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8/17/2006
02:22 PM
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Boeing Dumps In-Flight Internet Access Service

The aircraft manufacturer pulls the plug on the six-year project after it failed to build a market for high-speed Internet access on jetliners.

The Boeing Co. on Thursday said it would dump its money-draining in-flight Internet-access service, which failed to attract much interest among travelers or airlines.

In exiting the broadband market, the Chicago aircraft manufacturer said it would work with customers in phasing out the 6-year-old Connexion service. Boeing has failed to build a market for high-speed Internet access on jetliners, despite investing "substantial time, resources and technology."

"Regrettably, the market for this service has not materialized as had been expected," Jim McNerney, Boeing chairman, president and chief executive, said in a statement. "We believe this decision best balances the long-term interests of all parties with a stake in Connexion by Boeing."

Boeing said it would take a pre-tax charge of up to $320 million, or 26 cents a share, in the second half of the year to close the service. All but about $30 million of the charge would be taken in the third quarter.

While the company did not say how much it was spending on Connexion, the fact that the shutdown was expected to benefit earnings by 15 cents a share starting next year was an indication that the expenses were considerable. The company said it would update its financial guidance when it releases third quarter results Oct. 25.

Boeing expected the majority of Connexion employees to be transferred to other jobs within the company.

Boeing has reportedly been trying to sell the unprofitable service for sometime. The service has reportedly cost the company $1 billion.

Part of the reason for the failure of the service may have been the emergence over the years of cheaper technologies enabling airliners to tap into cellular networks.

European aircraft manufacturer Airbus, for example, launched OnAir, a mobile phone-based service in 2005. OnAir in June said it would launch phone and data services on some European flights next year, giving passengers access to voice calling, text messaging and email.

JetBlue Airways this year paid $7 million in a U.S. government auction for wireless licenses that could be used for passenger communications. JetBlue hasn't revealed its plans.

Boeing had been in talks to sell Connexion to various communications firms, including SES Global SA, Inmarsat PLC, and Loral Space & Communications, according to The Wall Street Journal.

Boeing had hoped to sign up airlines as partners in operating Connexion. Those plans, however, were derailed by the industry slump that followed the Sept. 11 terrorist attacks. The project suffered a severe setback in late 2001, when it was abandoned by partners AMR Corp.'s American Airlines, UAL Corp.'s United Airlines and Delta Air Lines, the newspaper said.

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