Boeing Warns On Q1 Profit, To Cut Plane Output

Boeing warned on Thursday first-quarter profit would be reduced by lower-than-expected plane prices and production cuts on its lucrative widebody planes as cash-strapped airlines defer purchases.

Boeing, along with rival Airbus, is being hit hard as carriers and cargo operators struggle with the economic downturn. So far this year, Boeing's order book shows more cancellations than orders for jets.

The Chicago-based company, which makes its commercial airliners in the Seattle region, said first-quarter profit would be cut by about 38 cents per share due to the lower prices and production cuts.

Boeing sets firm prices for a plane about a year before it is delivered, decided by a formula tied to certain economic indices. The recent poor performance of the world's economy means that prices being set now are well below where Boeing expected them to be.

Although that affects future deliveries, Boeing is required to reflect such changes, as well as the effects of production rate changes, in the most recent quarter.

The company will report first-quarter earnings, and update financial forecasts for 2009, on April 22.

PRODUCTION RATE CUT

Because of the drastic dip in demand, Boeing said production of its 777 will fall to five from seven per month beginning in June 2010, and that it will delay previous plans to increase production of its new 747-8 jumbo and 767 widebody models. No changes are planned for its best-selling single-aisle 737.

Industry-watchers have been expecting production cuts at Boeing and Airbus for some time, in reaction to the obvious pain being felt by their airline customers.

"(There is) widespread expectation that this is just the first of several cuts for this down-cycle, with the 737 rate likely to be the next that goes down," said Rob Stallard, analyst at Macquarie Securities.

Fewer 777s is bad news for a host of Boeing suppliers, said Stallard, such as General Electric, which makes engines for the plane, plus component manufacturers Spirit Aerosystems, Goodrich and Rockwell Collins.

NEGATIVE ORDERS

Airlines have canceled orders for 32 of Boeing's planes this year, all for the delayed 787 Dreamliner. With only 28 firm orders for all types of Boeing commercial aircraft, the company is showing a net loss of four planes in its order book so far this year.

In comparison, Boeing took more than 1,000 net plane orders in each of the boom years from 2005 to 2007. Boeing says its backlog of more than 3,500 planes will help it through economic hard times.