Posted on: Sunday, October 31, 2004
Tarnished Boeing reputation fails to slow performance
By Renae Merle
Washington Post
When Boeing Co. Chief Executive Harry Stonecipher took the helm in December, he proclaimed that his priority was restoring the aerospace giant's reputation after revelations that employees had obtained a competitor's bidding documents and another executive had illegally hired a top Air Force official.
Nearly a year later, that is still his goal, but the challenge has grown. Investigations into the firm's contracts have widened since Darleen Druyun, the former Air Force official, admitted earlier this month that she gave Boeing preferential treatment for years before accepting a job at the Chicago-based company. And an Air Force deal worth more than $20 billion to lease and buy reconfigured Boeing 767s for refueling tankers has been shelved.
The scandals have not hampered Boeing's business performance or diminished Wall Street's love of the company. Boeing's bottom line continues to fatten — even as its image is tarnished — thanks in part to the consolidation of the defense industry, which has left the Pentagon with few choices for buying weapons, industry analysts said.
Boeing reinforced the point this week by reporting a 78 percent increase in third-quarter net income to $456 million (56 cents a share), compared with $256 million (32 cents) during the same period last year. That included gains in the quarter for the sale of part of the company's finance unit and for an unrelated state tax settlement. The company also reported a charge related to the early retirement of debt.
Revenue increased 8 percent, to $13 billion, from $12 billion last year as the company's defense business, which includes the F-18 fighter and missile defense, continued to offset slow growth in the commercial unit.
In the defense unit, revenue in the network systems business — which includes a more than $100 billion Army modernization program — increased 39 percent during the quarter to $3.2 billion, from $2.3 billion last year. The weak spot remained Boeing's space business, which more than doubled its loss to $153 million, from $58 million last year, on a 14 percent decline in revenue to $822 million.
On the commercial side, the company boosted its profit despite shrinking revenue and a struggling market. Revenue fell 8 percent during the quarter to $4.6 billion, compared with $5 billion last year. Operating earnings were $168 million during the quarter, compared with $35 million last year.
"From the standpoint of winning business and earning profits, they are in respectable shape," said Richard Aboulafia, vice president of analysis and aviation issues for Teal Group Corp. "To be perfectly cynical, the best way to deal with (the scandals) is to get out there and execute and make money. They have shown very well that investors won't abandon them as long as they make money."
That's evident from Boeing's stock price. The company's shares gained 12 cents Wednesday, the day earnings were reported, to close at $50.10 on the New York Stock Exchange. The stock was trading in the $37 range when Boeing fired Druyun in late 2003. Philip Condit resigned as chief executive and chairman a week later.
So far, the financial impact of the scandals has been limited to legal fees, the loss of the lease-buy tanker contract, and a $1 billion loss in the rocket-launch business after an Air Force investigation determined that Boeing employees had obtained proprietary information from Lockheed Martin Corp., based in Bethesda, Md., during the competition for the contract.
