Boeing’s Impressive Commercial Airplane Lineup & Backlog Underpin Its $142 Fair Value

by Trefis Team
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Over the last few years, Boeing (NYSE:BA) has posted impressive growth in its results, driven by higher commercial airplane deliveries. As airlines from the developed as well as developing regions of the world placed orders for new airplanes, Boeing’s commercial airplane backlog  jumped to nearly 5,200 airplanes at the end of last month, from around 3,770 airplanes at the end of 2011. [1] [2] This sharp growth in the company’s backlog over just two-and-half years forced it to hike its production rates and this has resulted in both higher deliveries and stronger results.

Looking ahead, with an impressive commercial airplane lineup in both narrow-body and wide-body airplane segments, we expect Boeing’s backlog to remain near its current high level over the next few years. This consistent high backlog will in turn propel the company to continue to raise the production rates of its highest selling models such as the 737. Higher deliveries resulting from these production rate hikes will further raise the company’s results in the coming years.

Having said this, its not as if Boeing is not faced with challenges. The airplane manufacturer faces greater competition from Airbus in the wide-body airplane segment with the latter’s A350, which is expected to enter service later this year. New airplane makers such as China’s Comac will likely also take some market share away from Boeing in the Chinese market, which is one of the fastest growing sectors. Apart from these threats to its commercial aviation business, Boeing is also faced with flat-to-declining U.S. military spending, which accounts for a lion’s share of its defense segment revenues. Nonetheless, in our view, despite these challenges Boeing will likely be able to grow its results in the coming years on solid gains from a growing global commercial aviation market.

We currently have a stock price estimate of $142 for Boeing, around 5% ahead of its current market price.

See our complete analysis of Boeing here

Huge Commercial Airplane Backlog Will Drive Boeing’s Results Over The Coming Years

At the end of May, Boeing’s commercial airplane backlog consisted of nearly 5,200 airplanes, which is equivalent to roughly seven years of production at current rates. Thus, airlines that place orders for new airplanes now will have to wait for many years before they receive their deliveries. In order to cut down on this waiting time period, Boeing is raising production rates across its most popular airplane models, such as the narrow-body 737 and wide-body 787 Dreamliner.

Over the past couple of years, the company has raised production rates for both these airplane models. It first increased its 737 production rate in the first quarter of last year to 38 airplanes per month, from 35 per month. Thereafter, in March this year, the company achieved a production rate of 42 airplanes per month. And, during its last quarter’s earnings presentation, the company reiterated that it will further increase its 737 production rate to 47 airplanes per month by 2017. Similarly, at its 787 program, Boeing reached a production rate of 10 airplanes per month during the first quarter, compared with a production rate of around five airplanes per month in the first quarter of last year. These higher production rates resulted in Boeing delivering 161 commercial airplanes to airlines in the first quarter, up from 131 it delivered in the same period last year. As a result, the company’s first quarter revenues rose by 8% year to year to $20.5 billion. [3] In our opinion, this trend of higher deliveries raising results will likely continue over the next few years as Boeing’s backlog continues to rise. Even in the first quarter, despite increased deliveries, the company’s backlog jumped as it received orders for 235 airplanes while it delivered 161 airplanes. [3] Boeing also forecasts its backlog to rise through 2014, as it anticipates orders will continue to exceed deliveries in coming months.

We figure even beyond 2014, Boeing’s backlog will likely not fall significantly as global airline passenger traffic continues to grow strongly. Boeing, in its long term market outlook, forecasts global airline passenger traffic to grow by 5% per year through the next two decades. [4] This steady growth in demand for flights will push airlines to continue to expand their fleets. At the same time, airlines also continue to battle with persistently high jet fuel prices which constitute close to a third of their total operating expenses. In such an environment, Boeing’s airplanes that promise large fuel savings, such as the 787 Dreamliner, 737MAX and 777X, become particularly attractive to airlines. So, driven by the positive demand outlook and its own fuel-efficient airplane offerings, Boeing will likely continue to see orders flow in at healthy rates. This will sustain its backlog, allowing it to continue to raise its production rates, airplane deliveries and earnings.

