Approximately six months ago shares of Boeing stock were trading at $107 dollars per share. This was a significant increase in its post 9-1-1 trading days, when the stock was trading at $29 a share. Record sales, orders and earnings were the primary drivers in the stock appreciation. Boeing and Airbus have both been developing the next generation airliners for the airline industry. Airbus, a consortium of three government countries; Spain, France, and Germany, opted for a much larger plan that could carry 700-800 passengers in single flight. Boeing chose a slightly smaller, more fuel efficient plane. Several years ago, Airbus encountered significant production delays for its A380 Super Jumbo airplane. Now, is apparent that Boeing is encountering similar delays with its' new airliner called the Boeing 787 Dreamliner. News of production delays for the 787 have significantly impacted Boeing share price. Currently, Boeing shares are trading at approximately $79 per share, down significantly from six month ago when shares were selling at $107 per share.
Why did the production delays impact Boeing stock so significantly? One of the main reasons is that Boeing will not deliver the planned quantity of 787's in 2008 and 2009. Boeing will also be subject to penalties for failure to deliver aircraft in accordance with its contracts. There is also concerns that the delays will impact deliveries of non 787 aircraft as well as the factory becomes bottled up with traveled and out of sequence work. This will also negatively impact earnings due to poor performance from cost inefficiencies. Anyone familiar with Boeing knows the impact of production delays based on previous history. Lastly, until the first aircraft is delivered, there is a significant Boeing Production Delays
amount of risk as to how bad the production delays really are. Will delays continually get pushed back or will they stick to their revised recovery plan?
Currently sections of the aircraft fuselage are being assembled and in various stages of testing and qualification. Six aircraft are being built by Boeing to satisfy testing requirements. Aircraft #7 will be the first aircraft delivered to a customer. Royal Air Maroc was the first Airline scheduled for delivery of 787's. Planned deliveries were for October 2008, now the airline is looking at possible one year delay. Boeing is extending leasing contracts on 767 aircraft to compensate Royal Air Maroc for its delivery delays. But, in doing so, profits will be lost and leasing contracts might be extended at no additional cost to the airlines in order to compensate airlines waiting for the 787.
Boeing currently has twenty-one 787's in various stages of productions. Since the 787 launch in April 2004, Boeing has received firm orders for 857 787's valued at approximately $150 billion dollars. These orders came from approximately 60 different customers. The severity of the production delays has already impacted all stock holders of the Boeing corporation in the short term. On the plus side, fundamental technologies being used on the 787 are still reliable and effective. Early in 2008 rumors were circulating that Boeing had a one to three month schedule slip in deliveries and that first flight of 787 Dreamliner would occur between August and mid September of 2008. It wasn't until September 2007 that Boeing admitted that the flight test aircraft had so much work remaining on it that first flight would be delayed until approximately the end of the year. To date, Boeing has slipped deliveries to the right on two other occasions. This uncertainty concerns investors and forces them to think whether or not Boeing has a Boeing Production Delays
handle on recovering schedule. Boeing 787 problems are not within the design as some assumed; material choices and manufacturing techniques are still fundamentally solid and major re-design will not be required. However, the Company has found it much harder to supervise a global supply network in which it has outsourced an unprecedented amount of design and build authority.
Despite current delays, Boeing is still predicting a delivery of 109 aircraft by the end of 2008, just a few shy of it's original plan. If Boeing keeps to this schedule, the current problems will soon be forgotten and the Program will be remembered as an another revolutionary aircraft designed, built, tested and delivered by The Boeing Company - the worlds leading aerospace company. Boeing recently announced first quarter earnings for 2008 and beat analysts expectations. As a result, shares of Boeing stock increased by $3.50 per share indicating that analysts were pleased with Boeing' performance and were starting to believe that the worst of the 787 production delays are behind them. Time will tell.
No comments:
Post a Comment