Jetliner Sales Lift Boeing Profit

A continuing surge in demand for its commercial airplanes boosted Boeing Co.’s first-quarter earnings nearly 30%, yet that wasn’t enough to mollify investors more concerned about the rest of 2006.

“Boeing is off to a very good start this year,” said James Bell, the Chicago-based company’s chief financial officer, in a conference call with analysts Wednesday.

Nonetheless, Boeing’s stock slid 20 cents to $84.91, as some investors were apparently disappointed that the company failed to raise its financial outlook for the year.

Cai von Rumohr, an aerospace analyst with Cowen & Co., termed the first-quarter results “super” but said the company was being cautious in not raising earnings or revenue projections for the moment. “We think this is just conservatism,” he said.

Bell said Boeing could revise its guidance in the second quarter, adding that the latest boom in commercial aircraft demand could be broader and last longer than in past industry cycles, in which a surge in orders in one year was often followed by a sharp drop.

Last year, Boeing posted a record 1,002 orders for commercial jetliners, more than triple that of 2004, as Asian and Middle Eastern carriers bought planes after a long industry slump.

Boeing’s commercial line ranges in size from the 110-seat 737-600 to the 400-passenger-plus 747-400ER, and cost $40 million to $250 million each.

Bell said he didn’t expect the company to match the record orders of last year, but he added that the falloff in orders was unlikely to be as dramatic as in the industry’s past boom-and-bust cycles.

“Early indications are that this cycle may go longer and be more protracted,” Bell said, adding that domestic airlines and large European carriers, as they recover financially, were expected to gradually begin returning to the aircraft market to replenish their aging fleets.

For the first quarter, the world’s largest aerospace company said net income climbed to $692 million, or 88 cents a share, from $535 million, or 66 cents, a year earlier, despite lower revenue and profit from its defense business.

Sales increased 12% to $14.26 billion from $12.68 billion. Results were bolstered by a 48% jump in revenue from commercial aircraft, as the company booked 176 orders and delivered 98 airplanes, or 28 more than in last year’s first quarter.

Given those numbers, Boeing executives said the company was in an unusual position of worrying more about how to ramp up production than about selling airplanes.

Boeing has already received orders for 353 of its new fuel-efficient 787 Dreamliners, enough to keep the production floor at maximum capacity until 2010. Carriers ordering 787s now won’t receive them until 2011, so some airline executives have pressed the company to bump up the production rate so they can get them delivered sooner.

“We’re always studying it, but it is a very complex issue,” Bell said. “It’s not going to be something you can just turn on.”

The upturn in jetliner sales helped offset lower revenue and profit at Boeing’s defense and space business, a large portion of which is based in Southern California. Boeing is the largest private employer in the region, with about 31,000 workers.

Commercial airplane sales climbed to $7.1 billion from $4.8 billion, but defense revenue fell 6% to $7.12 billion from $7.6 billion. The decline mainly reflected lower revenue from a spy satellite program and the sale of its Rocketdyne rocket-making business in Canoga Park last year.

The defense business, which drove earnings and revenue before the resurgence of the commercial aircraft market last year, is expected to have modest growth amid an anticipated slowdown in Pentagon spending.

Since the September 2001 terrorist attacks, the defense budget has risen about 10% annually, a growth rate that is expected to drop to less than 5% a year.

“They’re not slashing anything, but new starts are few and far between,” James Albaugh, president of Boeing’s Integrated Defense Systems unit, said in an interview Wednesday. “The rate of increase in defense spending is less than it was.”

Bell, the finance chief, said Boeing was continuing to work with the Pentagon and Congress to keep alive production of the C-17 military cargo plane in Long Beach past 2008, when the company is scheduled to roll out the last of the aircraft under its current contract. The Air Force has said it doesn’t want more than the 180 C-17s it has bought or ordered so far.

But despite the slowdown, Albaugh said, he didn’t expect Boeing to curtail operations or reduce its Southern California workforce: “We still have the largest backlog in the industry” -- more than $80 billion in contracts -- and that “will keep us busy for a while.”

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Riding the tide

Commercial aircraft generated most of Boeing’s revenue until the 9/11 terrorist attacks. Wednesday’s earnings report signaled that the pendulum had started to swing back.

Percentage of Boeing’s revenue by segment, every three years:

2000

- Commercial airplanes: 61%

- Defense contracts: 39%

2003

- Commercial airplanes: 46%

- Defense contracts: 54%

2006*

- Commercial airplanes: 50%

Defense contracts: 50%

Source: Boeing

* Data are for first quarter 2006.