No More 757's

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Aug 20, 2002
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www.usaviation.com
Boeing to end 757 jetliner production
Decision to result in $184 million third-quarter charge
By August Cole, CBS.MarketWatch.com
Last Update: 6:38 PM ET Oct. 16, 2003

SAN FRANCISCO (CBS.MW) -- Boeing said Thursday that it would end production of its 757 commercial jet late next year, as the aerospace company navigates the airline industry's ongoing slump
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Chicago-based Boeing (BA: news, chart) said the move, which was expected, would result in a charge of $184 million, or 14 cents a share, against third-quarter earnings. Analysts had expected the company to make 37 cents a share, according to Thomson First Call.

"This decision reflects the market reality for the 757 as well as the growth in range and seating capacity of our market-leading Next-Generation 737 family," said Alan Mulally, head of the company's commercial airplanes division.

Newer versions of the 737 and a proposed design called the 7E7 will fill the role that the single-aisle 757 played in the company's product lineup. The 757s different variations could seat from 200 to 280 passengers.

More than 1,000 757 aircraft have been built since the plane was introduced in 1983.

The 757 had been a popular workhorse for U.S. carriers' cross-country routes. But there were no new orders for 2003 and Continental Airlines (CAL: news, chart) has reduced its standing order for 757s.

"It was clearly a factor," said Boeing's Mulally during a conference call following the announcement. Continental wants to move from 757s into 737s, he said, and other airlines are very interested in the 7E7.

Boeing spokeswoman Sandy Angers said the decision would result in an unspecified number of layoffs. Angers said some jobs will be cut through attrition. Other workers are expected to be able to find work elsewhere within the company.

Boeing's finance division also holds about $1.2 billion in debt collateralized by 757s, the company said during its last quarterly regulatory filing in August.

At the time, analysts had said that shutting the production down could cause a decline in the aircraft's value. See full story.

Glen Langdon, president of aviation finance and consulting firm Langdon Asset Management in San Francisco, said that by now it was expected that production would stop.

"The market has been anticipating it long enough that it has built the demise of the aircraft type in the current pricing," he said. "The market was much more impacted by the events of 9/11, the slowdown of the economy and the abundance of this type of aircraft in the fleets of US Airways and United Airlines."

The 757-model jets are built south of Seattle in Renton, Wash., where the world's largest aerospace company has been assembling aircraft for decades and its commercial group is headquartered. The company would not say how many of the commercial aviation group workers are involved in the 757 program.

By year's end, the unit will employ between 55,000 and 56,000 workers. That reduced level comes after dramatic job cuts in the wake of the Sept. 11 attacks.

During the conference call after the announcement, the company said its employment levels will pace demand for new jets. So far, Boeing still expects to deliver 275 to 290 jets next year with a big increase in demand and production not coming until 2006.

Shares of Boeing ended the day up 45 cents to $37.45.

August Cole is spot news editor at CBS.MarketWatch.com in San Francisco.