Dear Mr. Berko:

I bought 200 shares of The Boeing Co. in 2001 at $64 a share and, as you know, the stock is now $30. I’m hearing from a friend who works for the company that Boeing is thinking about exiting the commercial passenger jet business. Does this make sense to you? Would it be good for the company? Do you think I should sell my shares? Please give me your recommendations.

W.M.  Aurora, Ill.

Dear W.M.:

The Arizona deserts are literally and figuratively littered with big commercial jets from Eastern, Pan American, Braniff and other airlines that couldn’t cut the mustard at 30,000 feet or even at sea level. American, United, USAir, Delta, Continental and others have more planes than Tootsie has rolls. To say that there’s a glut of commercial passenger aircraft is an understatement.

Yes, there is very serious discussion at the boardroom level that The Boeing Co. (BA-$30) will exit the passenger plane business in the coming five years and focus on the significantly more profitable and certainly much less competitive defense industry. So – considering the huge supply of passenger jets laying fallow on the ground, a 65 percent drop in BA’s passenger-plane order backlog, that BA has cut 29,000 jobs from its commercial unit and that the company has been outsourcing factory work to take advantage of lower-cost labor in Russia and Asia – the evidence is quite compelling.

Boeing makes the F-15 fighter, F/A-18 attack aircraft, C-17 cargo carrier, V-22 Osprey rotorcraft, E-3 airborne warning and control system plane, E-4 flying command post, F/A-22 prototype stealth fighter, military communication systems, ground transportation systems, missile defense systems, rocket engines, satellites and launching vehicles. In June, BA announced the creation of a new division called Integrated Defense Systems, which merges its space, defense, intelligence, government and communications divisions into one single but important unit, short-named IDS.

And why not? Defense and government business can be much more profitable than commercial business, certainly less cyclical and contractors like Boeing, Lockheed, Raytheon and others don’t have to be concerned about getting paid. If Uncle Sam runs out of money, all he has to do is call the treasury to print more.  If BA hires a few more connected lobbyists who know how to wine and dine people at the Department of Defense, it’s quite likely that BA won’t miss the revenues it derives from its passenger jet business. It’s also quite likely that BA’s profits will grow at a greater rate than they have in the past.  I’m sorry that you bought BA at $64. Ouch and double ouch! I’ve never recommended BA because it’s in a cyclical industry like motors, chemicals and steel, and I’m not comfortable with cyclical issues. Wall Street looks for BA’s earnings, which were $2.82 last year, to decline to about $1.90 this year on declining revenues of $49.5 billion. The Street is not sanguine about a near-term earnings upturn.

However, over the longer term (three to five years) the suits on the Street who follow BA believe the stock has a good appreciation potential. So you’ve got three choices:

1. Purchase 200 more shares of BA at $30, which will reduce your cost basis from $64 a share to $45.50.

2. Sell BA at today’s price and take a long-term loss, wait 31 days and repurchase 200 shares.

3. Just sell your BA and use the proceeds to purchase another equity you think has more immediate oomph than BA.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or visit his Web site at www.berkoradio.com.  © Copley News Service  Visit Copley News Service at www.copleynews.com.