SOURCE: Long Beach Press-Telegram http://www.presstelegram.com/Stories/0,1413,204~21478~2000663,00.html Boeing may quit making 717s BOEING: 767 production also in danger of being cut By Felix Sanchez Staff writer The Boeing Co. has told the U.S. Securities and Exchange Commission it is prepared to take a $400 million charge off if sales campaigns for its Long Beach-built 717 passenger jet sputter and forces it to shut down production. The 717 program has spiraled downward in popularity, dropping from 49 deliveries in 2001 to just 13 last year, and an unidentified "major sales campaign'' was lost in late 2003, "increasing the possibility of program termination,'' according to an annual SEC filing posted late Thursday. Chicago-based Boeing is Long Beach's largest private employer, with 14,000 workers. The city is home to assembly plants that build the 717 and the C-17 Globemaster III military cargo plane, the only planes now manufactured by Boeing in California. "Program continuity is dependent on the outcomes of current sales campaigns,'' the Boeing SEC filing states. On Friday, one analyst said the SEC report isn't a harbinger of imminent doom for the 717, but it does highlight again the plane's continuing battle to recapture the market share it once had. "The 717 has been on borrowed time for years,'' said Richard Aboulafia, with The Teal Group in Fairfax, Va. "It's not the plane's fault. The plane is excellent.'' The problem is the 717 has cheaper-priced competitors that offer the same elements as the Boeing aircraft, Aboulafia said. Paul Nisbet, an analyst with JSA Research in Newport, R.I., told The Associated Press Friday that if Boeing does not win 717 orders by the end of summer, he believes the company will announce a schedule to end production of the jet. In recent months, Boeing has worked to make the 717 more appealing, particularly by offering a business class version to potential customers. Boeing CEO Harry Stonecipher in late January acknowledged the 717 program remains under scrutiny. The 717 is Boeing's smallest jet. "When people stop buying them (717s), we will shut it down. There are ongoing campaigns. If those are successful, it will continue on. I'm not trying to be flip or glib about it at all,'' Stonecipher said during a review of Boeing's 2003 full-year performance and fourth quarter reports. China in picture Last year, Air Canada opted to buy regional jets rather than the 717, hurting the plane's chances. Boeing has also been courting the so-called Star Alliance, a consortium of airlines that include Air Canada, and China as a potential 717 buyer. The majority of remaining undelivered 717s is for a single customer, the SEC filing states. Boeing nearly shut down the 717 program in 2001 but opted to drastically slow production in hopes it could wait out a drop in air travel after the Sept. 11, 2001, terrorist attacks. The information for investors about the $400 million pre-tax charge Boeing was prepared to take if it abandons the 717 program was included in the SEC filing. Not all the news for Boeing's 717 program was bad on Friday. AirTran Airways announced it had reached an agreement with Air Wisconsin Airline Corp. to end regional jet service called AirTran Airways JetConnect. That move comes after an AirTran economic analysis that determined it could operate Boeing 717s more efficiently than the 10 Canadair regional jets used to fly to 14 cities as part of the short-haul market system. After JetConnect service is phased out of the AirTran system beginning in July, passengers in former JetConnect cities will fly on Boeing 717s, 100-passenger jets that have been reconfigured with a business class. AirTran, which operates its hub at Hartsfield-Jackson Atlanta International Airport, is the 717's biggest customer. It also operates Boeing 737s and recently ordered 100 of the 737s and an additional 10 717s. Waiting on 767 Also in Boeing's SEC filings, the company says it still expects the government to go ahead with its suspended air-tanker contract this year but is braced to take a $310 million charge if the controversial deal is tossed out. Boeing won congressional approval last fall for a contract under which it would lease and sell 100 767 jets to the Air Force for use as refueling tankers. But it was put on hold amid questions about ethical issues surrounding the way Boeing pursued the deal, particularly after the company fired two senior executives for alleged improprieties during the lobbying phase. In addition to ongoing Defense Department inquiries, which also involve the U.S. attorney in Alexandria, Va., Boeing said in the report for the first time that the SEC had requested information regarding the circumstances underlying the late November dismissals of chief financial officer Mike Sears and defense contracting executive Darleen Druyun. Druyun was a senior Air Force procurement official involved in tanker contract considerations until Boeing hired her last year. ``We are cooperating with the SEC's inquiry,'' Boeing said. ``It is not possible to predict at this time what actions the government authorities might take with respect to this matter, or whether those actions could or would have a material adverse effect on our financial position.'' Boeing acknowledged that failing to get the contract ``may impact the continuation of the 767 program.'' Analysts have suggested that Boeing will likely move to end production of that airplane if the tanker deal remains on hold by early summer. Boeing shares rose 9 cents to close at $42.72 on the New York York Stock Exchange. -- The Associated Press contributed to this report. -- David Mueller / MRY dmueller7@xxxxxxxxx http://www.quanterium.com