Tags: Boeing | murky | economy | BA

Boeing Navigates Murky Economy, Pension Drag

By    |   Monday, 13 February 2012 08:05 AM

U.S. aircraft maker Boeing (BA) is navigating a murky economy and pension obligations that threaten to drag on its profits, although the company says it remains on a path toward growth.

So far, so good: The company has continued along a financial ascent. Revenue during the fourth quarter of 2011 rose 18 percent on year to $19.6 billion while net income rose 20 percent to $1.4 billion.

Commercial airplane deliveries rose by 10 percent to 128 units during the quarter, with revenue in that segment jumping up 31 percent to $10.7 billion. Meanwhile, Boeing Defense, Space & Security's fourth-quarter revenue jumped 4 percent to $8.5 billion despite looming U.S. defense cuts.

However, the company warns that pension obligations would weigh on 2012 earnings, with related expenses shaving as much as 83 cents per share from 2012 profits.

On top of pension issues, defense spending in the United States is absolutely on its way down, which could cut into Boeing's business with the government. The fate of the European economy, meanwhile, is up in the air, keeping companies everywhere on edge.

Awful uncertainty

If there's one thing that CEOs hate, it's above-normal levels of economic and business uncertainty. Uncertainty makes it hard for executives to decide between hunkering down by cutting costs and holding off expansion or ramping up capital spending and hiring to prep for growth around the corner.

Boeing recognizes that it's battling uncertainty yet still expects growth in 2012, despite it all.

"Our priorities for the year are to continue with disciplined increases in production rates for our commercial airplane customers, and to build on our strong position in defense, space and security with aggressive pursuit of growth in core, adjacent and international markets,” Boeing Chairman, President and CEO Jim McNerney says in an earnings statement.

Ratings agencies keep a close on eye on defense companies as government military spending policies change.

With the wars in Iraq and Afghanistan winding down, military expenditures will wane but won't disappear, which means big companies like Boeing will be less affected, especially since the global outlook for commercial aircraft looks good, analysts posit.

Meanwhile, airlines are expanding in different parts of the world, and fleets everywhere constantly need upgrading. "We expect the credit quality of most commercial aerospace firms to be stable to modestly improving in the next 12 months," Standard & Poor's credit analyst Christopher DeNicolo says in a January report on the sector.

"Commercial aerospace is a global business, so a weak U.S. economy should not be a major hindrance if other regions are growing," DeNicolo says, adding "therefore, we don't expect current economic conditions to result in lower ratings on commercial aerospace companies in the next year."

In October, Oppenheimer downgraded BA stock to perform from outperform. In July, BB&T Capital Markets initiated coverage at buy.

The company will release first quarter earnings on Apr. 26.

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