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Boeing halts deliveries
November 2, 1999: 12:22 p.m. ET

Aircraft maker says problem is minor, but can't give estimate of cost of fixing it
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NEW YORK (CNNfn) - Boeing Co. was forced to halt most of its commercial aircraft deliveries Tuesday after the world's largest aerospace company discovered faulty cockpit parts in four of its six models of commercial aircraft.
     While the Seattle-based company insisted there is no threat to safety, the move is more bad news in a week that included the crash of one of its aircraft, a 767 flown by EgyptAir, and questions about whether it concealed a report on fuel tank problems that could have helped investigators looking into the July 1997 crash of a 747 flown by TWA.
     Boeing officials stressed that the latest problem isn't tied to any accident or incident on a plane, and that it should be fixed quickly. But the spate of bad news apparently brought more attention to the problem than might have been the case otherwise, company officials conceded.
     "We want to make sure we're proactive in explaining it before it causes any fear in anyone's mind regarding parts," said Donna Mikov, spokeswoman for the company, during a late night conference call Monday.
     Boeing's stock was down sharply Tuesday morning for the second straight day. It opened at 43, down 1-5/8 from Monday's close. By mid-morning it had slid further to 42-7/8, down 1-3/4, or 4 percent. The stock had closed Friday at 46-1/16 before the spate of bad news started.

Also hurting Boeing (BA) shares is the belief by many analysts that the stock is at or even above the 12-month target price. Sales in the sector are off steeply this year and Boeing must see strong productivity gains to show earnings growth. Better-than- expected third-quarter profits helped spark a rally the last three weeks, and Monday and Tuesday's sell off may be profit taking as much as a reaction to bad news, according to analysts.
     "The orders have already slumped this year. They're 40 percent to 50 percent off last year's run rate," said Christopher Mecray, analyst with Deutsche Banc Alex. Brown, one of the minority of analysts who have a buy recommendation on the stock. "We're already assuming reduced demand. The real driver is less the demand side and more the internal cost side."
     Unlike Mecray, most analysts still have a neutral recommendation on the stock, although four have upgraded the stock since the third-quarter results were announced. Mecray's 12-month price range for the stock is 52, but some other analysts, such as Joseph Nadol of Donaldson Lufkin & Jenrette Securities, has a target as low as 42.
All but 737 affected

     Boeing said that four models affected -- the 747, 757 and 767 and 777 - were fitted with "non-conforming" drip shields in the cockpit. The drip shields prevent condensation from reaching vital wiring and instruments. Only 34 planes now on the assembly lines are affected by the halt in production, although hundreds of aircraft already delivered may require retrofitting.
     A Boeing official told reporters that the drip shield is keeping the moisture away from the wiring, but it failed Federal Aviation Administration flame tests.
     The 717 and the 737, the world's most popular aircraft, isn't affected by the fault. Boeing stressed that it was not related to any accident, including Sunday's crash of an EgyptAir 767 off the U.S. East Coast.
Cost of fixing problem unknown

     The company said the delivery of some aircraft models had been delayed "a few days" while the fault is being corrected. It was unable to say how many aircraft were affected or how much repairs would cost. However, with potentially hundreds of aircraft involved, the cost could run into tens of millions of dollars.
     Still, Mecray says he doesn't believe the costs should be an overwhelming concern to investors, although he said the spate of bad news lately could be putting selling pressure on the stock.
     "All indications are that it's a minor, technical correction that needs to be made and will be done relatively quickly and cheaply," said Mecray. "But it obviously is going to raise concerns for folks."
     Boeing slipped into a loss at the end of last year after a series of production problems forced lengthy delivery delays. In the third quarter it beat expectations easily, posting profit from operations of $477 million, or 56 cents per share, excluding non-recurring items, up from $347 million, or 36 cents a share, a year earlier. Analysts polled by First Call Corp. had expected the aerospace firm to earn 49 cents per share.
     Revenue was up 4 percent to $13.3 billion.
     Boeing is the world's largest commercial aircraft manufacturer, with expected 1999 deliveries of 620 large commercial airplanes, compared with 300 for competitor Airbus Industrie, the European consortium. Next year that gap will narrow, with expected deliveries of 485 aircraft by Boeing and 300 again for Airbus. Back to top


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