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Thursday, October 27, 2005 - Page updated at 12:00 AM

Walkout's impact on profit, production to extend 4 years

Seattle Times aerospace reporter

The costs of last month's Machinists strike will ripple through the next four years of Boeing production, and its ultimate cost could be about twice the $241 million in lost net profits for the third quarter reported Wednesday, based on an internal company analysis.

The company missed delivery on 21 airplanes in the quarter but will miss another nine deliveries by the end of the year because the four-week strike delayed work on jets in the production pipeline, Chief Financial Officer James Bell said in a teleconference about its third-quarter earnings.

But Boeing will not be making up for those missed deliveries anytime soon. Its forecast for deliveries next year remains unchanged.

"We don't yet have the plan to catch them up" through the end of next year, Bell said.

Rather than catching up on the missed deliveries, Boeing's priority is smoothly restarting production, executing its already ambitious planned ramp-ups in production rates and delivering the new 787 on time.

"If we weren't raising production as aggressively as we are, it would be a lot easier to replace those airplanes quickly," Chef Executive Jim McNerney said on the conference call.

Internal documents obtained by The Seattle Times show the post-strike production recovery plan stretches to 2009.

September 2005 has essentially vanished from the production schedule, bumping along the entire order book by one month. At the end of 2009, the analysis still projects 32 fewer deliveries than would have happened with no strike.

In the earnings release, Boeing said the strike caused a $1.5 billion hit to third-quarter revenue and about 30 cents per share in foregone net profits, which works out to $241 million.

The internal analysis projects the ultimate cost of the strike through 2009 at $2 billion in revenue and $725 million in operating earnings, or about $471 million net after applying the standard 35 percent tax rate used by analysts.

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The internal documents show a smaller hit to profit in the fourth quarter. Then smaller strike-related charges are projected for two subsequent years, though no explanation is given.

The lost revenue forecast by the internal analysis, prepared early this month, matched exactly the figure announced Wednesday.

But the analysis put the third-quarter hit to earnings about $80 million too high. The reason for that discrepancy is unclear, and it may be that the total earnings impact in the internal analysis also turns out to be overstated.

Despite the cost of the strike, McNerney seems satisfied with its resolution.

"Ultimately the final contract remained within the requirements of our No. 1 negotiating principle, which is enhancing our competitiveness," McNerney said.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com

Copyright © 2005 The Seattle Times Company

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