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Boeing released its second quarter earnings, and stated Connexion’s drag: The company had a loss of $160m largely because of one-time charges, including a $615m payment (after reserves, a charge of $571m) to the U.S. government. Boeing said that if it were to sell or shutdown Connexion, it would affect its earnings by up to $350m before taxes. The company also stated, however, that it would see an increase in earnings per share of $0.15 in 2007 from Connexion being off its books, which translates to roughly $120m per year. (The earnings-per-share figure is in the conference call, not the press release.)
Did they just back out the operating expenses net minimal revenue of Connexion? Or is that too easy? Some analysis put Connexion’s annual costs at $150m to $400m two to three years ago. They may have pared costs by shedding expensive transponder leases and by cutting expenses through efficiency, too.
During Boeing’s earnings conference call, a Wachovia anayst, Joseph Van Pietro, asked a great question. Connexion has been billed as an operational advantage for Boeing’s aircrafts, especially the 787. With Boeing no longer owning or having Connexion available, how does that affect future operating costs for new aircraft?
Boeing’s chairman and CEO, Jim McNerney, bluntly stated that “our business model is not being met,” and that “continuing to operate as we are now is not an option.” Restructure, terminate, and affiliate are the three “obvious options,” he noted. “All elements of the business model are falling short of the projections.”
Pietro also asks about how airline customers are reacting, and the CEO punts on that front, but puts some of the blame on airlines who have not adopted Connexion. This has been the problem ever since the U.S. domestic airline market tanked post-9/11. Connexion model had thousands of planes equipped and billions in annual revenue. Instead, they have hundreds and millions.
Posted by Glennf at July 26, 2006 1:54 PM
Categories: Air Travel, Financial
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