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Boeing's profit falls; Northrop earnings rise

Strike crimps Chicago jet maker's results as shares swoon 7.5%. Its military industry rival registers higher sales.

October 23, 2008|Peter Pae | Pae is a Times staff writer.

Boeing Co. shares fell 7.5% Wednesday after the world's largest aircraft maker said a strike by its factory workers hurt third-quarter profit.

Meanwhile, shares of defense industry rival Northrop Grumman Corp. rose more than 2% after posting better-than-expected earnings on increased sales of military equipment. The Century City-based military contractor said year-end earnings would probably be higher as a result.

As the machinist strike headed into its 47th day, Boeing said it delivered fewer passenger jets in the quarter, reducing earnings 38% to $695 million. Sales fell 7% to $15.3 billion.

The strike by 27,000 factory workers, most of them in the Seattle area, has halted aircraft production since Sept. 6. Combined with problems getting cabin galleys in time to finish assembling its wide-body planes, Chicago-based Boeing delivered 25 fewer aircraft compared with a year earlier. "It is both disappointing and frustrating to be in a position where we are not meeting our commitments to our customers," Boeing Chief Executive Jim McNerney said during a conference call with analysts.

But he said he was optimistic about reaching an agreement today when Boeing and union officials meet with a federal mediator. "We look forward to a successful discussion and negotiation," McNerney said. "I anticipate getting through that one and coming to terms with a very important element of our workforce."

With the prospects of a credit crunch drying up lending and hurting purchases of its planes, Boeing said it may need to help with airplane financing. It would reverse a decision in 2006 to wind down its Boeing Capital Corp. unit that at one time was one of the largest aircraft financing firms in the world.

Although Boeing's commercial aircraft-making business struggled with the strike, operating earnings at its defense unit improved. Pretax earnings from its military business, which accounts for about half the company's revenue, increased 4% to $854 million on a jump in sales of fighter jets and military helicopters.

Boeing is the largest private employer in Southern California with 31,000 workers, most of whom work in military-related programs.

Improved defense results came as Boeing's satellite-making operation in El Segundo had its second setback in a week after a Los Angeles jury Tuesday slapped it with a $371-million verdict in a contract dispute with a satellite service provider.

Days earlier, a Pentagon panel pushed off indefinitely the selection of a winner for a multibillion-dollar satellite program. Boeing was vying for the contract, which would have provided a much-needed boost to its slumping satellite-making business.

Separately, Northrop said third-quarter profit rose 5% to $512 million on higher sales of military electronic equipment. Its year-end earnings projection was revised from $5.10 a share to $5.20 a share.

Although some military programs could face cuts next year amid the financial crisis and a new White House administration, Northrop said that "as much as 90%" of its contracts were already funded or included in the approved 2009 federal budget.

"There are always potential programs that could be canceled midyear," Northrop Chief Executive Ronald D. Sugar said in a call with analysts. "But we don't see a lot of that at the moment."

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peter.pae@latimes.com

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