Boeing: Good Times Are Ahead - Analyst Blog

In a twist of fate reflecting the cyclical variations of the commercial aerospace industry it’s raining good news for The Boeing Company (BA). Earlier Boeing’s commercial airplane deliveries were badly affected worldwide by cancellation and deferment from its airliner customers badly affected by the worldwide recession.

To catch up with the expected rise in air traffic, airliners will need to retire older airplanes to maintain capacity and keep their fleet young. The company predicts that the commercial airliner fleet operating in the Oceania region of Australia, New Zealand and the South Pacific Islands will require 920 new airplanes worth $120 billion over the next 20 years.

Boeing expects top airliners of that region including Qantas, Virgin Blue and Air New Zealand to focus on adding single-aisle, fuel efficient, environment-friendly aircraft. The additions will more than double the current fleet size of approximately 420 aircraft.

The focus towards single-aisle, fuel efficient, environment friendly airlines is expected to boost the fortunes of the Boeing 737 airplane, which is pitted against the Airbus A320. The Boeing 737 Next Generation is a short to medium range, single aisle, and narrow body jet airliner.

The grass for Boeing appears greener with bullish prospects expected worldwide. Earlier the company predicted that the air carriers in North America (U.S. and Canada) will take delivery of about 7,200 new airplanes over the next 20 years for an investment of $700 billion. Per The International Air Transport Association (IATA) even US cargo airlines are registering pre-recession margins in 2010. Growth is also reflected in Africa where per The International Air Transport Association (IATA) passenger traffic grew by 13% during the first half of 2010.

Outlook

Boeing has a unique position as the largest aircraft manufacturer in the world in terms of revenue, orders and deliveries, and one of the largest aerospace and defense contractors in the world. Also its revenue exposure is spread across more than 90 countries around the globe.

Boeing at the end of the first half of 2010 had already amassed a global order backlog of 5,316 units for its 737 series airplane. To cope with the rising demand the company recently announced that it will hike its monthly production rate of 737 series airplanes from 31.5 to 35 airplanes beginning early 2012.

During the second quarter earnings call, Boeing provided earnings guidance of $3.50 per share to $3.80 per share for 2010. The Zacks Consensus Estimates for third quarter of 2010, fiscal year 2010 and fiscal year 2011 are $1.01 per share, $3.89 per share and $4.91 per share, respectively.

However in the near-term, headwinds over 787 delays along with expected cutbacks over U.S. defense budget loom large over Boeing like its large cap defense prime peers – Lockheed Martin Corporation (LMT), and Northrop Grumman Corporation (NOC). We are Neutral for the time being on Boeing and retain a Zacks #3 Rank (short-term Hold rating).