The challenges that Boeing faces from international airplane manufacturers may dent some of its market share, but the solid growth anticipated in the global commercial aviation market will likely enable the company to grow its share of revenues in the coming years. Airbus with its A350 has increased the competition for Boeing in the wide-body segment, which is currently dominated by the latter’s 787 Dreamliner and 777. At the same time, regional airplane manufacturers such as Embraer and Bombardier are looking to build larger airplanes that will increase competition for both Boeing and Airbus. And, most importantly, the entry of China’s Comac in the narrow-body airplane segment with the C919 could reduce both Boeing and Airbus’s market share in the fast growing Chinese market. But, since new airplane models take several years to establish, we figure on the global level, the Chinese Comac C919 will not significantly threaten established manufacturers such as Boeing and Airbus. Additionally, Boeing will benefit from its global service network which new entrants will take many years to set up. Thus, despite challenges from competitors, Boeing in our view is well positioned to grow its commercial airplane segment results in the coming years.

Boeing’s Heavy Reliance On U.S. Military Spending Threatens Growth In Its Defense Segment

The company is not as well positioned in its defense business which constitutes the remaining roughly 35% of its top line. Boeing is among the largest defense contractors of the U.S. government. And with military spending from the government forecast to remain flattish through this decade, growth in the company’s defense business will be hard to come by in the coming years. This was also reflected from the company’s previous quarter results in which its defense segment revenues fell by 6% year to year to $7.6 billion. [3] Boeing is highly dependent on U.S. military spending as the latter constitutes roughly 70% of its defense segment revenues. The remaining 30% of the company’s defense segment revenues come from international sales. The bright side of the situation here is that a higher 35% of Boeing’s defense backlog is comprised of international orders, which will likely rise in the coming years driven by rising military spending from the Middle-East and Asia. [5] Therefore, in the coming years, Boeing will likely reduce its dependence on U.S. military spending.

On the whole, we believe Boeing’s gains from the growing commercial aviation sector will more than offset its challenges from other airplane manufacturers and the flat-to-declining military spending in the U.S.

