Something is going on in Seattle. Sure, Boeing stock has dropped some 5% because of recent announcements of reduced earnings, reduced commercial aircraft production as a result of sluggish demand, and finally, proposed reductions in military spending by the Obama administration. The airline traffic decline will not rebound as easily as in the past. Further, when the turnaround does occur, oil prices and the cost of money will not aid the planemakers rebound. Internet blogs have their way with the Chicago aerospace manufacturers’ management while Airbus seems to plow ahead with the A350. Even the military tanker program is threatened with program bifurcation…GE’s boss, Immelt, is recommending two manufacturers. Is there an end to this negative energy? Nope!

Last week, warned of reduced first quarter earnings in 2009, while announcing reduced production of the B777 to 5 aircraft per month from 7 beginning next year. They will also cancel a planned modest rate increase of the B747-8 and B767. The B737 rates remain unchanged for now, but as Embraer and Bombardier eat into the shorter haul, single-asile plane market, those rates may be in jeopardy. Finally, we have a Aviation statewide council being formed at the gubernatorial level – why – to keep Boeing in the State of Washington. Surely there is something a foot and an evaluation of the sales declines and existent costs, Chicago decision makers are surely looking at other venues for cost reductions. But what does all this mean for InFlight Entertainment?

If Boeing plans production cuts of some 24 B777s (perhaps, two thirds of those were passenger versions), that would reduce 18 B777’s so equipped. Each B777 might have a total of ~$3M of IFE inboard and that would total approx. $63M. Also, there is often a corresponding fleet retrofit program that accompanies new airplane deliveries to maintain fleet commonality. Depending upon who the B777 customers are, their retrofits might either be cancelled on slid to the right. Let’s guess this means another 9 aircraft retrofits are lost so that would total about $32M. All told $95M lost not including any B767/B747-8 cuts. Hmm… sounds like IFE just took about a 5% sales hit… and that doesn’t include fleet retrofits not driven by new aircraft sales. It has long been the case, that the economy drives aircraft sales with a lag that ranges from six months to one year. That change trickles down to changes in IFE sales some one year to eighteen months down the road. If we add Airbus impacts, these numbers could easily double. Hang on IFE and stay tuned.