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The Honolulu Advertiser
Posted on: Friday, December 14, 2001

Boeing to continue 717 jetliner production

Advertiser Staff and News Services

CHICAGO — Boeing Co. opted Thursday to scale back production of its money-losing 717 airplane rather than scrap the program, and predicted a whopping $700 million in fourth-quarter charges stemming mostly from the Sept. 11 attacks.

The decision pleased Hawaiian Airlines, which has been replacing its fleet of 15 interisland DC-9 aircraft with 13 of the more fuel-efficient Boeing 717-200s.

"We are happy to hear they made that decision; however we were not concerned about our fleet plans," said Hawaiian Airlines spokesman Keoni Wagner.

The last of Hawaiian's 13 planes is due to arrive Dec. 24, Wagner said.

Continuing production of the 717 "does give us the flexibility to acquire additional planes in the future," Wagner said.

In related fallout from the aviation industry slump, the world's biggest aircraft maker also announced it will cut 1,000 to 1,500 jobs from its helicopter plant outside Philadelphia by mid-2004 to cope with fallen demand.

Boeing officials held firm, however, to their latest estimates for airplane deliveries for 2001 and 2002 — a sign the industry tailspin at least hasn't worsened since October.

The flurry of announcements reflected the turbulent business atmosphere that has surrounded the company since Sept. 11, which prompted a precipitous falloff in air travel.

The 717 decision was a mixed verdict for employees who were braced for the 100-passenger plane to be abandoned but now face more layoffs at the 4,500-worker plant in Long Beach, Calif., where it is assembled. Slow sales of Boeing's smallest commercial aircraft already had resulted in rounds of 600 layoffs each in May and August.

Spokesman John Thom confirmed that more job cuts are anticipated because of the lowered 717 production, with the scope and timing still to be determined.

The layoffs would be on top of as many as 30,000 announced by Boeing earlier this fall at its Seattle-based commercial airplanes division by the end of next year.

Additional employee severance costs will be part of the $700 million in charges Boeing expects for the current quarter, largely as a result of the attacks. Also cited: additional outplacement service costs, aircraft and spare parts inventory valuations and exposure from contractual obligations with customers and suppliers.

The 717, known as the MD-95 before Boeing acquired it in the 1997 merger with McDonnell Douglas, is the industry's leading 100-passenger plane but the only one of Boeing's production lines currently losing money. It is a continuation of the DC-9/MD-80 series and entered service in 1999.

Airlines with current 717 orders, including AirTran Airways and Midwest Express Airlines, have lobbied Boeing in recent weeks to keep the production line open, and other potential buyers, including China, also are thought to have emerged.

While the company would not discuss specifics of production, analysts have suggested Boeing would likely cut output to about one 717 per month, down from four earlier this year. There is a backlog of 49 orders.

Dumping the program altogether would have resulted in excessive write-off costs, alienated suppliers, left the 100-passenger market to rival Airbus and hurt Boeing Capital Corp., which has 37 percent of its portfolio in 717s, said JSA Research analyst Paul Nisbet.

Boeing has acknowledged that it expects to feel the financial pinch from the industry downturn for several quarters. But it said Thursday its guidance for upcoming airplane deliveries remains unchanged: 522 deliveries in 2001, 350-400 in 2002 and fewer in 2003.

Thanks in part to growing military and space sales, it anticipates revenues of about $58 million in 2001 and $55 billion in 2002 — both exceeding last year's $51 billion.

Boeing shares rose 20 cents to close at $37 on the New York Stock Exchange.