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Notes:
  1. Boeing’s unfilled orders through May 2014, June 6 2014, www.boeing.com []
  2. Boeing Wraps up 2011 With Record-Breaking Order Announcements, 2012 Expected to be ‘Year of the 737 MAX, January 5 2012, www.boeing.com []
  3. Boeing’s 2014 Q1 earnings form 8-K, April 23 2014, www.boeing.com [] [] []
  4. Boeing’s long term market outlook, June 6 2014, www.boeing.com []
  5. Boeing’s 2014 Q1 earnings transcript, April 28 2014, www.boeing.com []
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  • commented 3 months ago
  • tags: BA
  • Boeing current stock price is base on programs that have ended,
    Programs about to end, and other programs that yet to make a profit (747-8, 787-8 and Kc-46) The 777-X, 787-10 and 737MAX are still on the drawing board and may enter into flight test in 2020
    See Boeing stock history
    http://finance.yahoo.com/q/hp?s=BA&a=00&b=2&c=2003&d=04&e=31&f=2014&g=m&z=66&y=
    Boeing has 31 government programs where Boeing has pay 31 Billion in fine.
    The 'Virtual Fence' Isn't Working ...But Boeing lacked much awareness of how the Border Patrol operates and, with ... teaches the political economy of immigration at the University of California at San Diego.
    http://www.businessweek.com/stories/2008-02-06/on-the-border-the-virtual-fence-isnt-working
    www.endgame.org/boeing.html
    The 777-X (with 259 orders is Boeing version of the Airbus A340-500 was introduced as the world's longest-range commercial airliner that only sold 38 aircrafts)
    The 777-X is only need flying non-stop over water in and out Singapore and Australia
    All other world airport can use existing aircrafts, since these airports can be reach by flying over land with exist aircrafts
    The 777X and 737MAX design to be done outside Puget Sound ...
    seattletimes.com/.../2022153482_777xengineeringxml.
    aviationweek.com/.../boeing-contin
    But many of Boeing Cash Cow program have ended or will be ending that make up half of Boeing profit.
    Many Boeing military programs and its partners program are ending the Douglas C-17, Kc-10A, Northrop F/A-18 E& F, EA-18G, McDonnell F-15, the Rockwell-NAAO Space Shuttle; F-22 Lockheed -Boeing and Sea launch have ended that make up half of Boeing of Boeing profit
    Boeing's total consolidated debt was $9.6 billion, yet its net pension liability was an even larger obligation at $10.4 billion. So Boeing will cut the workforce benefits to paid off Boeing debt ! see
    www.fool.com/.../how-boeing-is-solving-its-biggest-and.
    The IAM and local 751union just had their workforces to agree to end funding of their pension plans and other benefits in 2016 for exchange for building the 777-X in Washington state but Boeing just awarded 20% of the 777-X to Japan aerospace companies.
    Boeing sells fabrication plants
    http://seattletimes.com/html/boeingaerospace/2002419494_boeing04.html
    737 Max development cost to be twice A320neo: report - 1 ...
    www.flightglobal.com/.../737-max-development-co...Flightglobal
    Airbus A320neo vs Boeing 737MAX - Orders and ... - pdxlight
    www.pdxlight.com/neomax.htm
    The Japan Recession in 1997 cause Boeing not to build the double-decker 747-500 and -600
    In 1998 Airbus build the A380 with 324 orders and 124 deliveries to date
    The 747-8 development cost N/A that was start in 2005 (with only 35% commonality with 747-400) with 120 orders, comprising 69 of the freighter version, and 51 of the passenger version.
    the program is 2.04 billion over budget and overweight only 68 deliver since 2005
    Jim Proulx, a Boeing spokesman, if ther are "no new issues" with the aircraft, though the first ones to be delivered won't meet performance guarantees, he said.
    "This is far from being a disaster for Boeing," said Michel Merluzeau, an aviation consultant with G2 Solutions in Seattle. "What perhaps concerns me more is the clearly inadequate management of customer expectations at such a point in the program."
    The 747-8 is already two years late in entering service, Atlas Air Cancels 3 747-8F Orders
    The 747-8 and 787-8 need performance improvement package (PIP) upgrade to meet Spec and cannot be flown near thunder storm
    airinsight.com/2011/09/21/atlas-air-cancels-3-747-8f-orders-nobody-wa.
    How the Boeing 747 Got Left Behind as Drop in Air-Cargo Business Squeezes Its 747 Jet
    http://online.wsj.com/news/articles/SB10001424127887323798104578450774194660476
    The 787 was start in 2003 with 900 orders and the breakeven point for 787 was 1100 aircrafts that was before all the problems
    The 787 Program cost to date is $32 billion and only 147 787-8 has been deliver since 2003 Boeing is paying late fee, performance short fee, and out service fee to the airlines
    Boeing blame outsourcing for all the problems with the 787 but Boeing has outsourcing since 1943; the last in house commercial jet where the 707,727,720 and 737
    The 737NG in 1995 had production problems with late delivery and 737NG where park all over the Renton airport and Boeing Ron Woodard was fire, and this was a dress rehearsal for the 767 export tanker, 777-300, 787 and Kc-46 program.
    The 737 (after 2004), 747, 757, 767 and have been outsource without all the 787 problems.
    The IAM local 751 was given first change to bid on all 787 outsourcing and Boeing wanted an NO-Strike Clause from the IAM for the 787 and when the IAM refuse Boeing issues and RFP and 88 cities respond to the RFP.
    Vought aircraft NOT Boeing build south Caroline for section 47 and 48 and it partner (Boeing) and Global Aeronautica that assemble all the center section
    http://community.seattletimes.nwsource.com/archive/?date=20030826&slug=7e7watch26
    Later Vought won the contact to have the 787 2nd assembly line, later Boeing bought Vought and it partners out of their contacts
    Since 2005 Sprint AeroSystems build the 737 and section 41 forward sections of Boeing commercial aircrafts, Northrop now Vought now Triumph Aerostructures build the fuselage panels for 747-8
    The Boeing did not have the Management, the Leadership, the resources, the composite equipments and the space to build the 787 in house in Everett that sits on 98 Acres of lands
    The IAM local 751 file a complete with the NRLB for Boeing offloading to south Caroline but South Caroline was built by Vought
    But the IAM local 751 never file lawsuit against all the vendors and suppliers that build the 787, Japan companies has 35% of 787, 20% of 787, 16% of 767, 20% of 777-X
    http://en.wikipedia.org/wiki/Boeing_787_Dreamliner
    The 787 is risk sharing program see Manufacturing and suppliers, many of the suppliers listed that now building parts, where once own by Boeing see
    http://en.wikipedia.org/wiki/Boeing_787_Dreamliner
    see Boeing sells fabrication plants
    http://seattletimes.com/html/boeingaerospace/2002419494_boeing04.html
    Boeing sells fabrication plants
    http://en.wikipedia.org/wiki/Boeing_787_Dreamliner
    Japan has 35% of 787, 16% of 767, 747-8 N/A, 20% of 777-X
    Norwegian Air Shuttle say the Boeing Co. engineers lacked the expertise needed to diagnose a fault on a 787 Dreamliner, causing them to short-circuit the marquee plane and leave its passengers stranded, operator Norwegian Air Shuttle (NAS) ASA said.
    http://www.bloomberg.com/news/2014-01-16/boeing-faulted-by-norwegian-air-on-787-short-circuit.html

