Boeing overhaul may cast shadow on Long Beach.

Is Boeing Co, ready to give up on Long Beach?

Officials with the Seattle-based aerospace giant might bristle at such a suggestion, but the company indicated last week that it is ready to take drastic action to deal with unprofitable business units. And while no programs or plants have yet been identified for closure, they stressed that no options are being ruled out, either.

Industry analysts said that shutting down the commercial section of the Long Beach plant, unthinkable just a few years ago, is an increasing possibility for several reasons.

First, the company's new 717 single-aisle jetliner - which is assembled in Long Beach has struggled to find buyers and is in the money-losing category. Only 115 firm orders have been made.

Debby Hopkins, Boeing's new chief financial officer, said in a conference call last week that programs not creating profit for the company must either see marked improvement this year or be scrapped or sold off.

Asked whether the 717 line is among those programs, Hopkins would only say, "Every program at the Boeing Co. is under evaluation."

If the 717 line is cut, it would be the fourth commercial aircraft program scrapped in the last year and a half at the Long Beach plant, which Boeing inherited when it bought McDonnell Douglas Corp. in 1997.

In November of that year, Boeing - L.A. County's largest private-sector employer, with 16,200 employees in Long Beach alone - announced that it would end production of the MD-80 and MD-90 jetliners. Last June, it also decided to scrap Long Beach's last large commercial jet, the MD-11. About 6,400 jobs will be eliminated as final deliveries are made on those three planes over the next year.

The only other plane made by Boeing in Long Beach is the C-17 military transport, which has been highly successful, with 120 set to be delivered to the U.S. Air Force through 2004, and 15 more being considered for purchase. The line employs about 8,000 in Long Beach.

The assembly plant for the C-17, however, is in a separate area at the former Douglas Aircraft facility, and likely could be maintained even if the commercial section of the plant were closed down.

One of the best hopes for the survival of the Long Beach plant - aside from more customers being found for the 717 - is for it to be used for aircraft repairs and overhauls. Boeing said last week that it is considering expanding further into that business - a lucrative, growing one for the entire industry.

Asked whether the Long Beach plant would be considered for such work, Boeing Chairman and Chief Executive Phil Condit said, "We're going to look for where the best opportunity is. And we clearly have facilities there and we'll look at how we'll best utilize them."

Analysts, however, are doubtful that Boeing could succeed in that business - one that is dominated by small companies with lower labor costs than the union-constrained Boeing. And even if Boeing did move into the repair business, there is no guarantee that it would choose Long Beach.

Peter Aseritis, aerospace analyst at Credit Suisse First Boston in New York, said repair and overhaul operations tend to be located in areas where labor costs are low. General Electric Co., for instance, recently opened a repair and overhaul facility in Ireland.

Jon Kutler, president of Quarterdeck Investment Partners Inc., said that Long Beach does have some attractive qualities for repair and overhaul work - it's easy to get planes in and out, the weather is mild and Boeing already owns the land - but that probably wouldn't be enough.

Boeing Flails at Change

The aerospace giant's announcement last week is just the latest in a
string of major changes the company has pursued lately.

DATE             ANNOUNCEMENT

November 1997    MD-80 and MD-90 lines to be shut down.

December 1997    Commercial aircraft employment to be cut by 12,000.

March 1998       Facilities to be downsized by about 18 million
                 square feet. Employment to drop by 8,200.

June 1998        MD-11 program to be phased out, along with 3,000
                 Long Beach jobs.

August 1998      Workforce to be cut by 18,000 to 28,000 by the end
                 of 1999. 737 assembly line to be opened in Long
                 Beach.

December 1998    Rate of 747 production to be cut from 3.5 planes a
                 month to two planes a month in late 1999, then to
                 one a month in 2000. Plan to open 737 line in Long
                 Beach cancelled.

February 1999    Major overhaul planned after internal study reveals
                 several money-losing or break-even operations.

"Long Beach is good on all those and probably less competitive on price (of doing business)," he said. "Those are all nice to have, but the real drive is price."

Aside from repair and overhaul work, there may be another reason for Boeing to hold on to its Long Beach facility: With the company constantly battling its Seattle-area unions over labor contracts, the plant has been used recently as a negotiating tool. When battles with the union get too heated, Boeing is able to threaten to move work down to Long Beach, taking away jobs from Seattle-area workers.

"With a contract coming up this summer, you would try to defer making any long-term decision on Long Beach" Kutler said.

Neither Kutler nor Aseritis would estimate the write-off Boeing would take if it were to shut down its Long Beach plant, but Aseritis said much of the cost would likely covered by the $1.4 billion charge the company took early last year after eliminating the MD-80 and MD-90 programs.