Boeing opts to keep making money-losing 717 airliner, but will cut rate of production

Thursday, December 13th 2001, 12:00 am
By: News On 6

CHICAGO (AP) _ Boeing Co. announced Thursday that it has decided to continue manufacturing its slow-selling 717 jetliner, but at a reduced rate.

While stopping short of scrapping the 100-passenger plane, as Boeing said eight weeks ago it might do, the decision means further layoffs at the 4,500-worker plant in Long Beach, Calif., that assembles it.

In Long Beach, company spokesman John Thom confirmed that more job cuts are anticipated because of the lowered production, with the scope and timing still to be determined. Despite the prospect of additional layoffs, he said, Boeing employees welcomed the news that the threatened program will survive.

``Everybody here is very pleased with the announcement,'' he said. ``We didn't know which way it was going to go. Everybody here wants to keep building and delivering this airplane.''

Boeing said it now anticipates taking dlrs 700 million in fourth-quarter charges due to the 717 cuts and other effects of the Sept. 11 attacks, which prompted a precipitous falloff in air travel. Contributing to that will be additional employee severance costs, outplacement service costs, aircraft and spare parts inventory valuations and exposure from contractual obligations with customers and suppliers.

The 717 was known as the MD-95 before Boeing acquired it in the 1997 merger with McDonnell Douglas. It is the industry's leading 100-passenger plane but the only one of Boeing's production lines currently losing money. It was in trouble even before the terrorist attacks, with 600 announced layoffs in May and 600 more in August.

``After a thorough evaluation of the program and market, Boeing has made a business decision to continue production of the 717,'' the company said in a news release. ``However, due to reduced near-term demand following the events of Sept. 11, the program will go forward with a lower production rate and revised delivery projections.''

Until the past few days, analysts had said that the program was certain to be abandoned.

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 also are thought to have emerged.

Aviation analyst Paul Nisbet of JSA Research said Boeing would likely cut production to about one 717 per month, down from four earlier this year. Noting that there is a backlog of about 50 orders, he said dumping the program altogether would have resulted in excessive write-off costs and alienated suppliers.

``They also didn't want to abandon the 100-passenger market to Airbus,'' Boeing's chief competitor, Nisbet said.

Thom said the company would not reveal production rates.

As the world's No. 1 commercial airplane manufacturer, Boeing has been battered by the impact of the attacks. Earlier this fall, Boeing announced plans to cut as many as 30,000 of 95,000 jobs at its Seattle-based commercial airplanes division by the end of 2002 and slash production.