    Boeing 787 Dreamliner: a timeline of problems - Telegraph
    www.telegraph.co.uk › Travel › Travel News
    https://www.youtube.com/watch?v=epDtuSJm0eM
    Boeing Said to Seek Buyers for $1.1 Billion of 11 early model 787s ...
    www.bloomberg.com/.../boeing-said-to-seek-buyers-for-...Bloomberg L.P.
    https://worldcongress.com/speakerBio.cfm?speakerID=1471
    Boeing Jim Albaugh warns Boeing management that the 787 was untested and unproven Technology and the 787 is still making the World press with its problems. The NTSB report is due out later this year.
    http://seattletimes.com/html/sundaybuzz/2014125414_sundaybuzz06.html
    http://www.youtube.com/watch?v=epDtuSJm0eM
    Boeing 777-X | Plane Talking – Crikey
    Boeing 777-X is coming to the market too late (in 2020) and running into industrial-political turbulence
    blogs.crikey.com.au/planetalking/tag/boeing-777-x/ Crikey
    http://blogs.crikey.com.au/planetalking/2013/10/10/boeing-confronts-japans-x-factor-over-777-future-orders/?wpmp_switcher=mobile
    Boeing slows the pace on 777X - The Seattle Times
    seattletimes.com/html/.../2018972134_boeing777x23.
    Boeing has announced the it's will not build the 757 replacement for the 757MAX
    But Airbus wills re engines the A320 aka A320NEO) A330 aka the A330NEO
    Airbus Sees More than 1,000 orders for the A330neo Orders Possible - WSJ
    online.wsj.com/.../airbus-sees-more-than-1-000-a330neo-orders-possible- 140...
    http://aviationweek.com/commercial-aviation/airbus-reveals-pw-a330neo-a380-reengining-plans
    Emirates Challenges Engine Makers On Advanced A380 ...
    aviationweek.com/.../emirates-challe...Aviation Week & Space Technology
    The 777-X has only 259 orders and the composite wing factories is under construction with 27 Billions of tax payer money
    The Boeing Ripoff
    Boeing has tax free status
    Boeing CEO receive a 27 millions bounces and Ray Conner receiver 60,000 of stock,
    ( tax payer money ?)
    http://www.seattleweekly.com/2010-02-03/news/cover-story-washington-s-untouchable-tax-breaks/
    Boeing's Secret see
    www.businessweek.com/.../boeings-secret‎ Bloomberg Business week
    7E7- The Boeing Rip-off, The Boeing Rip-off Introduction. Boeing and Governor Locke just finished the biggest giveaway of our tax-dollars in Washington State history see
    http://www.socialistalternative.me/publications/boeing/introduction.html

