Shuttle explosion another challenge for Boeing

Shuttle explosion another challenge for Boeing

Reuters, Chicago

The explosion of the space shuttle Columbia will present yet
another challenge for Boeing Co., the largest NASA contractor, as
it struggles through an unprecedented downturn in commercial
aviation that has sharply hurt its profitability.

Chicago-based Boeing builds space shuttles after acquiring the
space business of Rockwell International in 1996. It also
maintains the orbiter as part of a 50/50 joint venture with
fellow defense contractor Lockheed Martin Corp. called United
Space Alliance, based in Houston.

Boeing also builds, tests and maintains the shuttle's main
reusable liquid-fueled rocket engines.

With the cause of the explosion unknown, several analysts said
it is too early too determine the precise effect the tragedy will
have on Boeing and other contractors. But the watchword across
the industry will certainly be one of caution.

John Rogers, aerospace analyst for investment firm D.A.
Davidson & Co. in Portland, Oregon, said the impact will be
broadly felt among contractors.

"There's a lot that's not known, but it seems to me that there
won't be a lot of spending on space programs at least until we
figure out what happened. Anyone involved in supplying space
programs will be impacted."

Boeing, which is both the world's largest commercial airplane
manufacturer and the No. 2 U.S. defense contractor, has laid off
about 30,000 workers since the Sept. 11, 2001, attacks when
hijackers used four of its airliners to attack America.

The company draws in more than US$50 billion in annual
revenues from the government, airlines and other customers, but
that figure has been declining.

On Thursday, Boeing reported a big drop in 2002 profits, to
$2.3 billion from $2.8 billion in 2001. Revenue fell to $54.1
billion from $58.2 billion in 2001.

The space and communications division, which includes the
shuttle operations, reported earnings from operations of $357
million on revenue of $11.0 billion, down from $619 million on
revenues of $10.4 billion in 2001. NASA revenues were down.

Gains in the military side of its business have helped offset
to some degree the lack of airplane orders from carriers around
the globe as demand for air travel remains slack.

Revenues from its military and space business, now known as
Integrated Defense Systems, will soon surpass that of commercial
airplanes.

A spokeswoman for Boeing could not immediately comment on what
the crash meant for the space shuttle program and Boeing's
participation.

On its Web site, Boeing said the space shuttle program was
just hitting its prime. "For the foreseeable future, the shuttle
will remain the nation's primary human-related launch vehicle."

Whether that will change in the near future is an open
question, analysts said.

Peter Gottlieb, senior fund manager for First Albany Asset
Management, said there will be questions surrounding the entire
defense and commercial aviation group.

"There's going to be some time here, a gap, where all areas of
the program are going to be scrutinized and spending will be
impacted. We're going to see a lot more scrutiny, especially (on)
the suppliers."

Lockheed Martin is the largest U.S. defense contractor, with
revenues of $26.6 billion.