A funny thing happened on the way to Boeing’s dominance of the aircraft-manufacturing industry…
Its new jet won’t fly.
Today, the airline maker announced that the maiden voyage of its 787 Dreamliner would be pushed back due to concerns about stress on its wings.
That doesn’t sound good. Boeing needs more time to reinforce the wings to address the concern. Perhaps they are being overly cautious, but would you want to fly on this oft-delayed aircraft?
More critically for Boeing shareholders, would you want to buy one?
Seriously, at this late date, one would think that the designers and builders would have all factors accounted for. But Boeing’s strategy with this plane of contracting out parts to suppliers and shipping them to Everett, Washington for assembly seems to have created a planeload of problems.
This is a big deal, people. Delays like this will have a big impact on acceptance of the new Dreamliner. Sure, it will fly someday. But before buying one, I’d want to know when.
The impact of the delay on Boeing’s near-term earnings will be announced when the company reports next month. But the market isn’t waiting for that analysis. Instead, investors have sold shares today, sending Boeing stock down nearly 10%.
There goes what had been very nice returns on the stock so far in 2009. I say the selling has been long overdue. Given the expected rise in oil prices, combined with a very weak economy, I expected airline stocks to struggle this year.
In addition to suggesting that investors sell Delta (DAL) and United Airlines (UAUA) in my "Top Stocks to Avoid for 2009," I recommended that Boeing (BA) be sold immediately.
Airline struggles are dire, but they have yet to fully impact the valuation of Boeing. Prior to today’s big news, the stock had been up 9% on the year — well above the flat returns of the S&P 500.
There are very few reasons to own Boeing today, over and above the delay of the Dreamliner. At the recently completed air show in France, Boeing lagged in orders to rival Airbus — a competitor it seemed to have beaten not long ago.
More importantly, air travel is likely to decline in 2010 if swine flu emerges as a major pandemic. Delta stated that the first wave of the scare had a $250 million impact on its business.
Think about what that impact will be if the flu spreads like wildfire during the forthcoming season?
It will not be positive. There will be fewer people flying, and in response airlines will ground planes to reduce capacity. The point is, there will be much less demand for new aircraft, and as a result, Boeing is likely to suffer in the short term.
This delay of the Dreamliner merely reinforces my own negative view of Boeing stock.
You’d be wise to stay away from Boeing and these nine other loser stocks for the rest of the year.
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