Cost cuts seen crucial for Boeing in Airbus battle SEATTLE (Reuters) =97 Boeing's airline customers buy aircraft the same way= =20 many passengers buy plane tickets =97 infrequently and only at big= discounts.=20 As a result the jetmaker, like its customers, is leaving no stone unturned= =20 in a drive to cut costs as it prepares to launch its first all-new jet in a= =20 decade amid the worst downturn in the air travel market in years. The company's quarterly financial report, due Wednesday, is expected to=20 illustrate the need for more belt-tightening, with profits projected to=20 fall sharply from a year earlier. Excluding one-time charges such as=20 writing off the falling value of prior acquisitions and aircraft leased to= =20 struggling airlines, analysts polled by Reuters Research see, on average, a= =20 quarterly profit of 24 cents per share, down from 75 cents a year earlier.= =20 Boeing operates in a market where $100 million airliners are seen as=20 commodity items, and Boeing has lost market share to its European=20 archrival, Airbus, largely because of pricing. Its response has included=20 shipping thousands of jobs to contractors and streamlining its massive=20 factories, aiming to compete more effectively. "If Boeing doesn't get its costs down, it will not be able to sell=20 airplanes," said William Alderman, who runs an aerospace investment banking= =20 boutique. "If they can match Airbus and still make a profit, they are in=20 the game." Its latest proposed new jet model is an attempt to=20 de-commoditize the market by establishing a clear selling difference for=20 Boeing. The mid-sized 7E7 =97 the "E" is for "efficient =97 would save= airlines=20 up to 20% in operating costs, mostly by way of new fuel-sipping engines. THREATS AND TAX CUTS To help offset the development costs, estimated by outsiders at $10 billion= =20 or more, Boeing is asking industrial partners and even local governments to= =20 pick up a larger share than on past aircraft. It has threatened to build the jet outside of Washington state, where its=20 production operations are headquartered, unless state officials deliver on= =20 proposed tax cuts, reduce bureaucracy and build new infrastructure. Boeing= =20 moved its corporate headquarters to Chicago in 2001. "They will be looking at all sorts of benefits (from competing locations),= =20 but I suspect they will end up staying where they are, unless local=20 politicians don't bend enough," said JSA Research aerospace analyst Paul=20 Nisbet. Airbus, the only other Western large jetliner builder, has beaten Boeing on= =20 many aircraft sales in recent years and airlines have increasingly cited=20 lower prices as a major factor. Since 1997, Boeing has spent more than $30 billion to acquire businesses,=20 finance jet deliveries to airlines and buy back its own common stock =97=20 investments that are yielding mixed results. Earlier this month the company said it would book $1.2 billion in pretax=20 charges in the first quarter to reflect slumping acquisition values and=20 declining prices on aircraft, many on lease to airlines struggling to pay=20 their bills. Ultimately Boeing plans to have outside contractors build huge chunks of=20 the 7E7, such as landing gear, cockpits and perhaps even wings. It will=20 assemble the components in its own factory in a much-faster and less-costly= =20 process than on current jets. "That's fine, but realize that that will be a low-margin business," said=20 Rich Turgeon, research director at Victory Capital Management, which owns=20 "several million" Boeing shares. A vocal Boeing critic, Turgeon calls it "a= =20 company adrift without much of a strategy." AIRBUS RISING But that may be the only way for Boeing to stay in the commercial jet=20 business, with Airbus vowing to deliver more jets than Boeing for the first= =20 time ever in 2003 and four of Boeing's six jet models looking long in the=20 tooth. "Why should Boeing specialize in mundane metal bending operations=20 when they can probably buy it more cheaply. This certainly upsets their=20 unions, but it makes a lot of sense to me," Nisbet said. Union leaders and= =20 other critics argue the company is jeopardizing quality by relying on=20 outside vendors for many of the millions of parts that go to make up huge=20 jetliners and surrendering key technology to potential competitors. But=20 until investors are convinced the jetliner unit is able to do battle with=20 Airbus, the company shares will likely continue to trade near a recent=20 eight-year low. "You can argue that Boeing is between a rock and a hard=20 place. Shareholders want to see higher margins but if the unions see higher= =20 margins they'll want more job security. They have to reach a balance,"=20 Turgeon said. *************************************************** The owner of Roger's Trinbago Site/TnTisland.com Roj (Roger James) escape email mailto:ejames@xxxxxxxxx Trinbago site: www.tntisland.com Carib Brass Ctn site www.tntisland.com/caribbeanbrassconnection/ Steel Expressions www.mts.net/~ejames/se/ Site of the Week: http://www.pscutt.com TnT Webdirectory: http://search.co.tt *********************************************************