Boeing says it's flying high despite recession

The biggest sales boom in Boeing's ba cyclical history of making commercial passenger jets has come to a screeching halt.

After selling 4,134 planes the past four years, Boeing Commercial Airplanes, the company's jetliner division, is racking up more cancellations than orders for new planes this year. Industry analysts warn that more cancellations may be in the offing as people are flying less in the global recession.

But top executives at Boeing, the USA's largest exporter by value of goods sold abroad, remain publicly confident. They've announced only 4,500 job cuts so far — far fewer than the roughly 30,000 laid off after the downturn in travel following the Sept. 11 terror attacks. And none of the cuts are on the assembly line.

They're betting on two things to keep production humming for years: the company's staggering $270 billion backlog of orders; and belief that the 30-year trend of growing demand for air travel will continue beyond the current downturn.

At current production rates, it will take seven to eight years for Boeing to deliver the nearly 3,700 jetliners on backlog, says Randy Tinseth, the company's marketing vice president.

"We've clearly got a much larger backlog than we've ever had in previous cycles," Tinseth says. "That gives us flexibility as we go through this downturn."

Scott Carson, CEO of the commercial airplanes division, told investors at the JPMorgan Chase conference in New York earlier this month that over the next 20 years the market "is a rich opportunity for us," whether the ultimate demand for commercial jets is 29,000 planes, as Boeing projects, or just 27,000 if cancellations continue.

"We're playing from a position of strength," he said.

Are Boeing's leaders just whistling past the graveyard by believing that economic forces that have engulfed many large and successful companies in the past six months won't ensnare the manufacturing giant?

Richard Aboulafia thinks so. "Yes, Boeing has a record backlog, but only a fool would believe in it," says Aboulafia, an aircraft manufacturing analyst at Teal Group in Fairfax, Va.

If airlines in the USA and around the world are flattened financially by severe recession and deeply diminished demand, they will not hesitate to forfeit down payments and walk away from so-called firm orders for new planes, he says. Even if carriers negotiate delivery deferrals rather than cancellations, Boeing won't get hundreds of millions of dollars in the next few years that it expects to be paid upon completion of those planes, he says.

Boeing will start feeling the pinch in 2010, Aboulafia predicts. He says financing is available for all the planes that Boeing and its chief rival, Europe's Airbus, plan to deliver to the airlines this year. "But after that," he says, "all bets are off. In a serious downturn — and this certainly is one — production typically falls by about a third. I can't see why in this downturn it would be different."

Others much less confident

Others are more pessimistic.

Robert Stallard at Macquarie Research in New York lowered his rating on Boeing in January, warning that the company "is underestimating the potential for lower airline demand."

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