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Mon, Jul 21, 2003

Bad Breaks For Boeing

Layoffs, Corporate Spy Scandals And Allegations Of Price Gouging

See that guy over in the corner of the restaurant, eating by himself? Looks like he's been at the office too long, doesn't it? See the circles under his eyes? He's just a bit overworked and more than a bit worried right now.

That guy in the booth by himself, nursing a Bromo-Seltzer, is Boeing CEO Phil Condit. He has a lot on his mind. For instance: America's biggest commercial airplane maker is laying off up to five-thousand workers before the end of 2003. That drops significantly of people employed by Boeing to make aircraft for the commercial market. Two fired managers have been indicted for stealing Lockheed-Martin documents that may have helped Boeing win an important space launch contract with the government. On Capitol Hill, Boeing is under fire from Senators who accuse the airplane maker of gouging the Air Force in a proposed contract to sell the government 100 767s modified as refueling tankers. See that man in the restaurant booth over there?

He just ordered another Bromo-Seltzer.

Layoffs And A Threat From Airbus

For the first time this year, Boeing's arch-rival, Airbus, plans to out deliver the Chicago-based US company. At last month's Paris Air Show in Le Bourget, France, Airbus announced it will fill 300 orders this year.  Boeing has said it expects to deliver about 280 planes by the end of the year. But that projection was made before Wednesday's announcement from Continental Airlines that it has delayed delivery of at least 36 new aircraft from Boeing.

KC-767 Scandal?

Boeing has problems elsewhere. The Senate Commerce Committee and its chairman, John McCain (R-AZ) threaten to subpoena Boeing documents regarding a planned purchase by the Air Force of up to 100 modified 767s to replace an over aged refueling fleet where the average aircraft is 43 years old.

"We've received information from outside sources that Boeing offered this same aircraft at a much lower price to airlines in foreign countries," said McCain, a former Navy pilot and Vietnamese POW.

"We don't know if that's true or not." The lease deal between Boeing and the Air Force would cost taxpayers approximately $17.2 billion.

"I would point out that we asked for the information over a month and only two days ago did we receive the first piece of paper," McCain said at a committee hearing Thursday.

A spokesman for Boeing promised the nation's biggest aircraft maker would comply with McCain's request. The committee has decided to give Boeing another week before it revisits the possibility of formally demanding the documentation.

And Then There's The Lockheed-Martin Allegation

On another front, Boeing has tapped former US Senator Warren Rudman to lead an investigation into charges that two Boeing managers conspired to steal secrets from Lockheed-Martin in 1997 and 1998. Already, two Boeing managers have been fired and brought up on federal charges for their alleged part in the scandal. Kenneth Branch, 64, and William Erskine, 43, for the misuse of proprietary Lockheed Martin Co. documents during bidding for Air Force launch contracts. The two, who were managers in the Evolved Expendable Launch Vehicle (EELV) program, were charged with conspiracy to conceal and possess trade secrets by a federal grand jury in Los Angeles. If convicted, both men face a maximum of 10 years confinement and a fine of $250,000, or both.

Observers say Lockheed only got the remaining seven launches because the Air Force wanted to keep both America's major aerospace defense contractors involved.

But firing Erskine and Branch may not be enough for Air Force investigators. If they find that Boeing did help or encourage the theft of Lockheed secrets during the sensitive bidding process, the Chicago-based company could face government sanctions, or, in a worst-case scenario, be barred from competing for bids in the future.

That prospect must be keeping Boeing executives up late at night, given the fact its aerospace division is bidding on an additional 20 EELV missions worth more than a billion dollars.

Boeing's Commercial Satellite Business Is Going Out Of Business

That kind of money in Boeing's launch business would go a long way to offset the $1.1 billion charge-off its satellite operations are expected to face at the end of the third quarter. The dot-bomb debacle and the continuing slow recovery from 9/11 have reduced demand for transponder space to virtually nil. As a result, Boeing today said it was getting out of the commercial launch business and would focus its orbital efforts solely on government satellite contracts.

There is the 7E7 project. The Dreamliner has generated a lot of market interest with its promise of 20% lower operating costs. But Boeing has to get from here to there and economic experts almost guarantee the road is going to be rough -- even without government investigations and congressional subpoenas. "The market's obviously very difficult," said Chris Tarry, an independent airline analyst based in London, as quoted by Reuters. "It's probably four years away before any significant upturn" in demand for new iron. Waiter, send another glass of Bromo-Seltzer to CEO Phil Condit's table... with our regards.

FMI: www.boeing.com

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