The long wait for the Boeing Company’s (BA) 787 airliner finally came to an end, when the much awaited airplane made its appearance in the International Air Show at Farnborough, United Kingdom. Boeing anticipates to deliver the first 787 to Japan’s All Nippon Airways later this year.
The 787 program is presently running two years behind schedule. One of the major reasons for the delay in launching the 787 dreamliner was due to the faulty parts from suppliers. Boeing assembles the different parts of the airplanes and depends on its suppliers from around the world to build large portions of them.
Boeing’s 787 is the first passenger jet liner where a major portion will be manufactured from lightweight and environmentally friendly composite material, a break from traditional materials like aluminum and titanium that were generally used to manufacture jetliners. The new airplane will be fuel efficient, consuming 20% less fuel when compared to similar airplanes from its peers.
Currently, Boeing has 863 orders from 56 companies worth about $150 billion for the 787. The basic model of 787 costs around $161 million and can be configured in two versions, a 787-8 carrying 210-250 passengers and a 787-9 carrying almost 300 people.
The commercial airliner market is showing gradual signs of improvement, and passenger traffic is expected to grow in the mid-single digits annually over the long term. Boeing, anticipating a hike in demand, increased the production capacity of another of its jetliners, the 737, and has received an order to deliver 20 passenger 737 airplanes to Air China.
The improvement in the commercial market is also heating up competition in the commercial air space. In addition to Airbus, Boeing also faces stiff competition from Canada’s Bombardier, China’s state-owned Comac, Russia’s Irkut and Brazil’s Embraer-Empresa Brasileira de A. (ERJ).
During the first quarter earnings call, Boeing provided earnings guidance of $3.50 per share to $3.80 per share for 2010, which includes a health care legislation charge of 20 cents per share. The Zacks Consensus Estimates for second-quarter 2010, fiscal year 2010 and fiscal year 2011 are $1.01 cents per share, $3.88 per share and $4.91 per share, respectively.
We are pleased with Boeing’s 787 dreamliner’s debut in the international air show. However, we would prefer to wait and watch the financial impact of the 787 launch on Boeing’s earnings, given the potential for further delays in actual delivery stemming from the need for additional testing and changes to inspection equipment.
We believe the benefits from improvement in passenger freight and passenger traffic are already priced in the current valuation. Hence, we maintain our Neutral rating and Zacks #3 Rank (Hold) on the stock.
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