The first 3 1/2 weeks of the Machinists union strike along with supplier delivery problems have taken a $551 million toll on The Boeing Co.’s commercial airplane third-quarter earnings.
Boeing’s third-quarter earnings, announced Wednesday, show operating margins in the Seattle-based Commercial Airplanes Group dropped from 11.4 percent in last year’s third quarter to 5.7 percent in the same quarter this year.
The strike by 27,000 members of the International Association of Machinists and Aerospace Workers began Sept. 6 and is still going, more than three weeks after the end of the third quarter.
Overall, Boeing reported a 7 percent decline in revenues to $15.3 billion and a 38 percent decline in net income from $1.114 billion in 2007’s third quarter to $695 million in this year’s third quarter.
Earnings per share were down 33 percent to 96 cents a share, just below Wall Street’s consensus prediction.
Boeing Chairman Jim McNerney said the company is doing well despite the labor and delivery issues.
“While the suspension of commercial airplane deliveries had a major impact on the quarter, we effectively executed the remainder of our business and kept our focus on the strong balance sheet we have built over the years,” he said.
Supplier issues: In addition to the strike-caused shutdown of commercial airplane production in the Puget Sound area, Boeing deliveries were fewer than expected because galley suppliers were late delivering their products to Boeing for installation on otherwise flight-ready wide-bodied jets.
Galleys are among the equipment types typically furnished by the customer airlines, not by Boeing.
Galley equipment producers have been unable to keep up with production demands from Airbus and Boeing in recent months.
Delivery declines: In the commercial airplane operation, deliveries were down from 109 in the third quarter last year to 84 this year. Nonetheless, Boeing delivered 325 airliners in the first nine months of the year, just four shy of last year’s mark. Higher production rates before the strike helped bring that figure up.
Defense revenues: In Boeing’s other major division, Integrated Defense Systems, revenues were up in the quarter by 6 percent, and earnings were up 4 percent to $822 million.
Boeing declined to predict financial results for the rest of the year and 2009 due to the uncertainty about the resolution of the strike.
Strike talks resume: Negotiators for the company and the union planned to meet today in Washington, D.C. with a federal mediator in an attempt to reach a new contract.
Two previous attempts to do so since 80 percent of union members rejected Boeing’s contract proposal Sept. 3 have failed.
McNerney said that while he believes the company and the union may come to the table with new ideas, he doesn’t want to sacrifice the company’s ability to compete in order to bring a quick end to the strike.
Tom Wroblewski, president of the striking Machinists District 751, said the company should have offered a better contract to begin with rather than lose money by causing a strike.
“Obviously, this company continues to have record backlogs, success, and sizeable profits – demonstrating Boeing has the ability to better share this success with Machinists Union members who generate the profits,” he said.
“It would be a better business decision and a better investment to have made a fair contract offer with Machinists Union members. Partnering with the union for the future is the best way to ensure success and to embrace the ideas our members can bring forward,” said Wroblewski
The union and Boeing are warring most strongly over job security and outsourcing issues.
Asked if the strike would influence Boeing’s decision on where to build its next new aircraft, the Boeing chairman said that question is premature because the company hasn’t yet designed such an aircraft.
Workers in the Puget Sound area, he said, are skilled at making airliners, and the company wants to keep that skill available.
