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Strategies & Market Trends : Stock Attack II - A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Jack T. Pearson who wrote (40112)	10/7/2002 12:17:48 PM
From: dawgfan2000	Read Replies (1) \| Respond to of 52237

As you speak.... archives.seattletimes.nwsource.com Boeing bruised by airline loans By David Bowermaster Seattle Times aerospace reporter Boeing will take a $250 million charge against third-quarter earnings because of the exposure of the aerospace giant's financing arm to the battered airline industry, the company said yesterday. Even more unsettling for investors, Boeing could be forced to take much larger charges in future quarters if United Airlines follows U.S. Airways into Chapter 11 bankruptcy protection. Boeing Capital has lent $1.3 billion, or 12 percent of its $11.4 billion portfolio, to United to "support recent deliveries of late-model 777 aircraft," the company said in a statement yesterday. Despite its well-documented financial difficulties before and after the Sept. 11 terrorist attacks, United took delivery of six 777-200ER long-haul jets between December 2001 and March 2002. Four of those deliveries occurred between Jan. 14 and March 7; Boeing Capital's financing to United jumped $532 million, or 72 percent, during the period. That works out to roughly $133 million per plane. Without financing from Boeing Capital, United likely would not have been able to afford the planes. United lost $308 million in the fourth quarter of 2001, $510 million in the first quarter of 2002 and $341 million in the second quarter of 2002. If United files for bankruptcy, Boeing Capital will get only "pennies on the dollar" back from that financing, predicted Richard Turgeon, director of equity research at Victory Capital Management, which owns more than 2 million shares of Boeing stock. "To the extent they are exposed to (a potential United bankruptcy), they should be taking a charge," Turgeon said. "That's a no-brainer." Boeing Capital's second largest customer is Boeing itself. When American Airlines merged with TWA, it returned 24 almost brand-new 717s to Boeing. Boeing Capital financed the planes, so Boeing now owes Boeing Capital $835 million. The charges announced yesterday stem from other problems, including other problems at United. Boeing Capital has a long-standing $79 million investment in a United Airlines financial instrument known as an "enhanced equipment trust certificate," a kind of bond secured by planes in United's fleet. Boeing wrote off nearly that entire investment yesterday due to the declining market value of the planes used as collateral, and United's own deteriorating creditworthiness. Boeing Capital also set aside $110 million as protection against future delinquencies or defaults from airline customers that might not be able to meet their repayment obligations in the future. And Boeing took a $61 million charge to reflect a steep drop in the book value of 24 aging 727s owned by a Boeing joint venture that planned to convert the planes into cargo aircraft and lease them. Several airlines have accelerated their retirement of 727s since the Sept. 11, 2001, attacks, flooding the market with that model and depressing their value. News of the charge contributed to a bad day for Boeing shares, which fell $2.30, or 6.7 percent, to $32.10. On a positive note, Boeing received a vote of confidence from Standard and Poor's, which affirmed its A+ ratings on Boeing bonds due in part to the company's efforts to diversify into military and space businesses. "A challenging operating environment in commercial aerospace should be mitigated to a significant degree by improved growth prospects for Boeing's other operations," according to Standard and Poor's. "Those factors, combined with cost-reduction actions and likely substantial cash flow generation, should enable the company to maintain credit quality at the current level."