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Archive for Tuesday, July 6, 1999

MIXED OUTLOOK SEEN FOR AVIATION

July 6, 1999

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— Costly missile failures offset spot successes and renewed demand for high-tech weapons systems in recent months, signaling mixed results at major U.S. aerospace firms for the quarter just ended, analysts said.

Aircraft giant Boeing Co. is cruising at low altitude, held aloft by cost-cutting in the face of wafer-thin profit margins as a result of cut-rate commercial airplane deals it struck in recent years.

The recent 78-day air war in Yugoslavia reinforced the U.S. commitment to radar-eluding B-2 stealth bombers, made by Northrop Grumman Corp., and "smart" bombs, like Raytheon Corp.'s Tomahawk cruise missiles.

But a steady decline in U.S. defense spending continues to force contractors to slash costs and pair off to stay alive.

"We still have too much capacity in the industry," said Jon Kutler, president of Quarterdeck Investment Partners, an investment bank specializing in aerospace and defense. "What has driven earnings growth over the last five years is not making more planes and missiles, it's consolidation."

Lockheed Martin Corp. saw the Justice Department foil its attempt to buy much healthier Northrop Grumman last year, but it may yet get a crack at Comsat Corp., created by Congress in the 1960s to develop commercial satellites.

Lockheed, which makes Titan rockets, F-16 fighters and C130-J troop transport planes, has said it expects to post a loss in the current quarter and is said to be mulling restructuring and selling assets worth $1 billion or so.

Lockheed was stung when a Titan 4 rocket veered off course April 30, leaving a sophisticated $800 million military communications satellite in the wrong orbit.

Boeing, which employs nearly 20,000 people in Kansas, also suffered from rocket mishaps in the quarter, and remains in a dogfight with Lockheed over a $2.5 billion Israeli jet fighter deal.

Israel is leaning toward the $50 million Lockheed F-16 over Boeing's F-15 fighter, which lists at $70 million.

After losing a $1.95 billion contract with Greece to Lockheed in April, Boeing said it would cut up to 7,000 more jobs and may ultimately have to close the St. Louis assembly plant where the planes are built.

Analysts praised Boeing for boosting productivity at its commercial aircraft plant in Renton, Wash., and for committing to better pricing on future jet sales.

"Boeing appears to be progressing, but it's a long road. They're stuck delivering airplanes that were sold at discounts over the last two or three years. There really are no miracles to expect at this point," said analyst Peter Jacobs at Ragen MacKenzie.

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