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.

FMI: www.boeing.com