Boeing strike has analysts puzzled

First-quarter profit expected to drop as planes go undelivered



SEATTLE -- The monthlong strike by 17,000 Boeing engineers has exacted such a toll that Wall Street stock analysts are questioning the company's near-term bottom line, and some say privately that they're puzzled by what they see as the company's intransigence.

Boeing's stock has lost 17 percent of its value since the strike began Feb. 9, and analysts estimate that first-quarter profit, to be reported next month, could fall well short of expectations, even considering payroll savings.

The company hasn't delivered an airplane since March 1, Boeing said Thursday.

Engineers and analysts say the strike could virtually shut down production because engineers are involved at every step of the manufacturing process and, in the end, certify planes as airworthy on behalf of the Federal Aviation Administration.

"I am unaware of any [future] outcome such as that," said Boeing spokesman Peter Conte. He confirmed, however, that parking is at a premium at Puget Sound-area airports for planes not ready for delivery.

Conte said engineers who have not gone on strike are working on safety and other mechanical issues among airplanes already in service, fulfilling military obligations and, lastly, building and certifying new airplanes.

Members of the Society of Professional Engineering Employees in Aerospace (SPEEA), who have twice rejected Boeing contract offers, have taken particular delight in the fact they have brought airplane deliveries to a halt.

"I am hearing that the production systems are becoming increasingly bogged down due to lack of engineering and technical support," said analyst Peter Jacobs of Ragen MacKenzie. "So there will be a lot of catch-up once this strike ends. And the longer it lasts, the costs of fixing the problems increase exponentially."

Analysts were reluctant to estimate precisely what this means for Boeing's first-quarter profit, noting that it's unclear how far behind the company will be on airplane deliveries.

Airlines make final payment to Boeing when they receive an FAA-certified airplane.

In February, Boeing delivered only 15 of 42 scheduled airplanes. And this week it said the strike could affect second-quarter profit, too -- a possibility some analysts characterized as a given.

Analysts' "consensus" profit estimate for the first quarter had been 54 cents per share of stock. All analysts interviewed Thursday said they expect to downgrade their forecasts if they can get enough specific information, before the actual figure is announced by Boeing.

The actual figure could drop by 10 to 12 cents, said Cai von Rumohr of SG Cowen Securities. But that rough estimate excludes money Boeing is saving by not paying the 17,000 striking engineers and technical workers.

Whatever the effect of their strike, "Myopia is not the issue here," von Rumohr said of concern over short-term profit. "You want to focus on whether there's going to be some recovery here." He said there has been "damage done to the fundamental relationship" between Boeing and SPEEA.

Analysts agreed Boeing likely can catch up on production with little impact to the bottom line by year's end, and some said the long-term future is bright.

But others, who declined to be quoted by name, said the strike could inflict a high intangible toll long-term.

Among other effects, they noted loss of the goodwill of commercial-airplane customers, who have watched the company weather a litany of production problems in the past three years, and the potential for other unions to feel emboldened by the engineers' success.

In that context, analysts said, the difference between what Boeing has offered and the union has said it wants -- a difference estimated by one to be in the neighborhood of $90 million spread over three years -- makes the company's hard line hard to figure.

That said, there is a sense among analysts that rank-and-file expectations are vague, which has contributed to the present lack of dialogue between Boeing and SPEEA.

"I've talked to engineers and I've heard Boeing, and I'm not sure the engineers know exactly what they want," said Todd Ernst of Prudential Securities.

SPEEA Executive Director Charles Bofferding said yesterday that he talked with about 30 analysts by phone Thursday, telling them that "as the strike goes on, people become more disenchanted with the company, and on a dollar basis we don't think we're far apart. But we're insisting on no benefit take-aways and respect equal to other bargaining units." The International Association of Machinists and Aerospace Workers is the Boeing union that traditionally has had the most clout.

Besides taking its case to the analysts, Bofferding said, the engineers' union is "trying to get a line in to the board of directors. We're talking to customers and -- generating a shareholder letter. We're going to every avenue."

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