The Boeing Company (BA) lost out billions from its order book when Australian airline Qantas Airways Limited cancelled an order for 35 of Boeing's new 787-9 airplanes. The airplanes would have been worth $8.5 billion at list prices.
Qantas Airways trimmed the multi-billion order after digesting a $257 million loss for the twelve-month period ending June 30, 2012. This was the first ever loss incurred by Qantas ever since the airline, nicknamed the “Flying Kangaroo”, went private in 1995. Fortunes of Qantas Airways tumbled owing to sharply rising fuel prices, a series of strikes that temporarily grounded its fleet and its struggling international division. The financially stressed airline is still buying 15 787-8s. It is also keeping options open to buy as many as 50 of Boeing's 787-9 series airplanes.
The Boeing 787-9 Dreamliner is a slightly larger version of the 787-8 and can carry 250-290 passengers on routes spanning 8,000 to 8,500 nautical miles. The 787 provides airlines with higher fuel efficiency, resulting in high environmental standards. According to Boeing, the airplane uses 20% less fuel than its peers.
Boeing enjoys a unique position as the largest aircraft manufacturer in the world in terms of revenues, orders and deliveries, and is also one of the largest aerospace and defense contractors. Besides, its revenues are spread across more than 90 countries around the globe.
Looking forward, Boeing in its 2012 Current Market Outlook estimates a $4.5 trillion market for 34,000 new commercial airplanes over the next 20 years. Boeing’s projection of growth is based on the strength of the commercial aviation market, recovery witnessed in world economies and strong demand for fleet addition and replacement. Airline traffic is forecast to grow at a 5% annual rate over the next two decades, with cargo traffic projected to grow at an annual rate of 5.2%.
Boosted by such strong projections, Boeing recently raised its full-year 2012 earnings per share guidance to a range of $4.40–$4.60 versus its earlier guidance range of $4.15–$4.35. The company’s revenue guidance for 2012 is in the range of $79.5–$81.5 billion versus the earlier range of $78.0–$80.0 billion. Commercial Airplanes' 2012 deliveries are expected to be between 585 and 600 airplanes, which are already sold out. This includes an expected 70 to 85 787 and 747-8 deliveries. Commercial Airplanes' 2012 revenue is expected to be between $47.5 billion and $49.5 billion with operating margin hovering around 9.0%.
In the defense space, however, the threat of cutbacks will loom over the company going forward. Overall, Boeing expects defense revenue for 2012 to be between $31.5 billion and $32.0 billion with operating margin greater than 9%.
Boeing currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining our Neutral recommendation on the stock. This is in sync with other aerospace and defense behemoths, General Dynamics Corporation (GD) and L-3 Communications Holdings Inc. (LLL).
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