DELAYED DELIVERIES FOR AN OVERBURDENED BOEING
     Having heaped so much on its plate, Boeing Co. is showing signs
 of indigestion. On Sept. 15, the commercial aircraft manufacturer
 announced it will have to delay delivery of 12 planes to 10 domestic
 and international carriers until October because of missing parts,
 overtaxed suppliers, and an influx of inexperienced workers. The
 company has been trying to ramp up production at its fastest-ever
 rate, while changing its manufacturing process.  Not only that,
 Boeing recently acquired defense giants McDonnell Douglas and
 Rockwell.
     Boeing's stock fell almost a point and half, to $51.56, on the
 news. But that's not the end of it. Boeing could be liable to pay
 penalties to its customers for missing the deadlines. Exactly how
 much is stipulated by each airline's contracts and is negotiable.
 Moreover, the delayed deliveries of seven 737s, four 747s, and one
 757 will likely cost Boeing between 8 to 10 cents a share this
 quarter, according to some analysts.
     Customers should expect their planes in the fourth quarter, say
 Boeing officials, declining to identify the carriers affected by the
 delay. The last time Boeing missed a delivery deadline was during
 the boom times of 1989-90, when it couldn't crank out 747-400s fast
 enough. The 747-400 delays were the result of a complex production
 process where almost every 747 was customized, says Paul H. Nisbet
 of JSA Research, a Newport Beach (R.I.)  industry research firm.
     These may be boom times redux for Boeing -- but the reasons for
 the delays are much different than eight years ago. The up cycle in
 airline ordering exploded much faster than Boeing or its suppliers
 anticipated. While it was trying to simplify its production process,
 orders piled up.  To keep up with 1,400 unfilled orders for new
 planes, Boeing has increased its production rate four times since
 1996. This year it intends to deliver 340 to 350 planes.
     By the end of 1997, Boeing expects to ramp up production to 40
 planes a month and to 43 planes a month by the second quarter of
 1998. Such rapid production increases have stressed suppliers. The
 demand also created shortages in raw material such as aluminum.
     Boeing has hired 32,000 new workers in the past two years. But
 even this hasn't been enough. The company is now looking for 200 to
 400 experienced machinists and most likely will dip into the recent-
 ly acquired McDonnell Douglas labor pool. But before any machinists
 can be brought on board, Boeing must reach an industry-assist agree-
 ment with the unions.
     The company is also seeking more overtime from its union
 members. According to a union spokesperson, the average union
 member is currently working about 20% voluntary overtime. The
 company is also sending Boeing teams out to help suppliers, and
 it's working with airlines to see how they can stretch out delivery
 schedules.
     The result: Margins of roughly 6% will stay the same, even
 though Boeing's volume has more than doubled during the past two
 years. "Everyone recognized this ramp up with the acquisitions
 would cause problems," says William Whitlow, manager of Safeco
 Mutual Funds. Trouble? Not yet. "If they look this way a year from
 now, when they are supposed to be putting 43 planes [a month] out
 the door," says Whitlow, "then we have problems."
--- DB 1.39/004487
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