The fear of production cuts is haunting Boeing (BA) shares.

The shares have fallen about 18% since the start of the year. They traded Wednesday morning at $34.94, down 64 cents.

In a report Wednesday, BroadPoint.AmTech analyst Peter Arment wrote that even though the long-delayed 787 appears to be on track for its first flight in the second quarter, which is positive news, "We have been negative and remain so on the longer-term outlook for Boeing.

"Parked aircraft continue to rise, financing remains challenged, airline profits remain weak and production rates do not match end demand," Arment said. He rates the shares neutral, with a price target of $39, reflecting a price-earnings ratio of nine times forward earnings.

A day earlier, Wachovia analyst Sam Pearlstein downgraded his rating to market perform, on the theory that Boeing will announce 2010 production cuts in the next few months.

"If Boeing were to announce a 10%-15% cut, we believe investors will assume that another cut will be needed," Pearlstein wrote in a report. Wachovia Capital Markets has a financial relationship with Boeing that includes providing investment banking services.

At an investment conference three weeks ago, Scott Carson, CEO of Boeing Commercial Aircraft, said new-order financing is secure into mid-2010, but questionable afterwards. "We're very cautious as we get to the midpoint of next year," he said. "We're watching each of our customers and where they stand on a daily and weekly basis.

2010 "will be telling for all of us in the industry," Carson said. However, he reminded that Boeing is insulated by its order book, which has a backlog of nearly 3,700 airplanes worth about $270 billion.

Pearlstein, however, forecasts a 25% decline in the 737/700 programs by 2011 as well as potential military cuts. He cut earnings expectations to $5.20 this year and cut his valuation range to $38 to $40, based on nine times estimated 2011 earnings of $4.45.

Among Boeing's potential problems is the status of International Lease Finance Corp., its biggest customer, which is a subsidiary of AIG and is relying on loans from its parent to stay in business until it can be sold.

The loans come from $182.5 billion in federal funds used to bail out AIG. ILFC is seeking to refinance billions of dollars in short-term debt. Through 2019, it has scheduled deliveries for 168 Boeing and Airbus planes, worth $16.7 billion.

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