750 Workers Chopped, Massive Balance Sheet Charges for Plant
Closure and 767-Tanker Bribery Case
The Boeing 717, the last
of a long line of commercial airplanes to be built in Southern
California, has reached the end of the line. Boeing will take no
more orders for the jet that is the last heir to the name of Donald
Douglas, and the last 717 will probably come off the line in 2006.
Boeing has the last batch of 18 717s under construction now; only 8
of them were 2004 orders.
The first news leaked out when a reporter for the Long Beach
Press-Telegram secured a copy of an internal memo Friday. Boeing
had apparently intended for the announcement to be made after the
closing of the stock market Friday afternoon. Boeing's attempt to
minimize impact on the stock price apparently worked; the
Press-Telegram story focused on probable layoffs, and didn't
mention the certain fact that closing the Long Beach plant would
lead to a large charge against earnings. Indeed, the stock closed
up 28 cents at $50.90 a share. When the size of the charges being
taken sinks in, that share price may be unsustainable.
The charge for the closure of Long Beach is $340 million, but
the fine print seems to indicate that this charge is for
termination of supplier contracts only -- meaning this may not be
the whole hit: charges related to the idled plant and layoffs may
still be waiting in the wings. In addition, Boeing is going to eat
a $275 million charge "related to the 767 tanker program." Boeing's
Pentagon deal for the tankers unraveled when massive corruption was
exposed: former Boeing and Pentagon official Darleen Druyun is
serving a prison sentence, which leaves any tanker deal gravely
wounded in Congress and with the public. The 767 tanker charge also
does not close that program, so the possibility of further large
charges remains. Even the currently-announced charges were
staggering: the $615 million total will probably leave Boeing in
the red for the quarter.
The 767 is at risk of being the next product on the chopping
block, if the USAF does not select the 767 to replace 40- and
50-year-old KC-135s. But the 767 has an uphill fight. Key
lawmakers, notably Sen. John McCain of Arizona, are still
outraged over the tanker scandal and determined to punish
Boeing.
Some 750 workers in the Long Beach commercial airplane plant
will lose their jobs, 300 of them UAW members who may have
seniority to bump other union workers across the field at the C-17
military aircraft plant. A handful of the others may find work
elsewhere in the sprawling corporation, which will remain Long
Beach's largest employer with over 9,000 workers on commercial,
military, and space programs.
Boeing launched the 100-seat airliner in 1995, as much as an
attempt to salvage something from its costly, hasty purchase of
McDonnell Douglas as an attempt to serve the market. The 717
competed directly with some versions of the 737, and was
unfortunate enough to meet new, larger, regional jets, which have
significantly lower operating costs, head-on.
Additionally, Boeing never gave the impression of being fully
behind the plane, which was assembled in a plant that still has a
large sign promoting the plant's owner two corporations ago: "Fly
DC Jets!"
The 717 is the Boeing version of the MD-95, which was the last
of the MD-90, MD-80, DC-9 series. Operators, like AirTran, pilots
and passengers have all praised the 717, but Boeing hasn't sold
enough to justify keeping the plant open.
AirTran, the operator most identified with the type, placed a
100-plane 737 order in 2003, citing the uncertain status of the 717
program.
Bombardier wasted no time issuing a press release, informing all
interested in operating a 100-seat jet, that the Canadian firm has
one to sell.