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Boeing gets $2.6B order
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December 15, 1999: 4:02 p.m. ET
Company discloses 163 other orders to counter talk of falling market share
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - Boeing Co. announced an order for 20 wide-body aircraft worth $2.6 billion, and revealed more than $9 billion in previously unannounced orders Wednesday as the world's leading aircraft manufacturer tried to deflect talk it is losing market share to Airbus Industrie.
Airbus, a consortium of European manufacturers, has outstripped Boeing for new orders announced this year, even with the new numbers announced Wednesday. But Boeing (BA) still has a better than two-to-one lead in deliveries of new aircraft this year with a record 620 aircraft, or about 68 percent of the market, compared with 290-295 deliveries expected by Airbus.
Photo source: Boeing Co.
Boeing Wednesday announced the sale of 15 of its 767-300ER aircraft, like the one shown here, and five 747 freighters to GE Capital Aviation Services for $2.6 billion. It also disclosed orders for another 163 aircraft not previously announced.
That lead in deliveries is what Alan Mulally, president of Boeing Commercial Airplanes Group, tried to focus on at a press conference Wednesday, saying orders can shift and change before production actually begins.
"At the end of the day, the only thing you know, the only thing you can look at, are deliveries to determine market leadership," he said.
Lead in deliveries also at risk
But that lead is likely to shrink significantly next year, as Boeing projects a drop to 480 deliveries while Airbus foresees growth to 310, or 40 percent of the market. And even some Wall Street fans of Boeing's recent improvement in operations are concerned about that trend.
"I think they've got their head in the sand, failing to recognize their market share is deteriorating and will continue to deteriorate much faster than they or anyone else anticipated a few years ago," said Chris Mecray, analyst with Deutsche Banc Alex. Brown, who has a buy recommendation on Boeing stock. He said it's possible that Boeing could lose its lead by 2003 unless it corrects the slide.
"What appeared to be a short-term dismissible event is looking like a trend starting to take hold," he said.
Boeing officials insist that 480 deliveries and a 60 percent market share is near the company's solid, historic level, although that was at a time when McDonnell Douglas was a competitor, before it was purchased by Boeing in 1997. They also said they would not fight for market share through lower pricing.
"Alan (Mulally) and Phil (Condit, Boeing's chairman) have repeatedly said we're not going to sacrifice having a profitable industry simply to maintain market share," said John Kvasnosky, a Boeing spokesman. And Mulally insisted the sales announced Wednesday are not at cut-rate prices.
"Are we having fire sales? Absolutely not. These are good deals," he said.
More sales to aircraft lessors
But the new sales do raise one concern for the industry -- the rising purchases by aircraft leasing firms. The 20 wide body aircraft announced Wednesday were for G.E. Capital Aviation Services, the world's largest lessor and a division of General Electric Co. (GE), which is buying 15 of the 767-300 extended range aircraft and five 747-400 freighters. That brings GECAS orders for Boeings to 160 jets.
Mulally also confirmed a report in the Wall Street Journal Wednesday that Boeing is close to a deal with International Lease Finance Corp., a division of American International Group Inc. (AIG), although he would not confirm the number of planes or models being discussed.
Mecray said the rise of the equipment leasing companies should be a concern for manufacturers, though.
"You have a concentration of customers, a large powerful buyer who dictates not only pricing but other terms," he said. "Who knows what the fine print says, but I imagine it's not favorable to them (manufacturers)."
But Mulally heralded the GE purchase, saying it was a strong sign in the rebound of the Asian market for aircraft. He said that new orders next year should be at or near this year's level.
The numbers game
Boeing previously did not announced an order until the buyer was ready to be identified, while Airbus did announce those anonymous sales. Mulally said the difference between the way the company reported the numbers is the reason for Wednesday's release.
"I think they've got their head in the sand, failing to recognize their market share is deteriorating."
- Chris Mecray, analyst
Deutsche Banc Alex. Brown
With the 163 new, previously unannounced sales Boeing's total for the year rises to 368 aircraft. Airbus has announced sales of 417, not counting 10 new wide-body planes ordered Wednesday by Scandinavian Airlines Systems. That order might not be official until early next year when papers are signed, an Airbus spokeswoman said. But she said the lead in orders this year is more significant than Boeing would like to admit.
"Today's deliveries result from yesterday's orders, and tomorrow's deliveries result from today's orders," she said. She added that company policy does not allow her name to be used. "Next year our deliveries will continue to increase. I don't think Boeing really heralds their deliveries are going down."
Missteps at Airbus as well
Airbus had to admit to its own problems Wednesday, saying that its A-320 narrow-body aircraft will experience some production delays due to problems getting parts needed to complete the aircraft. But it said the delay should be only a matter of weeks, and it should make all deliveries expected for the year.
Boeing was plagued with its own production problems a year ago, losing money in 1998. The key to making this year's deliveries is the company's success in correcting production problems, Mulally said Wednesday.
"We've restored the production health," he said. "The parts shortage, out of sequence work, and soaring overtime, we've absolutely turned that around. We're in a solid position going forward." He said the Commercial Airplanes Group is on target for a 5 percent operating profit for the year and that should improve next year.
Boeing's stock was up 11/16 to 39-3/16 in late afternoon trading Wednesday. 
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