What Lies Ahead For Boeing?

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BA: The Boeing Company logo
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The Boeing Company

Boeing (NYSE:BA) has been plagued by much turmoil this year. Revenues have fallen year-over-year on the back of slowing demand for commercial aircraft, while profits have been hit in the first two quarters due to mounting expenses on certain programs. That said, the company is as strong as ever as management navigate through this storm. In the recent earnings call, Boeing made it clear that the future is brighter.

  • In general, it seems as though overall demand for commercial planes, defense and space platforms, and services and support remains positive. At present, the new order activity in the commercial space is slow but healthy. Narrow body aircraft such as the 737 MAX are seeing great demand at the moment as air carriers look to replace older planes in its fleet.
  • The wide-body market seems to be in a slump at the moment. That said, demand for the wide-body aircraft over the next 20 years should see a rise by about 9,000 aircraft on the back of heavy replacement activity amongst air carriers. Over the long-term, the company expects a demand for over 39,600 aircraft valued at $6 trillion, with over $1 trillion of this opportunity coming in from China.

  • Despite the softening wide-body market, Boeing is in a great position to accommodate the market as demand returns to more normal levels. Currently, the total orders for wide body planes stand at 52. Additionally, the U.S. Treasury recently granted the company a license to sell 80 new planes to Iran Air including a mix of 34 wide body planes. Despite being under the Republican radar, the deal is expected to be concluded well before Trump assumes office in January.
  • The timing and outcome of the ongoing wide body sales campaign will have a direct impact on the 777 production decisions. As for the 787 program, demand is strong and production is expected to ramp up to 14 planes a month at the end of the decade.
  • That said, even if the moderation of the wide body aircraft becomes a reality in the future, it is expected that commercial aircraft deliveries will grow beyond 900 airplanes a year through the end of the decade, supporting the company’s expectation that it will grow cashflows year-over-year throughout the time period.
  • Trump has expressed many times that he intends to increase the defense budget significantly when he becomes President. Some estimates expect an increase of close to $100 billion. Despite this, it doesn’t seem as though Boeing will see many benefits as the F-35 has been selected by the U.S. Air Force as the fighter of the future. That said, Trump’s rhetoric could lead to other countries around the world, including NATO members to increase their defense budgets. This could be beneficial to Boeing, but the true impact on the company is largely unknown.

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