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Boeing Stock Hits Turbulence on Airbus' Order From Singapore Airlines

Aerospace: Despite challenge in jumbo jets, analysts see Seattle giant keeping focus on profits.

October 03, 2000|CHRIS STETKIEWICZ | REUTERS

SEATTLE — Aside from knocking Boeing Co.'s 747 jet off its perch as the world's top commercial aircraft, Airbus Industrie's gigantic A3XX jet poses only a modest threat to its U.S. archrival, analysts said.

But you wouldn't know it from Boeing's stock on Monday. The shares plunged $6.06 to $58.44 after the A3XX scored a key win over the 747: Asian carrier Singapore Airlines on Friday ordered 10 of Airbus' $200-million, 555-seat A3XX jets.

Yet many analysts say the pressure remains on Airbus, not Boeing, to keep enough orders rolling in to justify development costs estimated at as much as $15 billion.

"Singapore's order represents more of a win for Airbus than a loss for Boeing," wrote analyst Peter Jacobs at brokerage Ragen MacKenzie, in a research report.

The slide in Boeing's stock Monday was attributed in part to Lehman Bros. analyst Joe Campbell's downgrade of the shares to "neutral" from "outperform." He cited the Singapore order and raised questions about Boeing's commitment to research spending.

Even so, Campbell said fears about the A3XX might be overdone, noting Boeing could still win its fair share of super-jumbo battles.

Boeing officials said they had offered Singapore an aggressive deal, but stuck by a pledge to sell jets for profit rather than market share. In fact, driving down Airbus' profit on A3XX sales by offering its own low prices might be the best Boeing could do right now, some said.

Neither Airbus, Boeing nor Singapore would comment on the terms of the final offers, but rumors abounded about bigger cash discounts than normal, plus a long list of free services, parts and performance guarantees.

"With the A3XX, Airbus is not making money on the first 10 aircraft. That's for sure," said Jordan Greene, president of consulting firm Avmark Services.

Boeing has said for years the market for super-jumbo jets was too small to justify an all-new plane. The firm has yet to receive a single order for the proposed 520-seat stretched version of the 747X, a jet Boeing says would cost about $4 billion to develop.

Boeing sees stronger demand for its wide-body 777, seating nearly as many passengers as the current 416-seat 747-400 model and designed for smaller city pairs such as Dallas-Sydney, instead of the crowded hub routes the A3XX would serve.

So far, the market seems to agree: Since 1995, Boeing has sold more than 350 of the 777s, compared with just 188 of the 747s.

Instead of a risky gamble on the limited super-jumbo market, Boeing has scoured its production lines for ways to make jets cheaper, lopping about 50,000 people from its payroll and boosting its bottom line.

"Everyone knew that there would be [super-jumbo] competition and that Airbus would get their share. The thing that is more compelling is the across-the-board improvements" at Boeing, said Prudential Securities analyst Todd Ernst.

Indeed, Wall Street expects Boeing to earn $3.21 a share next year, up 23% from the $2.60 a share it's expected to earn in 2000.

With the 777 selling briskly and Boeing's 737 narrow-body posting some of the strongest sales in its record-setting 35-year run, analysts still see upside for the stock, which last week hit a record high of $66.94.

"We agree with Boeing that the market for [super-jumbos] is small," said Dain Rauscher analyst Bob Toomey. "These guys have been in this business for over 50 years. I think they know their customer base."

Boeing senior executives now have even more reason to make the right call: The company last week awarded 2,000 executives shares valued at about $140 million under an incentive plan.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Altitude Adjustment

Shares of Boeing Co. (ticker: BA) tumbled Monday on an analysts' downgrade, but some on Wall Street said the stock was overdue for profit-taking after its recent surge.

Boeing shares, weekly closes and latest on the New York Stock Exchange

Monday: $58.44, down $6.06

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Source: Bloomberg News

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