashed production in half, lost the year's biggest plane order and was forced to watch as the airline industry underwent a massive shakeout.
Industry analysts saw a bigger problem Boeing's failure to champion a vision for the future. The company's decision to shelve ambitious plans to build a Sonic Cruiser jet, which would travel near the speed of sound, made them question whether Boeing has lost its nerve.
"You could either regard 2002 as [Boeings] taking a break or as a pattern for the future," said Richard Aboulafia, aviation director with the Teal Group of Fairfax. "It's the latter that is a bit disturbing."
To be sure, it was a difficult year for the commercial aviation sector.
The airlines that are Boeing's customers were hurt by the sluggish economy, a drop in business travel and the lingering effects of the September 11 terrorist attacks. The biggest names in U.S. aviation including United Airlines and US Airways, which filed for bankruptcy laid off tens of thousands of workers and cut routes as they reported billions of dollars of losses.
Since the attacks, Boeing was forced to reschedule deliveries of more than 500 jets easily a year's work and halved its production rates, laying off thousands. The cuts will continue in 2003, the company said, with about 5,000 achieved through attrition and layoffs.
Boeing also lost a huge order to its chief competitor, Airbus of Toulouse, France. British low-fare carrier easyJet announced in October it would order 120 jets from Airbus despite an existing fleet of Boeing 737s and take options on another 120.
Instead of building the Sonic Cruiser, Boeing said it plans to introduce in 2004 a more traditional, middle-of-the-market, superefficient jet the size of a 767.
Analysts noted that in the past, Boeing has forged ahead with new jet development even when the economic climate was shaky and the outlook for orders poor.
"They'll be waiting until demand begins to be asserted before they really commit to [the Sonic Cruiser]," said Paul Nisbet, an analyst with JSA Research. "It is a change. They've been willing to commit to airplanes [before] without much in the way of orders."
Teal Group's Mr. Aboulafia said Boeing, from a commercial jet production standpoint, did little this year but retreat and protect its profits.
"It's part of the new Boeing," he said. "It's about generating value for shareholders and return on investment and not market leadership."
Including all its businesses, the company earned a profit of $1.73 billion ($2.14 a share) for the first nine months of the year, on revenue of $40.4 billion, with the majority coming from commercial airplanes.
Boeing Chairman Phil Condit defended his company's moves, saying it "won't run away from a development opportunity that we think's got a good market." He added that Boeing continues to develop new defense aircraft and high-speed Internet connections for air travelers.
"There's so much exciting going on," he said.
For the year ahead, the company will have to cope with the airline industry's continuing problems. It has projected delivering only 275 to 285 jets in 2003, which would be one of its lowest production years in a decade.
The company also will face shrinking backlogs in orders for its 747, 767 and 757 lines, with the 757 outlook looking particularly grim. The 757 had no new orders in 2002, leaving only 29 of the planes to be built as of the end of November.
If Boeing can't secure new orders, it might need to cut its already reduced production rate of two jets a month, Mr. Nisbet estimated, or possibly close the line for good.
Boeing did have some good news this year. The company managed to narrowly avert a strike by its largest union, the machinists, which voted to reject a contract offer but failed to muster enough votes to approve a strike. That forced an automatic contract adoption.
And Boeing also bought itself peace with its second-largest union, the Society of Professional Engineering Employees in Aerospace, which overwhelmingly approved a three-year contract.
The company secured a $4.5 billion contract to build 40 F-15K fighter jets for South Korea's air force. It rolled out the new 777-300ER, or extended range, jet.
But Boeing's biggest challenge is to remember it is first and foremost a commercial jet maker, Mr. Aboulafia said. It can prove its entrepreneurial spirit is still alive, he said, or keep to a profit-focused, risk-averse posture that he said characterized McDonnell Douglas in its latter years before being bought by Boeing in 1997.


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