After three years of delays and countless controversies, Boeing’s (NYSE:BA) new 787 Dreamliner might finally be prepared for takeoff into commercial service. The first version of the carbon-composite jetliner completed its final flight tests last weekend. Deliveries can begin to launch customer All Nippon Airways (PINK:ALNPY) as soon as the FAA grants its certification. Boeing officials believe deliveries of ANA’s 50-plane order — which initially had been scheduled for late 2008 — will finally start next month.
That’s the good news. The bad news is that Boeing’s 787 deliveries to Air India — which had been scheduled to begin in October — will be delayed by at least two more months. That’s a big problem for Air India, since earlier delays reportedly have cost the struggling state-owned carrier $1.5 billion in revenue.
The flight test of Air India’s first 787 in July was cut short when a sensor failed and the flight crew was forced to declare an emergency. The plane landed safely and Boeing is ironing out the sensor problem. But additional delays in the Air India delivery schedule are nearly certain since that carrier’s planes are outfitted with General Electric (NYSE:GE) GEnx-1B engines, which have not yet been certified. ANA’s planes are outfitted with Rolls Royce (PINK:RYCEY) Trent 1000 engines, which already have received certification.
That’s not the only challenge for Boeing’s 787. The Dreamliner program faces a nightmare in with a complaint from the National Labor Relations Board. The board has alleged Boeing’s decision to accelerate production by building a 787 plant in South Carolina amounted to illegal retaliation against Washington state unions for multiple strikes. At present, the complaint is bogged down in a quagmire of document requests and the looming possibility of a stalemate as NRLB members’ terms wind down and new members are unlikely to gain quick approval.
Getting the 787 deliveries back on track is critical if Boeing is to keep its own margins healthy. With its defense and aerospace business likely to contract because of looming federal budget cuts, the burden falls on the commercial aircraft unit to carry more of the load.
Boeing did get some good news this week, finalizing Thai Airways’ (PINK:TAWNF) order of the six 777 wide-body aircraft it sold at the Paris Air Show in June. But given the fear that has taken hold of financial markets and sent investors running for cover in recent days, Boeing will need a lot more good news to inspire a renewal of confidence.
Boeing shares have fallen more than 15% so far this month. At $59.08, the stock is trading more than 26% below its 52-week high of $80.65 on May 2. With a market cap of $43.75 billion, BA has a price/earnings-to-growth ratio of 1.25, suggesting that the stock might be slightly overvalued.
On the upside, the stock’s return on equity is a stellar 88.36%, and it pays a dividend yield of 2.7%. On the down side, leverage is a challenge: the company has operating cash flow of $3.61 billion and levered free cash flow of negative $1.46 billion. Bottom line, the best thing Boeing can do for its investors is to get its deliveries back on track. That will be the key not only to boost cash flow but to increase confidence in the company’s ability to deliver aircraft on time — a critical factor as it fights for its competitive life with rival Airbus.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks mentioned here.
