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Boeing warns on 3Q
Drop in value of older aircraft owned by financing unit leads to 20-cent a share hit on 3Q income.
October 4, 2002: 4:18 PM EDT

NEW YORK (CNN/Money) - Boeing Co. said Friday a drop in value of older commercial jets owned by its financing unit will affect third-quarter financial results.

The aircraft maker said it will take a $250 million pretax non-cash charge that should reduce third-quarter net income by $158 million, or 20 cents a share. Earnings tracker First Call said that the items in the charge will likely not be excluded by analysts when they compare Boeing results to their current forecasts.

First Call's consensus forecast for Boeing is for earnings per share of 66 cents, down from 88 cents a year earlier. Estimates range from 58 cents to 74 cents.

Shares of Boeing (BA: Research, Estimates), a component of the Dow Jones industrial average, tumbled $2.30 to $32.01 Friday.

The company said the downturn in demand for aircraft in the wake of the Sept. 11 terrorist attack has reduced the value of Boeing Capital Corp.'s assets.

"Older and/or out-of-production aircraft models have experienced the most significant declines in value, while newer aircraft models have seen more moderate declines," the company said. "At the same time, the credit ratings of many airlines, particularly in the United States, have continued to deteriorate despite initiatives to restore long-term profitability."

The company said that the charge will reduce third-quarter BCC segment operating earnings by about $149 million, while operating earnings in Boeing's "other" segment will be reduced by about $101 million for the quarter due to certain guarantees the parent has provided to BCC.

The Sept. 11 attacks, which used four Boeing planes, decimated both the air travel industry and its sister airplane production market. U.S. airlines were the hardest hit and have yet to recover from staggering losses.

"Boeing and BCC anticipated that airline traffic and profitability would gradually, but steadily, recover following Sept. 11, 2001," the company said. "However, recent announcements by the major domestic airlines and credit rating agencies indicate that this recovery will not be as rapid as anticipated."

According to one banker, values for narrowbody planes like the Boeing 737 series are down about 15 percent to 30 percent since the Sept. 11 attacks, while rates for widebodies like the 747-400 are off 20 percent to 40 percent.

Boeing Capital's portfolio -- inherited in the merger with McDonnell Douglas -- has grown dramatically in recent years and is worth $11.5 billion, of which $8.8 billion is related to Boeing products and services, mostly planes.

Generally, values for planes like MD-80s, 727s and DC-10s have dropped, said a Boeing spokesman, while newer aircraft models have seen "more moderate" declines.  Top of page


--from staff and wire reports




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