With Battery Concerns Resolved 787s Will Begin To Haul In Growth For Boeing
- Quick Take
- Boeing plans to resume 787 Dreamliner deliveries to airlines in the coming weeks as it has received FAA’s approval on its proposed fix for the plane’s battery issues.
- The resumption of 787 deliveries will help Boeing repeat its strong 2012 performance of delivering over 600 commercial airplanes to customers.
- Recently, the company also hiked the 787 production rate to seven airplanes per month. Higher deliveries will add to growth in the company’s results in 2013.
Last week, Boeing (NYSE:BA) produced the first 787 Dreamliner at an increased production rate of seven airplanes per month. [1] The aircraft manufacturer plans to further raise the 787 production rate to 10 airplanes per month by 2013 end driven by their huge order backlog of 840 undelivered airplanes. [2]
Further, with the battery issue resolved and the 787 deliveries set to resume in the coming few weeks, higher 787 deliveries as a result of increased production rate will add to growth in Boeing’s sales and profits in 2013. Last year, the company had delivered 46 787s to airlines and in the current year it expects to deliver over 60 787s. [3] We currently have a stock price estimate of $88.10 for Boeing, approximately 8% below its current market price.
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Resumption Of 787 Deliveries Will Grow Boeing’s Sales
In January, Boeing had voluntarily suspended deliveries of the 787, after the Federal Aviation Administration (FAA) had ordered grounding of all in-service 787s due to battery related incidents. However, in April, the company received the agency’s approval on its proposed battery modifications which claim to have addressed all the issues in entirety.
Currently, Boeing is installing these battery modifications, which include a steel enclosure (for the battery) designed to prevent any degree of battery overheating, on the 50 in-service 787s operated by eight airlines across the world. Some of these airlines like Ethiopian Airlines and Qatar Airways have already resumed their 787 operations, while Air India, Japan Airways and All Nippon Airways are expected to resume their 787 operations in the next few days. Boeing has also indicated that it will resume deliveries of the 787 to customers in the weeks ahead. This resumption in 787 deliveries will help the company maintain in 2013, the 600+ annual commercial airplane deliveries it made in 2012.
Battery Issue Will Likely Not Impact 2013 Results Significantly
Looking back, the 787 grounding order and the subsequent halt on their deliveries impacted Boeing’s first quarter revenues, which declined by 3% year-over-year to $18.9 billion. [4] However, for full year 2013, this incident will likely not exert any impact on the company’s top line, as the 787s produced and stocked from January to April will be delivered to customers over the coming months. However, Boeing’s 2013 profits will likely be slightly impacted by additional costs associated with research and testing done to resolve the 787 battery issues, and by the compensation that the company will have to pay to airlines for the grounding of their 787s.
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Notes:- Boeing Rolls Out First Dreamliner At Increased Production Rate, May 9 2013, www.boeing.com [↩]
- Boeing’s unfilled orders through April 2013, May 14 2013, www.boeing.com [↩]
- Boeing completes 2012 with record-setting performance, January 3 2013, www.boeing.com [↩]
- Boeing’s 2013 first quarter 10-Q, April 24 2013, www.boeing.com [↩]