    WTO confirms Boeing received billions in illegal ... - Europa
    europa.eu/rapid/press-release_IP-12-238_en.htm?locale=en Europa


    Boeing: Corporate Rap Sheet | Corporate Research Project

    www.corp-research.org/boeing - Similar

    Socialist Alternative | Boeing Cashes in on Corporate Welfare
    www.socialistalternative.org/.../boeing-cashes-in-on-.
    http://www.socialistalternative.org/publications/boeing/
    http://www.seattleweekly.com/2001-04-18/news/high-flying-crime/2/
    Letter to Boeing's Boss: Squeezing workers for corporate ...
    blog.nader.org/.../letter-boeings-boss-squeezing-workers-corporate-welfa...
    Boeing now needs 27 Billion from the Washington state payer money to build 259 777-X (the 787 breakeven points was 1100 aircrafts and that was before all the problems and payment to airline and reworking the aircrafts) and new factories. (All money to Boeing should be Bound issues so the taxpayer can be pay back) To replace manufacturing infrastructure that Boeing sold in the mild to late 1990's to cover cost overrun of 14 Billion of the R&D of 777-200, DCAC-MRM, R&D of the 737NG and the rework of the 737NG see
    http://www.businessweek.com/stories/2002-05-19/boeings-secret
    Washington Governor Jay Inslee, a Democrat, called the session to seek roughly 8 billion in tax breaks, a streamlined permitting process for Boeing and $10 billion in funding for transportation improvements, and construction of 1.5 million square feet of new facilities in the Puget Sound alone with the exiting 9 Billions to the year to 2040, For a total of 27 Billions see
    http://article.wn.com/view/2013/11/09/Washington_state_Senate_passes_tax_breaks_aiming_to_win_Boei_l/

    Boeing's total consolidated debt was $9.6 billion, yet its net pension liability was an even larger obligation at $10.4 billion. So Boeing will cut the workforce benefits to paid off Boeing debt ! see
    How Boeing Is Solving Its Biggest and Most Often Overlooked Challenge
    http://bit.ly/QFCJ6u
    The IAM and local 751 just had their workforce to agree to end funding of their the pension plans and other benefits in 2016 for exchange for building the 777-X in Washington state
    Boeing just awarded 20% of the 777-X to Japan aerospace companies
    Ralph Nader pens open letter to Boeing CEO | KING5.com ...
    www.king5.com/.../Ralph-Naders-open-letter-to-Boeing-CEO-..
    Boeing CEO has had 9 years to update its completion center in Everett and Renton with modernize with automation to meet the need of new of 35,000 new aircraft over the next 20 years
    The Current Market Outlook see http://www.boeing.com/boeing/commercial/cmo/ ; Airbus Global Market Forecast 2012-2031 see http://www.airbus.com/company/market/forecast/ ; Average Fleet
    Age for Selected Airlines seehttp://www.airsafe.com/events/airlines/fleetage.htm
    The Boeing product line is out dated the 747 was design in 1961, 737 in 1966 base on 707 of 1958, 757 & 767 in 1972, 777 in 1989, 737NG in 1997, 787 in 2003
    Many airlines are not replacing there exist Boeing aircraft, since Boeing CEO James McNerney, and GE CEO Jeff" Immelt are member of the board on the Import-Export Bank that made better loan to foreign airlines at a lower interest bank Delta, and other Airline Group have file law suits against The U.S. Export-Import Bank over Air India Loan Guarantees
    http://www.bloomberg.com/news/2011-11-16/airline-group-sues- ;
    This may be the reason that airlines are ordering from Airbus