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Boeing’s Upside Is Losing Visibility

Delivery delays and safety concerns are weighing on the stock


It’s been a turbulent few months for Boeing (NYSE:BA), as additional delays on the eagerly awaited 787 contributed to a worse-than-expected fourth-quarter profit and a significantly lower earnings estimate for 2011.

While higher pension costs also hit the bottom line, the chief culprit was challenges in the company’s commercial airplanes unit. Last week’s announcement a seventh delay in the 787 Dreamliner — which will push delivery of the new aircraft to the third quarter of 2011 — comes on the heels of an electrical fire last November that caused multiple systems failures and an emergency landing. 

And the trouble extends beyond problems with the 787 launch.  Revenue at Boeing’s commercial plane division fell 11% in the fourth quarter on lower-than-expected 777 and 747 deliveries and postponement of the longer 747-8, Boeing’s answer to the Airbus A380 Superjumbo.

Even back in October, Boeing’s bad luck was at play when a hole opened up in the skin of a 757-200 flying at 31,000 feet last October. Although the plane landed safely, the Federal Aviation Administration required all U.S. operators of the 757 to conduct “repetitive inspections” of the aircraft to look for fatigue cracks in the fuselage skin. 

The 757 inspections aren’t the only recent safety rules the FAA has proposed for Boeing aircraft.  Since Jan.1, the FAA has issued a total of 12 airworthiness directives affecting a wide range of aircraft models.  By contrast, Boeing’s most direct competitor, Airbus parent EADS, received only half that number over the past 30 days.

The recent spate of challenges in Boeing’s commercial aircraft is prompting worrisome questions about the quality of the manufacturer’s equipment and efficiency of its operations.  Hanging in the balance is the U.S. aircraft manufacturer’s ability to hold its own in an increasingly competitive marketplace.

For investors, the problems have prevented a return to high-flying days of 2007 when Boeing shares were above $100. The stock now trades around $70.   

However, even more significant to Boeing is the hotter competitive landscape for global commercial aircraft sales. Earlier this month, Airbus moved ahead in sales for the first time, ending 2010 with 574 net orders, compared with Boeing’s 530. Airbus also delivered a record 510 aircraft last year – 48 more than Boeing.

And the early sales trends for 2011 give Boeing reason for concern.   Airbus already this month has inked the largest deal in aviation history — a $15.6 billion, 180-plane order with the Indian carrier IndiGo.  The bulk of that order — 150 planes — is for the Airbus A320 NEO, the company’s new fuel-efficient narrowbody.  Virgin America also placed a 30-plane order for the NEO, which uses next generation engines said to reduce fuel consumption by 15 percent.

The long-term forecast for Boeing may hinge on whether Delta Air Lines (NYSE:DAL), which last week announced plans to add 100-200 narrow-body jets to its aging fleet, opts for the NEO over the 737.  That decision, expected later this year, is particularly significant since Delta is a traditional Boeing customer that only acquired Airbus equipment in its merger with Northwest.

Wednesday saw the Dow temporarily crack the 12,000 ceiling for the first time in three years, but Boeing shares slumped more than 3%. Although the stock has risen 20% over the past year, delivery delays, aircraft safety inspections and increased competition will make it difficult for the company to gain altitude in 2011.

Article printed from InvestorPlace Media,

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