Boeing’s Stock Can Take Flight As 787 Dreamliner Production Gets Humming

by Trefis Team
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The Achilles heel of Boeing (NYSE:BA), the 787 Dreamliner, finally seems on course to meet its production target after years of delay. The company had initially aimed at production level of 10 per month by the end of 2013, but looked like it was struggling to reach its goal with a current monthly production rate of 3.5. Boeing has, however, recently announced that it is on  track to achieve the stated target and is looking to revise the production target of 10 upwards. [1] Boeing’s principal global competitors include Lockheed Martin (NYSE:LMT), Northrop Grumman (NYSE:NOC) and Airbus (EPA:EAD).

We currently have a price estimate of $91 for Trefis, which is about 25% above the current market price.

See our full analysis of the Boeing stock here

The 787 Dreamliner is one of the most popular new planes being offered by Boeing. With its fuel efficiency and long range capabilities, the plane has garnered over 850 orders from customers around the world. It is, however, three years behind schedule due to delays in production which have been persisting for quite some time now.

In these three years, the 787 development program has been disrupted eight times due to engineering challenges, glitches in the supply chain and a 58-day labor strike in 2008. Most recently, it was hit by manufacturing error, which according to industry experts, caused delamination in the plastic-composite aft fuselage section of some 787 Dreamliners.

These delays have ballooned the cost of 787 program to $32 billion according to reports. This has raised serious concerns over the profitability of the program, which might take another 10 years to break even.

This break even point will be pushed even further out if Boeing is unable to raise its production to 10 units a month. This was until now in doubt as Boeing has to rework over 40 aircraft along with the smooth ramp up. But, the company’s current decision to study revising the target upwards indicates that the program might finally be moving in the right direction.

The delivery of Dreamliners is the key to the company’s earnings for the coming years and so is closely watched by analysts and investors. [2]

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Notes:
  1. Boeing studies higher 787 production, Reuters, 15 May – 2012 []
  2. After 3 years, Boeing Dreamliner becomes reality, Reuters, 25 Sep – 2012 []
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