updated 10/27/2004 4:24:48 PM ET 2004-10-27T20:24:48

Burgeoning military sales lifted Boeing Co. to a 78 percent increase in third-quarter profits, its bottom line thriving despite the ethics scandals that have roiled the aerospace giant for the past year.

The results Wednesday handily surpassed Wall Street’s expectations, and Boeing raised its estimate for full-year earnings.

The company’s defense and space division accounted for most of the quarter’s profits and nearly doubled the long-dominant commercial airplane unit in sales, accounting for 63 percent of total revenue.

Its Seattle-based airplane business also was modestly profitable despite an 8 percent decline in revenue. The company said it now anticipates delivering 12 percent more planes in 2005 than this year, citing a surge in global air traffic as encouraging.

Still, Standard and Poor’s analyst Roman Szuper said that while Boeing’s profits remain strong, “The main concern is ethical lapses in the defense and space operations that have endangered some key programs.”

One such deal in jeopardy is the company’s proposal to supply air refueling tankers to the U.S. military, with Congress formally scrapping the previously approved $23 billion deal three weeks ago.

But CEO Harry Stonecipher insisted he sees no threat from investigations that began this month after ex-Air Force contracting officer Darleen Druyun admitted inflating the price of the tankers as what her attorney called a “parting gift” to Boeing before joining the company as an executive. Druyun was sentenced Oct. 1 to nine months in prison.

“We don’t expect any impact from them,” Stonecipher said on a conference call. “If anybody finds anything that needs to be cured, we’ll cure it. But we don’t expect them to find anything.”

Net earnings for the July-through-September quarter were $456 million, or 56 cents per share, up from $256 million, or 32 cents per share, a year earlier.

Results included gains of 14 percents per share from state tax settlements and other tax adjustments, 2 cents per share from the sale of Boeing Capital’s commercial finance unit and a charge of 4 cents per share for retiring debt.

Excluding those items, Boeing said operating earnings were 44 cents a share — 4 cents higher than the consensus estimate of analysts polled by Thomson First Call.

Revenues rose 8 percent to $13.2 billion from $12.2 billion.

Citing lower tax expense than expected in the third quarter, the company raised its estimate of 2004 earnings by 15 cents a share to a range of $2.40 per share to $2.60 per share.

Shares in the Chicago-based company rose 8 cents to $50.06 in afternoon trading on the New York Stock Exchange. They are up 19 percent this year.

Defense division boosts earnings
The defense division generated nearly $8.3 billion in revenues, up 13 percent, and accounted for $816 million in earnings from operations.

The commercial airplane unit registered $168 million in operating earnings but saw revenues slip to $4.6 billion despite increasing its deliveries to 67 airplanes in the quarter, which Boeing attributed to a higher proportion of smaller 737s in that total.

The company left unchanged its 2004 forecast of approximately 285 deliveries but said it now expects to deliver about 320 airplanes in 2005 — at the high end of its previous range. Despite the current struggles of its airline customers amid soaring fuel prices and other challenges, it said global commercial airplane markets are improving and further recovery is expected in 2006.

“I think you’re going to see oil come back down, whether it’s by the middle of next year or the end of next year or whatever,” Stonecipher said. “That really drives the purchase of new airplanes.”

Morningstar analyst Nicolas Owens said that despite the latest revenue drop at commercial airplanes, the improvement in profit margins in that unit “bodes well for the eventual upturn in this area of Boeing’s business.”

Boeing also confirmed that recent inspections have turned up tiny but potentially hazardous scratches on the skins of about 60 of its older airplanes, mostly 737s. Spokesman Jim Proulx said Boeing is working with air safety officials and will issue a bulletin to airlines later this year on the situation but does not expect to see emergency action by the Federal Aviation Administration.

The Wall Street Journal reported Wednesday that the scratches, which occur during repainting of the aircrafts’ aluminum shells, can lead to deeper cracks that could spread around the fuselage. In extreme cases, according to an FAA safety bulletin quoted by the newspaper, they could potentially “lead to an uncontrolled decompression” with enough explosive force to peel off portions of the skin.

For the first nine months, net earnings were $1.7 billion, or $2.07 per share, compared with a loss of $414 million, or 52 cents per share, a year earlier when results were weighed down by charges reflecting the severe aviation slump. Revenues increased 6 percent to $39.1 billion from $37.1 billion.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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