Boeing Company (BA)

The recent loss of the U.S. Air Force tanker contract and announced delays in the first deliveries of the new 787 jet have pushed BA stock down to very attractive levels considering its future prospects. This has been revoked and BA stands in good stead once again to win the important military deal. Moreover, Boeing has a $327 billion order backlog. Orders have been added at record levels for the last 3 years. Profit margins and ROE are also improving. Analysts predict $5.94 per share earnings for 2008 and $6.93 for 2009 (Source: Reuters.com) compared to $5.25 for 2007. The $1.60 dividend is sure to be increased.

“During 40 years of producing the Current Market Outlook, we have learned that the resilience of air transport growth comes from its intrinsic importance to the livelihood of people around the world,” the report from Boeing reads. Boeing’s annual Current Market Outlook estimates that passenger travel will grow at a 5% rate, and cargo will grow at a 5.8% over the next several years. Despite record fuel costs, air travel and shipping has become an integral part of daily life for many consumers and businesses. Boeing says that demand will only grow.

A lot of that growth is expected to come from the BRIC nations. “Long-term, you have to assume that the emerging countries of Brazil, China, India and Russia are going to continue to grow as a larger percentage of the world’s fleet, and they’re growing at a faster rate,” Peter Arment, Greenwich, Connecticut- based analyst with American Technology Research, told Bloomberg News.

Over one-third of the projected $3.2 trillion market is set to come from the Asia-Pacific region, which is expected to have $1.19 trillion in future airplane deliveries, according to Boeing data. North America and Europe are both projected to have $740 billion, while the Middle East region clocks in at $260 billion. Latin American demand is forecast at $140 billion.

In order to meet the upsurge in demand, Boeing estimates that planemakers will deliver 29,400 planes during the period, up from the 28,600 predicted last year.

The effects of the high cost of jet fuel was made apparent in Boeing’s upward revision to 43% from 38% for replacement aircraft as older, less fuel-efficient planes are retired in the face of soaring oil prices.

“We assume that fuel over the near term will continue to be high and volatile and then at some point in the future supply and demand should align and fuel will be priced more at the marginal rate of production,” Boeing Commercial Airplanes Vice President, Marketing Randy Tinseth said at a London press conference.

Boeing products are built to last and the government knows it. Boeing's B-52 bombers, built between 1952 and 1962,^[1] are still flying and projected to last until 2040.^[2] The history of Boeing's product quality will make it easy for the company to generate big earnings as other companies are forced to make significant (and expensive) innovations to encroach on Boeing's market share.

Although some of Boeing's customers have canceled their orders for BA products, the company's backlog grew 8% during 2008 even in extremely difficult economic circumstances.^[1] This means that the company can still expect to make a hefty profit in the coming years - total orders count for 3,700 planes at $352 billion.^[1] This constantly growing demand will make BA a great investment as other companies falter in the worsening economic climate.

Boeing is in early talks with Ryanair, Europe's biggest low-cost airline, about a deal to purchase 300-400 short-haul jets - potentially one of the largest orders of new aircraft ever made.^[1] Although Boeing expects airplane orders in 2009 to plunge to around a quarter of their peak in 2007,^[1] landing this deal could give BA's share price a good pop. On February 4, 2009, Airbus withdrew itself from bidding for the contract, leaving Boeing with a golden opportunity to work out a lucrative deal with Ryanair.^[2]

As the fleets of many of the large airlines continue to age, the demand for new Boeing aircraft, most notably its fuel-efficient 787, will climb. For example, American Airlines is selling 34 of its A300-A600 aircraft by 2009 to replace them with newer, more efficient aircraft.

The strike of 27,000 of Boeing's engineers ended on November 1,2008, meaning that BA will be able to get back on track with its aircraft production, primarily its 787 Dreamliner. During the strike, BA was losing about $100 million per day.

First flight is a major milestone in any new airplane program. It is the culmination of thousands of hours of testing and analysis. It is proof that the airplane is truly a step closer to entry into service.